eMJA: Cunningham, Medicare: diagnosis and prognosis

Looking Forward

Medicare: diagnosis and prognosis

Frances C Cunningham

MJA 2000; 173: 52-55

The system of mixed public-private healthcare funding works well in Australia and offers the best foundation for the future

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Australians have now experienced 16 years of national health insurance with Medicare, although the program implemented in 1984 was largely a renamed version of its predecessor, Medibank, introduced 25 years ago. How will the healthcare industry and its external environment change over the next 25 years, and what will be the impact on Medicare? How should we best appraise Medicare's strengths and weaknesses, take account of the fundamental changes that have occurred in healthcare delivery, and apply the better intelligence we now have on financial incentives and delivery mechanisms to develop a more effective national health insurance program for the future?

Appraising Medicare

How do Australians view Medicare? In a 1998 survey conducted to measure public satisfaction with healthcare, only 19% of Australians agreed that, on the whole, the system works well and only minor changes are needed to make it better.¹ Forty-nine per cent wanted fundamental changes, and waiting times for specialist care and non-emergency surgery was reported as the most important consumer issue. The survey also revealed a substantial loss of public confidence in the healthcare system compared with a decade earlier, when 34% of Australians felt that the system needed only minor changes.

On the plus side, Medicare has established affordable universal coverage for publicly funded, public hospital services and largely publicly funded, privately provided medical and optometrical services. Australians also have excellent coverage for mainstream pharmaceuticals. With a view to controlling health expenditure, at present at $50 billion and 8.4% of gross domestic product (GDP),² these services were seen by government as the boundaries of publicly funded Medicare. While our health expenditure is at the median for OECD countries, our life expectancy is above the average.

Weaknesses in the Medicare public program are evident: universal coverage only includes medical practitioners and optometrists, and the provision of other publicly funded ancillary services and community health services varies substantially within the various State or Territory health systems.

Medicare's financial incentives

A valid concern with implementing a national health insurance program is that it tends to lock in place the existing healthcare system. In Australia, this has meant the maintenance of the open-ended, traditional fee-for-service approach to financing medical and optometrical services, with little change in the delivery system structure. There are increasing concerns about the geographic maldistribution of medical services, especially in rural areas. With an administered pricing system, it is difficult to get the prices "right", especially with the rapid technological changes affecting healthcare. Moreover, the structure of such systems can have powerful effects (some intended and undesirable) on services delivered. For example, payment of general practitioners under Medicare has created incentives for shorter patient visits and higher patient throughput.

In addition, preventive services -- health screening and disease management programs, and patient education and health outcomes monitoring -- tend not to be as effectively implemented in non-managed systems as in managed systems. Although trials of coordinated care have been implemented in Australia in recent years, they have been primarily public-sector oriented, whereas the major overseas examples of long-term, financially viable care management systems are in the private domain. In the United States, in addition to the coverage that private sector managed health insurance firms provide for those with private insurance, the government has contracted extensively with these health insurers to provide care to beneficiaries in government programs as an alternative to traditional coverage.

Split responsibilities and inefficiencies

Medicare creates a separation of payment of most ambulatory medical care from inpatient care, with non-hospital medical services and pharmaceutical services funded by the Commonwealth, and hospital and day-surgery services funded through the States and through private health insurance. This means that there are major structural impediments to the provision of a "seamless" web of services through all levels of care. This separation of payment has also made it difficult to move away from an emphasis on inpatient care and the resultant high levels of hospital utilisation. In 1997-98, overall Australian hospital utilisation was 1075 bed-days per thousand population (excluding same-day admissions).³ This compares with the 1996-97 rates of 318 and 335 days per 1000 population in the United States for health maintenance organisations (HMOs) and non-HMOs, respectively.⁴ The 1997-98 Australian hospital admission rate (excluding same-day admissions) of 16%³ was almost three times the 1996 US health insurance rate of 5.7% (for both managed care and non-managed care).⁵ In the United States, this reduction in acute inpatient care has been accompanied by an increase in subacute, home health and skilled nursing facility care. This has not happened in Australia, with the result that we have excess hospital bed capacity in both the public and private sectors.

An important general caveat about measuring service use is that the assumption "more is better" does not necessarily hold true in healthcare consumption. It is inappropriate to assume that more care -- or more costly care -- is better, or that reductions in service use necessarily indicate reductions in quality.

Hospital utilisation in Australia thus presents a conundrum: in spite of having such high levels (by international comparisons) of inpatient admissions and bed-day utilisation, as well as excess bed capacity, there are significant problems with public-hospital waiting lists. The solution lies in better care management and in appropriate care at the appropriate level, rather than in funding for additional beds.

Reform of private health insurance

Although 10% of total health expenditure is funded through private health insurance,² the role of private health insurance within Australia's healthcare system has not been clearly delineated. Is private health insurance a supplement to or an alternative to the public health system?

Initial estimates of the cost of Medicare assumed that at least 40% of Australians would maintain their private health insurance cover.⁶ Levels of private cover declined from 60% immediately pre-Medicare in 1983 to 30.1% in 1998.⁷The legislative changes introduced in 1995 were intended to make insurance better value for money through agreements made between health insurers and hospitals and health insurers and medical practitioners. These changes have resulted in more effective negotiations between insurers and private hospitals. Since coming into power in 1996, the Howard Liberal-National Coalition Government has made significant progress in modernising the regulation of private health insurance. Within a short timeframe, most of the key recommendations of the 1997 Industry Commission Inquiry⁸ into private health insurance have been introduced, with the exception of the recommendation for a broad public inquiry into Australia's health system.

Australians value choice, whether it be in education, airlines or healthcare. Australians also value a fair go. The Howard Government has introduced strategies to ensure that we maintain a viable mixed private and public healthcare system in Australia. Compared with the financial contribution of those relying totally on the public system, the contribution of privately insured Australians was inequitable. The 30% tax rebate on health insurance premiums for consumers is one part of an overall strategy to ensure the continuation of a mixed public and private health system in Australia. There is bipartisan support for the rebate, with the Leader of the Opposition, Kim Beazley, promising its retention by a Labor Government.⁹

The rebate ensures that there is a fairer, more equitable approach to financing healthcare for those who choose to pay for private cover, in addition to their Medicare levy payments and their contributions through taxable income (estimates for which range from 5% to 10%). The Private Health Insurance Administration Council reports that a record 187 000 Australians have joined health funds in the first three months of this year, with the fastest-growing membership being in the age bracket 30-34 years.⁷ This means that more than six million Australians now have health insurance, the highest level since 1996.

There has also been stronger growth in no-gap cover for hospital-related medical costs, after the Harradine* amendment. The latter requires health insurers to have no-gap products in place by 1 July 2000 in order to offer the 30% rebate to their members. The legislation, just passed by Federal Parliament (the Health Legislation Amendment (Gap Cover Schemes) Act 2000), will allow the private health industry to develop "no gap" or "known gap" schemes which will operate without the need for contracts. The introduction of Lifetime Health Cover on 1 July 2000 is currently resulting in continued growth in private health insurance membership. Major changes relating to the capital adequacy and solvency requirements of health insurers are to be introduced shortly to provide more clearly defined safeguards for consumers.

Major impacts over the next 25 years

The fundamental challenge for Medicare, with its financing and delivery systems belonging to the last century, will be coping with the impact of key trends envisaged for 2025. Most of these trends will affect the future costs of Medicare. The health insurance system of the future will also be shaped by the wider sociopolitical, moral and ethical environment, in terms of what is politically feasible and acceptable to the electorate. In particular, what will be the trade-off between the extent of public coverage and the tax burden? Also relevant will be our capacity to reduce behavioural risk factors across societal groups to achieve reductions in morbidity and increases in life expectancy. The magnitude of the contribution of the behavioural risk factors to the disease burden in Australia has recently been estimated, with tobacco smoking causing an estimated 10% of the disease burden in Australia, followed by physical inactivity (7%).¹⁰

The Internet, electronic commerce and information technology
The Medicare system will be strongly affected by information technology and the Internet. At present, a depressingly large fraction of healthcare processes are still mediated by paper (medical records, prescriptions, appointments, bills and claims). According to Goldsmith,¹¹an eminent US healthcare forecaster and strategist, what the Internet promises healthcare managers and clinicians is a flexible information architecture that can reach down into the dozens, even hundreds, of healthcare information "silos" and extract, analyse, aggregate and redirect the data clinicians or managers require to make decisions. E-commerce also promises to reduce administration costs.

Beyond clinical uses, promising Internet applications in healthcare include:

Paperless transmission, assessment and payment of medical and hospital claims;
Paperless prescribing of and payment for pharmaceutical items;
Medical product ordering and inventory management;
Outsourcing of data processing and other management functions; and
Smart cards will permit the compiling and updating of standardised patient information using a common platform.

The challenges in achieving such uses lie in standardising the coding and formats for clinical and health-related data and in standardising patient identification while protecting privacy.

The National Health Information Management Advisory Council has developed a national plan of action for information management in the health sector.¹² However, gaps in private sector representation on the Council need to be addressed urgently. Further, the Commonwealth must take the lead in legislatively mandating the development of such electronic standardisation requirements. This would accelerate progress to be made in efficiencies from e-commerce and from performance measurement across the health system.

Rising consumer expectations
As the post-war "baby boomers" become key healthcare consumers, they will demand more for themselves and for their frail, aged parents. Consumers have aggressively embraced the Internet to acquire health information. The Internet will also strengthen the role of consumers in their interactions with practitioners and healthcare institutions, and create a powerful new tool to help people manage their own health risks. These empowered consumers will demand better information to ensure quality and safety in healthcare. Consumerism will also foster a demand for a wide range of choice of new services and products, many of which will not be paid for by public Medicare.

Medical advances, technological change and clinical practice
Medical advances and new technologies are likely to continue to develop and will put pressure on cost growth.

The Human Genome Project will dramatically alter healthcare.
In an era of "individual medicine", genetic screening will identify health risks, and new treatments and precisely targeted pharmaceuticals will emerge.
Advances will occur with bioengineered organs, organ transplantation, artificial skin and bones, methods of promoting and inhibiting angiogenesis, and new vaccines.
Point-of-care testing, such as hand-held blood and saliva analysers, will move testing to the bedside, the clinic and the home.
Telemonitoring in the home will alter demand for home health aides.

Berwick envisages that, in the information age, medical practice will be a "knowledge producing" enterprise and not the "contact producing" enterprise of the last century.¹³ That knowledge will include the best evidence for diagnosis and treatments. There will be a greater focus on the development of standards of care, clinical guidelines and protocols, and on prevention, as well as ambulatory or home care.

A greying Australia
Compared with the uncertainties of other future impacts, the consequences of demographic change are more certain. The Australian Bureau of Statistics¹⁴ projects that the share of the population over age 65 will rise from 12.4% in 2001 to 18% in 2021 as the first wave of the "baby boomers" reaches 75 years. In 2021, the median age will be 40.4 years. Under current arrangements, the burden of increased future health costs would fall on the relatively diminished numbers of non-elderly. Combined with the increased burden of social security, the load may be too great. Governments will need to decide what core elements the tax-funded health system will cover. It is likely that some of the increased costs will have to be reallocated to the elderly. It is likely too that they will aim to protect their superannuated livelihoods through long term care insurance as they enjoy longer life expectancy.

The ideal future financing model

An ideal model for future healthcare financing is outlined in the Box. I have described this model in greater detail elsewhere.¹⁵

Advocates for one single health funder, while largely driven by ideology, are campaigning for all health services to be funded through a government-run, single government payer system. Debate over whether government funding or private insurance constitutes the ideal financing model is reaching resolution in a number of overseas countries. The answer seems to be both. On average, private insurance pays about 10% of healthcare costs in OECD countries and is growing at a rate of 5%-7% a year. According to the report HealthCast 2010: smaller world, bigger expectations,¹⁶ these trends mean that most of the industrialised world will have both a strong publicly funded government health program and a private, market-based one.

While acknowledging areas for improvement in both sectors, on balance the mixed public-private system works well in Australia and offers the best foundation for the future. This aspect of the overall framework of Medicare allows for choice by consumers, rather than the alternative of a totally government-controlled, nationalised health system. In addition, with proposals such as that of the Democrats for regional health authorities to pay medical practitioners on a capitation or salaried basis,¹⁷ it could be wise for medical practitioners themselves to have the option of another payer.

Ideally, within the future Medicare framework, private health insurers should be able to offer their members a comprehensive range of health services, which should include, as a minimum, ambulatory medical services and inpatient services. This would extend the benefits of a mixed system to both consumers and medical practitioners.

Footnotes

* Brian Harradine, Independent Tasmanian Senator in Federal Parliament (from 1975 to the present).

References

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Australian Department of Health, Housing, Local Government and Community Services. Reform of private health insurance. A discussion paper. Canberra: AGPS, 1993.
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Industry Commission. Private health insurance. Canberra: AGPS, 1997. (Report No. 57.)
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National Health Information Management Advisory Council. Health Online: a health information action plan for Australia. Canberra: AusInfo, 1999 <www.health.gov.au/healthonline> (accessed 7 June 2000).
Berwick D. Knowledge always on call. Modern Healthcare 1999; 29(39) Suppl: 2-4.
Australian Bureau of Statistics. Population projections: 1997 to 2051. Canberra: ABS, 1998. (Catalogue No. 3222.0.)
Cunningham FC. Medicare reform: via managed care or managed competition? Healthcover 1997; February-March: 8-16.
PricewaterhouseCoopers. HealthCast 2010: smaller world, bigger expectations. Dallas, Tex: PricewaterhouseCoopers, 1999.
Australian Democrats. Health reform: delivering a remedy. Canberra: Australian Democrats (April 17), 2000 <www.democrats.org.au/campaigns/health/> (accessed 7 June 2000).

Authors' details

Frances Cunningham is the Executive Director of the New South Wales Health Funds Association, and a member of the NSW Private Health Forum. She has a background as a healthcare consultant, health manager, health policy analyst and health services researcher. She was formerly Senior Policy Adviser to two NSW Ministers for Health, and a member of the NSW Senior Executive Service. She headed the Commonwealth Task Force which developed the discussion paper "Health maintenance organisations: a development program under Medicare" for former Federal Minister for Health, Dr Neal Blewett.

NSW Health Funds Association, Sydney, NSW.
Frances C Cunningham, ScD, Executive Director.

Reprints: Dr F C Cunningham, NSW Health Funds Association, PO Box A2572, Sydney South, NSW 1235.
francescATtpgi.com.au

The views expressed are solely those of the author, and no endorsement by the NSW Health Funds Association is intended or should be inferred.

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