Federal election 2016: Medicare can’t be a ‘money pit’

Malcolm Turnbull and Scott Morrison are staring down Labor demands for a Medicare spending splurge.

25 June, 2016 Election, Prime Minister Malcolm Turnbull. PM Malcolm Turnbull and treasurer Scott Morrison at Sydney Intercontinental for a speech on Brexit as The United Kingdom leaves the EU. Picture: Jason Edwards

Malcolm Turnbull and Scott Morrison are staring down Labor demands for a spending splurge on Medicare as the nation faces a $93 billion bill for the universal health service over the next four years, prompting the Treasurer to warn it cannot become a “money pit” for taxpayer funds.

Medicare is the third-largest government cost behind payments to the states and the Age Pension and has also been one of the fastest growing. The Medicare levy, which ­extracts 2 per cent from all ­income, only covers just over half the cost of the scheme, with the remainder financed by taxes and government borrowing. The total cost for each taxpayer is $1850 a year.

The Coalition is mobilising against Bill Shorten’s campaign for higher Medicare spending in a renewed political fight that will decide whether the vast health system is locked away from major reform despite concerns about whether its costs can be ­sustained.

Health economists and the OECD argue the system is out of date and encourages over-­servicing.

The Prime Minister has pledged to restore voter trust in the ­Coalition to safeguard health services in the wake of last Saturday’s stinging election result, conceding the Labor scare about “privatising Medicare” took hold.

But the Coalition is moving to prevent this declaration making future reforms impossible, holding to budget policies and dis­missing Mr Shorten’s complaints on the grounds that he lost the election.

“We have to ensure we can fund the system and it’s sustainable,” Mr Morrison said. “It can’t be a choice between a budget, your fiscal responsibilities and your health responsibilities.

“These two things have to work together. I mean, we can’t have the health system being a money pit where the argument is just about how much money you throw down the hole. The system has to be effective and it has to be efficient.”

The Australian has been told Mr Turnbull backs Mr Morrison’s remarks and that the effort to ­restore voter trust in the Coalition does not limit the government from adjusting policy. While Labor is demanding an end to the freeze on annual ­increases in the Medicare rebate for GPs, the Treasurer stuck by the budget policy, which would cost $2.4bn to reverse over four years.

“We will work through these issues. That remains our policy and that’s what’s in the budget,” he said of the policy. “We need to make sure these things are ­affordable.

“You can’t just automatically throw all fiscal care out the window because of these issues. You have to make sure it’s affordable and sustainable. You can’t support Medicare into the future if you can’t fund it.” Labor’s call for abolishing the freeze on indexing Medicare payments to doctors and the ­Coalition’s proposed reduction in bulk-billing incentives for pathology and radiology would add $1.4bn to the deficit by 2019-20.

The Parliamentary Budget Office argues that the freeze on Medicare benefits, which has now been in place since Labor’s 2013-14 budget, has been effective in slowing the growth in costs of the program.

The average cost of Medicare services per person had been rising at an annual rate of 3.7 per cent faster than inflation over the past decade to 2014, with the increase driven partly by measures taken under the Howard government to make the system more generous.

PBO analysis shows the freeze on indexing the Medicare benefits schedule will help slow the annual growth to an average of 1.4 per cent over the next decade.

Inflation would have taken the standard fee for general practitioners from $36 in 2013 to $44 by 2020 so the freeze represents a real cut of 15 per cent.

Although both Labor and the medical profession have warned this would result in a fall in bulk-billing rates, the Grattan Institute’s Stephen Duckett said this had not yet been seen, mainly because rapid growth in the number of doctors is increasing competition, particularly in inner-urban areas.

The number of medical practitioners has risen by 45 per cent to just under 100,000 over the past 10 years, while bulk-billing is at a record high of 85 per cent.

AMA president Michael Gannon said the government should end the freeze on Medicare rebates for GPs and others, saying this saving helped Labor gain ground when it claimed the government was “privatising Medicare” — a scare campaign the doctors’ group rejected. “Other elements of Coalition policy lent themselves to the scare, and I think they paid for it at the polling booth,” Dr Gannon said.

However, the AMA president acknowledged that the total cost of Medicare had to be kept under control over the long-term to ensure it was sustainable.

“We want to see decisions made that make Medicare safe, not just for the next three years, but for the next 10 or 15 years,” he said.

“Now that’s going to involve some difficult conversations about how we fund the health system, but fixing the payment system and protecting those most vulnerable in our community, those who felt so scared that it affected their vote last Saturday, and that’s a good starting point.”

Health economists say that while the freeze on Medicare payments has been effective in slowing the rise in costs, it is only a stopgap solution as costs will resume rising rapidly once it is removed. A major OECD report on the Australian health system argued that Medicare encouraged over-servicing because it simply reimbursed doctors a fee for each service.

Dr Duckett said the global trend was for a mixed payment system, so that people with acute conditions would get covered on a fee-for-service basis, while doctors are paid a fixed quarterly amount for each person with a chronic illness that they treat with incentive payments for improved outcomes.

Although Medicare has conducted some trials, Canada, Britain and New Zealand all make much greater use of fixed payments per person for managing chronic illness than Australia. Dr Duckett said the problem with co-payments is that people are often not good judges of whether they need medical attention and co-payments may discourage people from gaining treatment for conditions that will get worse.