Health funding – how do we pay for health care?

| June 26, 2017

Governments have well-established ways to deal with hard problems.

One is to ignore them.

Another is to set up an enquiry, preferably with a time-frame stretching just beyond the next election.

And yet another, developed with finesse in Australia, is to consider only the budgetary aspects of major economic issues, as if the government is simply an outfit like a private company, concerned only with its own financial indicators.

That way of thinking is revealed in the Commonwealth’s obsession with public debt, contrasting with its complacency about our much higher national debt. Low wage growth matters to government mainly because it reduces taxation revenue, while its indication of structural weakness in the Australian economy is only a secondary consideration.

So it is with health care. The Commonwealth carefully estimates the budgetary costs of health programs over four years – the “forward estimates” period – and every five years produces an Intergenerational Report covering 40 years of fiscal projections, based on existing and foreshadowed policies. The most recent report showed Commonwealth Government health spending rising from around four per cent of GDP to six per cent of GDP by 2055.

There’s a certain complacency in such short-term and long-term projections. All will be well, just so long as the government can keep its fiscal costs under control, and it can do this by tweaking a few programs here and there – freezing the Medicare payments for doctors’ consultations, making a few changes to the subsidies to private health insurance, reviewing listings on the Pharmaceutical Benefits Scheme, or pushing a bit more hospital funding responsibility on to the states.

The well-respected political scientist Charles Lindblom developed a technical term for such a process: he called it muddling through”.

In funding health care we have muddled through for 43 years, ever since the Whitlam Government introduced universal publicly-funded health care in 1974, guided by the 1969 Report of the Commonwealth Committee of Inquiry into Health Insurance (the “Nimmo Report”), which had sat on the shelf for five years.

While in subsequent years there have been further inquiries into aspects of health funding, the Nimmo inquiry was the last comprehensive examination of the principles of how we pay for health care. It set the grounds for ideological differences in the subsequent years, with Labor governments tending to favour tax-funded public insurance, and with Coalition governments favouring private health insurance, but both were committed to universalism in its various forms.

In recent years those differences seem to have weakened, and if anything Labor has become more supportive of private health insurance than the Coalition. The Coalition, after its clumsy attempt to introduce a compulsory co-payment for GP services, seems to have become comfortable with (or resigned to) Medicare.

We seem to have entrenched a comfortable bipartisan “muddling through” approach to health funding, and a tacit agreement that just as one does not wake a sleeping baby it’s best to leave health funding that way.

Over the half-century since the Nimmo Report, however, a great deal has changed. We’re living longer – much longer. There have been great strides in therapies, technologies and  pharmaceuticals. Health care has become more expensive but we have become more prosperous. Other industries – manufacturing, finance, telecommunications – have gone through great changes.  

So surely we should be asking once again some basic questions about how we pay for health care. To what extent do we want to share the cost of health care through collective arrangements – private or public insurance – and to what extent should we pay for health care from our own pockets without insurance? Can private insurance do anything that public insurance doesn’t do better? Where should we set the dividing line between what we consider discretionary and what we consider necessary? How should we allocate expensive therapies – on the basis of “rights” or on benefit-cost grounds?  Do our funding arrangements encourage waste and cost-shifting?

These are challenging questions, but it’s fitting in a democracy that they be put to the community, just as the Hawke-Keating Government put to the community similarly challenging questions about industry protection.

They don’t have easy answers, but unless they’re addressed, patiently and openly over a long period, any proposed change will be resisted. Perhaps we may be happy to pay more taxation for more comprehensive public insurance, or perhaps we may be more willing to dip into our own pockets without the cover of insurance. We need to find out.

For some time a group supported by Global Access Partners (GAP) has been considering possible ways health care can be funded. It has been looking at alternative ways of funding private hospitals – canvassing the idea that instead of channelling funds through private insurance, private hospitals might be funded more directly, on the same basis as public hospitals.

It’s hardly a radical idea: many health economists have put forward similar proposals, and the Commonwealth itself in 2015 put forward such suggestions in its Reform of the Federation Discussion Paper.

But when the media learned of the study it became a “secret hospital funding plan”, and the Commonwealth, even though it has partly funded the study, was quick to disown it. The Government’s strident denial conveyed the message that it had no interest in re-examining health care funding, and didn’t want anyone asking hard questions.

Surely one of the strengths of a democracy is openness to ideas and the exploration of possibilities. As Ron Heifetz of Harvard’s Kennedy School points out, political leadership in a democracy involves nurturing voices that bring hard problems to prominence, rather than shutting down conversations that make politicians, public servants and interest groups feel discomfort.

We can imagine the consequences if, in the 1980s, the Government had opted for the easy path of “muddling through” with industry policy. The current situation in Greece comes to mind.

We need to be asking these hard questions about how we pay for health care.