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Why Labor should stick with Medicare Gold

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By on Australian Politics
Medicare Gold, the plan for the Commonwealth to assume responsibility for hospital care of everybody over seventy five, was one of the policies announced by Labor during the election campaign. Mark Latham described it as ‘the most significant enhancement’ of Medicare since Labor introduced universal health insurance. Medicare Gold attracted extensive positive coverage in the media when it was released, and internal Labor Party policy tracking reported very high levels of approval for the policy. Since the election, however, there has been some carping about Medicare Gold, with little specificity about what the critics see as its problems.

The benefits of Medicare Gold played out at three levels. First, there were direct benefits for people over seventy five who, under Medicare Gold, would be able to access both public and private hospitals regardless of whether they had insurance, and to the families with parents over seventy five who could see dramatic improvements in access and reassurance that their relatives would get the care they needed quickly. Second, because Medicare Gold covered a high cost group, it meant that private health insurance premiums would be cheaper for the rest of the population.

But Medicare Gold played out at another level as well. One of the problems besetting the health system in Australia is its carving up into a public system and a private system, with Commonwealth and State responsibilities. Medicare Gold cut through that and assigned full responsibility for the care of a significant population group to one level of government and was agnostic about whether the care was to be provided in public or private hospitals. What was important under Medicare Gold was that people over seventy five got care, not who provided that care. Medicare Gold attracted to Labor unique endorsement from the private hospital sector, traditionally seen as negative to the Labor Party. This endorsement was important because it showed that the policy would not undercut the viability of private hospitals by reducing the attractiveness of health insurance, indeed Medicare Gold made health insurance more attractive for the rest of the population by promising reductions in expected health insurance premiums.

Vesting responsibility for all hospital care at a single level of government also created a platform for further change. With the Commonwealth responsible for the care of people over seventy five, the blame game about who is responsible for long-stay patients in public hospitals (the so-called ‘bed blockers’) would end. The Commonwealth, now responsible for both hospital care and residential aged care, would have an incentive to ensure that its costs were minimised and that people were placed in the most appropriate care setting as quickly as possible. Similarly, the Commonwealth has responsibility for funding the primary Medicare system through Medicare and would thus have an incentive to develop effective chronic disease programs to attempt to minimise inappropriate admissions to hospitals.

There were a number of criticisms of Medicare Gold during the campaign. These included that a claim to eliminate waiting lists was not feasible. There are about 25,000 people over seventy five on public hospital waiting lists in Australia at present, compared to just over one million total admissions per annum of people over seventy five. Waiting lists are caused by resource shortages, be they shortages of funding because of caps on public hospital budgets, or shortages of personnel. The costings of Medicare Gold explicitly provided for additional funding to deal with the waiting list backlog, and private hospitals especially indicated that they had additional staffing capacity to treat these patients.

A second criticism related to the fact that Medicare Gold would unleash unlimited demand. Demand is not limitless, and the number of people who take pleasure in unnecessary operations is quite small. But there are substantial variations in hospitalisation rates within Australia, and by removing financial barriers and constraints on hospitalisation, unnecessary hospitalisation could be seen to be encouraged. This has not turned out to be the case with the Veterans’ Affairs Gold Care system, which operates in a way similar to that proposed for Medicare Gold. Indeed hospital utilisation rates by Veterans’ Affairs Gold Card holders without a disability are lower than the rest of the population (on an age-standardised basis). By giving full responsibility for people over seventy five to a single funder, the Commonwealth Government, system enhancements could also occur such as providing additional information to consumers, developing preventive strategies, and reducing the likelihood of over-servicing.

A final criticism of Medicare Gold related to its perceived costs. When first unveiled, the Prime Minister claimed that it was under costed to the tune of $4 billion and the Health Minister claimed an under costing of $2 billion. The Department of Finance suggested it was under costed to the tune of $700 million. Assuming the political claims were hyperbole, it is important to look at the basis for the Finance Department claims of under-costing. Finance identified three areas of variation between the Labor Party costings and its own.

First, Labor had assumed that health insurance benefit payments would increase by 9 per cent per annum before Medicare Gold was introduced. Finance, on the other hand, claimed a higher rate of benefit growth at 11.7 per cent per annum. Benefit growth of this level would, of course, translate into significant growth in premiums over that period. The political ramifications of the higher rate of growth in premiums foreshadowed by Finance did not have time to be played out during the campaign. Nine per cent growth in benefit payments is, of course, well in excess of rates of inflation. The Labor Party estimate was based on smoothed trend data from the Private Health Insurance Administration Council.

A second reason for difference in the costings related to administrative costs. Finance claimed that the Commonwealth would require $22 million per annum to administer Medicare Gold, whereas Labor claimed that administration would be able to be absorbed both within the Health Insurance Commission and the Department of Health and Ageing. The Health Insurance Commission paid rebates on 226 million services in 2003-4. The additional one million hospitalisations involved in Medicare Gold represents a trivial increase in transactions. Negotiations with hospitals and hospital groups could piggy-back on existing negotiated DVA arrangements and so an assumption about absorbing costs would be reasonable.

The main area of difference in the costings related to Finance projecting a shift of patients from the public sector to the private sector. The precise shift involved has not been revealed, but is based on the assumption that the costs in private hospitals are significantly higher than the costs in public hospitals (a further challenge to current Commonwealth Government policy which suggests that encouraging people to use private hospitals through private health insurance rebates improves the efficiency of the health care system) and that there would be a substantial shift of patients from the public sector to the private sector. The private sector concentrates to a very large extent on elective surgery, and Labor had access to evidence which shows that elective admissions are substantially cheaper than emergency admissions. Labor’s costings were based on the assumption that to the extent there would be shifts, it would only relate to elective surgery (and indeed Labor’s policy was focussed on reducing waiting lists) and that there would be little shift in emergency activity. Given this, it was unreasonable to expect that this shift would significantly increase costs beyond that which was already funded in the growth provisions of Medicare Gold.

Finance had relatively little time to undertake the costings and thus it should not be assumed that their estimates of the costs are indeed necessarily more valid than the Labor Party’s own costings.

The criticisms of Medicare Gold that have been made either subsequently or during the election campaign would not seem to be sufficient reason to claim that Medicare Gold was undesirable policy. It was clearly a breakthrough solution to the problems of health care in Australia, and Labor would do well to maintain Medicare Gold as part of its policy battery.

Professor Stephen Duckett analyses the main threats to universal health care in a policy paper called Threats to universal health available in New Matilda’s Policy Think Tank section.

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