“It’s difficult to compete with a free service.”

By Lyle Dunne

Terry Barnes’ proposal for a $6 co-payment for Medicare-funded GP services has really put the cat among the pigeons. The more so since his modest recommendations have been trumped by a former federal Health Department secretary, Andrew Podger, with a call for a $30 charge to visit a GP or hospital emergency ward.

Terry Barnes was a health policy adviser to Prime Minister Tony Abbott during his service under John Howard as Minister for Health and Ageing.  Barnes recently authored a submission to the Commission of Audit for the the Australian Centre for Health Research on reigning in health costs at the GP level. 

It wasn’t clear from the flurry of media reports this week that the extra $6 goes directly to GPs, and the saving to the budget all comes from reduced demand for GP services – and for “downstream” services  (prescriptions, pathology etc.) for which GPs are gatekeepers. 

The co-payment would be voluntary, and it isn’t clear how many doctors would apply it – and to whom. Some doctors will want to provide free services, at least to the disadvantaged. It’s really permitting doctors to charge a $6 co-payment for bulk-billed payments – since such charges are currently illegal. 

When we get to patient-billed (i.e. non-bulk-billed) services, the picture gets even murkier. Providers of such services already charge patients whatever they like. “Permission” to increase this amount is thus meaningless. 

The extent of the savings is uncertain: Barnes cites overseas experiments designed to establish the effect of copayments on demand for healthcare services, but their applicability to Australia is uncertain. 

Unfree good

The real idea behind this proposal, though, is to change the way Australians view health care, no longer regarding it as a “free good”. Ideally, this should lead to taking more personal responsibility for our health, exercising and eating better because we’re actually responsible for (at least part of) the cost if things go wrong. Such deep cultural changes may take generations. 

None of this, of course, means the proposal isn’t a step in the right direction. 

There appears to be a bipartisan will to move in the direction of extending free or subsidised health care, picking up the national disability insurance scheme and increased dental services, almost regardless of the state of the budget or the economy. 

Health policy experts tend to assume that we have the best health-funding system in the world, avoiding both the excessive costs of the US model, and the excessive central control (and underfunding) of the British. 

Yet use of Medicare services, independent of any such extensions, is growing at around 3% a year, driven by population ageing, the availability of new technology – and, apparently, an increasing “entitlement mentality” across successive generations. This last is compounding the problem of what economists call “moral hazard”: people tend to consume more of a commodity if someone else is paying. 

It’s clear that there needs to be some control over the cost of health care, and it can’t be seriously argued that fear of having to pay $6 to see a doctor will discourage anyone from accessing necessary treatment. 

On the face of it, then, the real question ought to be “does this go far enough”? 

But even if we accept the need to contain costs, and are not concerned about the effect on patient behaviour, the effect on doctors is less clear. 

Opposition criticism of the plan has centred on the ingenious insight that if we charge for bulk-billed services, they will no longer be free. 

“Moral hazard”: people tend to consume more of a commodity if someone else is paying.

But there is a point behind this truism. Abolishing free services, or even allowing doctors to charge for bulk-billed services, will change the design of the system, in ways that are not completely predictable. 

Bulk-billed services are designed to provide free services to the disadvantaged  and to provide “downward pressure” on the cost of health services: it’s difficult to compete with a free service. From the doctor’s viewpoint, they continue to exist because they are administratively simpler, payment is reliable and timely – and because some doctors are opposed to charging at least some patients. 

But Medicare rebates have lost real value over time, to the point where practices who bulk-bill all GP visits rely cross-subsidisation from other services: allied health services, pathology referrals, prescription pharmaceuticals. The temptation to overservice in these areas is great, especially when a prescription or referral provides “closure”, hence more and shorter consultations. 

Further, the administrative differences between bulk-billed and patient-billed services have been reduced with recent developments including on-line claiming. 

There’s clearly a psychological gulf between a free service, and a service for which a fee is charged. 

But will there be such a difference between a six-dollar service, and a ten‑, twenty- or thirty-dollar service? 

And if free, “bulk-billed” services are replaced by those for which at attract a significant fee, what will this do to the rest of the market? 

Further, as Barnes has noted, the effects may spill out into hospital “emergency” services, where co-payments may also be needed. 

This may provide a basis for a broader re-examination of health care funding. 

System without design

As a conservative, I’m wary of calls for root-and-branch reform. So, it seems, is the Abbott government: like most post-Medicare conservative governments, they’ve identified health as a zone of electoral pain, with no upside. 

But we have a funding system no-one would design. 

GP services are Commonwealth-funded with a fixed subsidy, and a variable co-payment or none — and insurance forbidden. 

Pharmaceutical services are Commonwealth-funded with a fixed copayment, and a variable subsidy or none — and no insurance. 

Hospital services are either state-funded (with a Commonwealth subsidy to the system) and no patient co-payment, or private-insurance-funded with a variable patient co-payment- and insurance encouraged by penalties for not having it. 

Safety nets complicate the incentive picture in ways no-one fully understands. 

And have you ever wondered why Medicare goes through the risky rigmarole of sending a cheque to the patient, who must then pass it on to the doctor? Or why should the patient have to pay the full cost and claim back a portion from Medicare – couldn’t Medicare simply pay the doctor direct? 

Ignorance, you might think, or lack of imagination? The truth is worse: all that inconvenient and risky double handling is a design feature, to encourage bulk billing. 

This approach, like using queues to ration emergency services, makes perfect sense — on a calculus which values the patient’s time at zero. 

It ought to be possible, at least for a government who does not regard Medicare as inviolable, to take a wholistic view of these operational aspects, to determine which service-delivery models, and which services, are providing value for money. 

The bipartisan commitment to affordable access to important health services has to be realised in a way the community can afford, without transferring the cost to shrinking and ageing future generations with their own problems to deal with. 

It may be that the most important impact of this proposal is to initiate a serious conversation about the nature of health care funding, and a grown-up conversation about cost containment.