Health expenditure II: Medicare, private cover and Commonwealth-funded programs

The purpose first. Medicare exists so that a person's ability to obtain necessary medical care does not depend on their ability to pay for it, and so that illness does not cause financial ruin. Every design feature follows from those two aims, and every criticism of it is a claim that one of them is not being met.

How it is funded. From general taxation, supplemented by a levy on taxable income, with a higher levy for higher-income earners who do not hold private hospital cover. It is not a fund people pay into and draw down; it is current taxation paying for current care.

What it provides.

• Free treatment as a public patient in a public hospital, with the doctor allocated by the hospital rather than chosen by the patient.
• Rebates for medical services out of hospital: general practice, specialists, pathology and imaging. The rebate is calculated from a schedule fee, and the practitioner may charge more than that.
• Subsidised medicines through the separate pharmaceutical arrangements, with a lower contribution for concession card holders and a safety net once a household's annual contributions pass a threshold.
• Safety nets that raise the rebate once out-of-pocket costs for the year exceed a threshold.

What it does not cover. Most dental care for adults; most physiotherapy, psychology and other allied health beyond limited arrangements; optical; ambulance in most states; and private hospital treatment. That list is not random — it is where the out-of-pocket costs from the previous lesson are concentrated, and it is where the access gradient shows.

Medicare is universal in coverage of the population and partial in coverage of services. Nearly every argument about Australian healthcare access is about that second half.

This is the mechanism worth understanding properly, because it is the clearest example in Australian health policy of a design working exactly as written and producing an outcome nobody chose.

• The rebate is calculated from a schedule fee set by government.
• Practitioners set their own fees. If they charge the schedule fee and bill the scheme directly, the patient pays nothing — bulk billing.
• If they charge more, the patient pays the gap.
• The schedule fee is adjusted by government decision. When it rises more slowly than the cost of running a practice, the gap between what a practice must charge and what the scheme rebates widens, year after year, without any single decision to introduce a co-payment.
• Bulk-billing rates then fall, and they fall unevenly — typically last in areas where patients can least afford a gap, until the practice can no longer sustain it.

A co-payment can be introduced without ever being announced, simply by holding a rebate still while costs rise. This is the single most useful policy mechanism to understand in this dot point, because it explains how universal coverage erodes without anyone legislating an erosion.

Two consequences to carry into an answer. First, the effect is concentrated: for a person on a low income with a chronic condition needing frequent visits, a modest gap multiplied by many visits is a real barrier, and safety nets help only after the threshold is reached — which requires paying up to it first. Second, deterred primary care presents later and more expensively somewhere else, which is the chain from Lesson 10 running again.

What it does. It covers treatment as a private patient — in a private hospital, or as a private patient in a public one — which brings choice of doctor, choice of timing and a private room. Ancillary or “extras” cover pays toward services Medicare largely excludes: dental, optical, physiotherapy and similar.

How government supports it. Through a rebate reducing premiums, through a levy surcharge on higher-income earners who do not hold hospital cover, and through an arrangement that raises premiums for people who take out cover later in life. It is voluntary insurance with substantial public support and substantial public regulation, including community rating — insurers must charge the same premium regardless of health status, which is what stops them from simply refusing the sick.

The argument for public support. It shifts some demand out of public hospitals, freeing public capacity; it draws additional private money into health; and it lets people who want choice exercise it without leaving the public system to those who cannot pay.

The argument against. Public subsidy of private insurance is public money spent on people who are, on average, better off, and the same money spent directly on public hospitals or on primary care would buy more health for more people. Private cover also concentrates in higher-income groups, so support for it is regressive. And a two-tier arrangement can create different waiting times for the same condition, which sits awkwardly beside the principle that care should follow need.

The honest position for an exam answer: both arguments are about the same fact. Private cover does move demand and money, and it does so in a way that follows income rather than need. Whether that is acceptable is a value judgement about what the health system is for, and saying so explicitly is stronger than pretending the evidence settles it.

Two large schemes sit beside Medicare, funded federally, and both illustrate the same design idea: funding that follows the person rather than the service.

• The National Disability Insurance Scheme. Funds reasonable and necessary supports for people with permanent and significant disability, through an individual plan built around the person's own goals. It is insurance-shaped: the whole population contributes, and support is available to those who need it. It is not a health scheme — it funds supports for daily life, participation and independence rather than medical treatment — and the boundary between it and the health system is one of the seams from Lesson 9. It is also the clearest large-scale application of person-centred design in Australian policy, because the plan starts from the person's goals.
• My Aged Care. The entry point to federally funded aged care: assessment, then home support, home care packages or residential care. Its design intent is to support ageing in place for as long as possible, which is both what most people prefer and generally less costly than residential care. Its recurring problems are assessment and waiting times, workforce, and navigation — the system is hard to enter at exactly the moment a family is least equipped to work out how.

Both schemes have the same two structural characteristics, and naming them is worth more than describing the schemes:

• Funding attached to a person, not to a service. This is what makes individualised, goal-based support possible, and it also transfers the work of choosing and coordinating providers onto the person or their family — which advantages those with the capacity to navigate.
• A boundary problem with health. Someone can need health care, disability support and aged care at once, funded by different programs with different rules, and the seam between them is where delays and gaps appear — most visibly as people waiting in hospital for a funded place elsewhere.

Pull the whole picture together. There are three genuine achievements and three genuine problems, and a complete answer has both.

Two general observations that make an evaluation feel authoritative:

• The design of the coverage boundary matters more than the size of the budget. Which services sit inside universal coverage determines who is protected, and it does so more directly than the total spent.
• Universality is not self-maintaining. It erodes through indexation, through eligibility rules and through gaps, none of which requires a decision to end it. Defending it is a continuing activity, not a past achievement.

For each, say who funds it and what the patient is likely to pay, and name the access consequence.

A government has decided to bring one currently excluded service inside universal coverage. Choose adult dental care or psychological therapy.

Argue for your choice using: the access gate it would fix, who would benefit most and why, the opportunity cost of the money, and one likely unintended consequence. Then say how you would know, five years later, whether it had worked — naming a measure that would move and a measure that would not.