Medicare HECS (v2)

The level of debate regarding health care reform in Australia is really rather pedestrian. We should be opening up the health sector to more private involvement and more personal responsibility. We need more price signals on both the supply and the demand side of the equation. However it seems the best we can manage in price signals is a modest tax rebate from the Liberals if you buy private insurance, and a higher medicare levy by the ALP if you don’t. Neither of these is the sort of market price signal we need. We need price signals that link consumers to suppliers.

Currently the medicare levy raises about 1/6 th of the amount that the government actually spends on health. If the Medicare levy was meant to raise the revenue needed to pay for Medicare it would need to be about 9%. So if we increased in from 1.5% (there abouts) to 9% and cut income taxes by 7.5% we would still pay the same in taxes (the levy is a tax) but we would have a lot more transparency informing the debate.

Each quarter we ought to get mailed a statement from the Medicare office outlining how much expenditure we incurred using our Medicare card. Again this would not change the benefit we receive but it would improve transparency and better inform the debate.

If the Medicare statement suggested above was actually an invoice and we were required to repay the expenses we incurred using our medicare card this would allow us to cut taxes by about 9% (inclusive of the current 1.5% Medicare levy or else just the 9% levy suggested above). Given the dead weight cost of taxation this would be real boost to the economy.

However there is a social policy concern with this approach that cuts to the heart of why Australians overwhelmingly like Medicare. The cost may deter poorer people from getting treatment. Fair enough. We can fix this concern by allowing people who can’t or don’t pay the invoice to automatically roll the debt from their Medicare invoice onto their HECS debt. In short Medicare would become an income contingent loan from the government. The Medicare card would become an alternate payment system much like VISA or Mastercard but issued by the government and with an income contingent repayment plan. Social concern fixed because nobody is denied essential health care on the basis of affordability. HECS could be renamed to the “Health and Education Contribution Scheme” and still abbreviated as HECS.

Okay some people don’t want to burden their future self with such a debt. That is up to them. They can take out private insurance instead or pay as they go using cash. People will vary in their preference but nobody will miss out on medical service due to an incapacity to pay. And insurance could be bought unencumbered by the current prescriptive government rules about inclusions and excess thresholds. Consumer demand and insurance company innovation coupled via the market would allow a process of discovery to determine what health services get paid for by insurance and what get’s paid for via cash. Whether insurance has a small excess or a large excess. Whether we mostly all have the same scheme or if we want a lot of variety.

Having reformed the demand side of the equation we should seek to reform the supply side by privatising hospitals. We already have private GPs, private specialists, private medical centres and private pathology services. In fact most routine encounters with the medical sector is already through a private provider. We even have numerous private hospitals. It isn’t a sector that benefits from either government ownership or government operation so we should extricate the government from it and allow hospitals to focus on treating patients and allow governments to instead focus on making better laws.

Others have suggested that health care should be provided by governments issueing vouchers which people then use to pay for private insurance. My view is that this approach will lead to governments being prescriptive about what insurance policies must include. About what excess they must provide. They will tend to exclude the option to self insure for some medical expenses. In short I don’t think a voucher scheme would drive the same dynamic process of innovation.

Government Health Care Expenditure: International Comparisons

To those following U.S political debate, healthcare reform is without doubt the most contentious issue, with the Administration lobbying for what is effectively the creation of a government run health care system. In this environment, enemies of the market have used the problems in the current healthcare system as an indication of market failure.

The U.S healthcare system has many, many, many flaws. But can it be accurately categorised as free market?  I decided to look into this to look at government expenditure on healthcare and compare it to other countries – a comparison I haven’t seen of in the media.

So, I went to the World Health Organisation Database and looked at the per capita breakdown of healthcare expenditure by governments in different developed countries. And the results suprised me. Quite a bit. Because it seems the U.S government spends more per person on healthcare than the government of any major developed country.

Health Expenditure (WHO) Continue reading

Healthcare reform

The government is currently considering a range of options for reforming the government health system in Australia.

Having pursued a policy of ever-growing government spending and control in health over the last 40 years (including 5.8 percent annual growth over the past 10 years), people are increasingly coming to the conclusion that the system is broken.

Unfortunately, the answers being suggested are more government spending and more government control. Once again, the bureaucracy is being rewarded for failure.

The socialist approach is unlikely to work in the short-run and destined to fail in the long-run. According to the governments own estimates, by the middle of this century government health costs will go up by about 3.5 percent of GDP, which would require the GST to more than double. And that doesn’t include new government schemes like Denticare.

These challenges cannot be fixed with by throwing ever more money into a failing system, or by centralising the system with the Commonwealth government. And the answer certainly shouldn’t include an 8.5 percent tax hike on low-income workers. Instead, the government should consider structural reforms, such as those recently introduced in the Netherlands.

The Dutch have introduced a market-based system where people buy all their health cover from a range of regulated private providers, with the government providing a partial subsidy for all people and an additional subsidy for low-income people. Similar ideas have been suggested by the Australian Centre for Health Research.

The government is right to be re-thinking our health system. But instead of increasing taxes on low-income workers, throwing money around and centralising the system, the government should instead be looking at market reform that makes the system sustainable.