Health System Needs A Bigger Dose Of Reform


I signed up for private health insurance the other day.

It’s an astonishingly bad deal — unless, of course, you have to go to hospital. Want to get your teeth fixed? My policy covers only $800 worth of dental work a year, barely touching the sides on some of the more serious procedures. Getting a full crown done on just one tooth costs upwards of $1100 (and that’s at 2007 prices) according to figures compiled by health insurer HCF and published in Choice magazine. No wonder Health Minister Nicola Roxon said recently that "we all know that teeth … are increasingly becoming an indicator of wealth or poverty in Australia."

Roxon was speaking at the release of the final report of the National Health and Hospitals Reform Commission (NHHRC). This extensive document contains hundreds of pages of analysis and recommendations about the state of Australia’s health system, and how to fix it.

So large is the report, and so detailed are the recommendations, that the Australian media has struggled to cover the report very well. This is not surprising — as with a federal budget or the Government’s climate change legislation, there’s so much detail that it can be difficult to get your head around it all.

Kevin Rudd and his spin doctors know this, and so they’ve concentrated on getting a simple message out about how the health system "needs fixing" and that it’s going to cost money to do it. Accompanied by Roxon, he set out on a whirlwind tour of public hospitals, making sure there were plenty of photo opportunities for the Prime Minister to test out his bedside manner.

Rudd is certainly right that the nation’s health system needs fixing. As the National Health and Hospitals Reform Commission’s report reveals, it is barely a "system" at all. Health is perhaps one of the biggest failures of Australia’s often-rickety federal arrangements, with the states and territories running eight separate public health systems that are part-funded by huge wads of cash from the Commonwealth. Hospitals are run by the states, while aged care, Medicare and the Pharmaceutical Benefits Scheme are federal responsibilities. The training of doctors and specialists is devolved to closed-shop medical cartels, quaintly termed "colleges", and most medical records are still kept on paper.

Then there is the private health care system, nominally a user-pays private industry, but in fact also heavily subsidised by the taxpayer through the private health insurance rebate.

The result is that while Australia does well on most international measures of health in the community, there are some shocking pockets of health inequality and illness: in dental care, in Aboriginal and Torres Strait Islander health, and in mental health. In the long-term, the rising costs of health risks sending the states and Commonwealth broke.

The Reform Commission’s report does an admirable but limited job of trying to address these issues. It rightly argues Australia must do much better in terms of primary care and prevention — in helping people get treatment before they have to enter a tertiary hospital, and in ensuring more of us stay healthy enough that we don’t need to see a doctor in the first place.

But the report’s recommendations are also complex, piecemeal and evolutionary, disappointing many health policy experts who believe the report hasn’t gone nearly far enough.

One of the biggest criticisms of the report is that it fails to bite the bullet on a single system for public hospitals. As John Dwyer has argued, a single system, ideally run by the Commonwealth, is the "holy grail" of Australian hospital reforms. But the NHHRC was not brave enough to recommend it.

The Centre for Policy Development’s John Menadue, perhaps one of the most knowledgeable people in the country on health reform issues, also argues that the report does not go far enough (disclosure — I’m also a Fellow of the Centre for Policy Development). Menadue thinks the report is "strong on specifics and incremental change, but does not espouse a clear health strategy based on a consensus of public values," and is "timid on the question of workforce reform". By "workplace reform" he means the need to address the power of doctors, who enjoy all sorts of legislated monopolies but who also suffer through working conditions straight out of the 19th century (as anyone who knows a junior doctor in a hospital will tell you).

Some of the most trenchant criticism about the report — like this article from Ross Gittins in the Sydney Morning Herald or Tim Woodruff, quoted at Green Left Online — is about what it leaves out: for example any meaningful discussion of private health insurance. In fact, the private health insurance rebate was explicitly left out of the Commission’s terms of reference — some say deliberately by a Government running scared of the lobbying and campaigning power of the private health insurance industry. Even worse, a preliminary reading of the report’s plans for a "Denticare" scheme similar to Medicare suggests it will also heavily involve the private health insurance industry.

The problem with private health insurance is the cost, as politicians and the public in the US are now realising. The United States spends upwards of 16 per cent of its gross domestic product on health care for outcomes far worse than most of the rest of the industrialised world (Australia spent around 9 per cent in 2003–04, according to OECD figures). The reason is that the private provision of health tends to drive costs up, as the health economist Ian McAuley has comprehensively demonstrated.

Part of the problem in understanding health reform is that it’s a notoriously difficult area of public policy in which many of our typical assumptions don’t hold. As Paul Krugman has pointed out recently (and for a longer analysis see this 2006 article in the New York Review of Books), health economics is not like other types of economics. No market has the same level of information asymmetry as health-care. Customers are by definition ill and often completely incapacitated, while producers are, well, doctors — among the most highly trained and highly respected professionals in our society.

To top it all off, health-care goods and services are not like other goods and services either. A pill that could save your life is a completely different type of commodity to a haircut, a flat screen TV or a restaurant dinner. Some products can change your life. Only health care and emergency services can save your life. In fact, as philosopher Peter Singer has observed, any health system must ration care and make life or death choices. Indeed, a leading health economics textbook is labelled, simply, Who Shall Live?

This is why health care is essentially a special type of insurance market. If we had to try and save cash in the bank for the rainy day when we might end up in hospital, most of us would end up being bankrupted by our first major illness. This is exactly what happens in the US, where the leading cause of personal bankruptcy is medical bills.

The other problem of private health insurance involves the circumstances in which you need it. The very time someone needs to claim on a health policy is the time their insurer has the most incentive to try and deny them treatment — perhaps on a technicality such as the "rescissions" so notorious in the United States.

Leaving private health insurance out of a National Health and Hospitals Reform Commission is therefore an almost inexcusable omission. You can’t make sense of our increasingly fragmented health industry without it. This is why Ross Gittins writes that "when Rudd talks about ‘reform’ he doesn’t mean knocking things into shape — getting rid of impediments and inefficiencies and treading on toes — he means setting up new organisations and giving them more money to spend."

And where will all that extra money go? A lot of it will go to doctors and hospital administrators. Some of it will be wasted in inefficiency. None of it will solve the underlying problems of our health care "system", which remains scarcely a system at all.

Ben Eltham is New Matilda's National Affairs Correspondent.