Introducing Medicare

The public health care system is funded by the various levels of government through taxation, the Medicare levy and council rates. There are three levels of government in Australia; Federal/Commonwealth, state/territory and local. Each provides some form of health care. Since the introduction of Medicare during the Hawke Labor Government in 1984, the Commonwealth has entered into five-yearly Australian Health Care Agreements (AHCAs) with the states and territories: 1983–88; 1988–93; 1993–98; 1998–2003; 2003–2008 (Commonwealth of Australia 1993, 1998, 2003). The 2008–13 AHCA was delayed pending the findings of the National Health and Hospital Reform Commission. The AHCAs provide the mechanism for handling relations between the different levels of government as well as public–private health care responsibilities.

The grants paid by the Commonwealth to the states and territories are equivalent to around 50 per cent of the funds needed; the states and territories have to find the remainder from their own revenue.

Medicare is a compulsory, universal, health insurance scheme based on the principle of equal access for all Australians. All Australian citizens are eligible for Medicare. Funding for Medicare is through taxation and the progressive Medicare levy on all taxpayers. Progressive taxation means that those who earn more pay more. The Medicare levy is set at 1.5% of each person’s income or 2.5% for those individuals or families who earn over a certain amount who do not have private health insurance. The Medicare levy does not cover the full cost of health care, contributing around 16% of the costs. The remainder of the funds are drawn from taxation (Leeder 1999).

Commonwealth support for medicines

The Federal government also funds the Pharmaceutical Benefits Scheme (PBS). Under this scheme Australians have access to affordable medicines when they are prescribed by a medical practitioner, or a nurse or midwife with prescribing rights. The Federal government determines those medicines that come under the PBS, the price paid to the drug company and the cost to the patient. As a result, Australia is considered to have one of the most equitable pharmaceutical schemes in the world (Duckett 2004).

The PBS is a co-payment scheme where the Commonwealth pays around 83% and the patient pays the remainder (Commonwealth Department of Health and Aged Care 2000a). Patients on low incomes and in receipt of health care cards or pensions pay one rate, while the rest of the population pays a higher rate. The government in office may increase the co-payment; usually this is done when the budget is announced in May each year, and introduced the following January. The PBS also has a threshold for both groups of patients. This is called the PBS Safety Net and it kicks in once a family or individual has paid for 52 prescriptions in any one calendar year (Duckett 2004). Chapter 7 provides a detailed discussion on the PBS.

Other areas that come under the control of the Commonwealth government include the preparation of health policy, legislation, services for those in the armed forces and returned soldiers, quarantine services and cancer screening programs (AIHW 2006). The Commonwealth also provides grants to the states and territories for community-based services for people with disabilities and for aged care services, such as residential and home help services for the frail elderly (Commonwealth Department of Health and Aged Care 2000a). The Commonwealth can also make Special Purpose Payments (SPPs) to the states and territories for specific programs (Swerissen & Duckett 1997). For example, SPPs have been made to the states for services offered by the Australian Red Cross, which manages the country’s blood and organ donation services.

The state and territory health systems

While the Commonwealth partly funds public hospitals through Medicare, and indeed makes significant demands on the states and territories as to how they run these hospitals, the actual delivery of health care is left to the states and territories. This is the cause of much tension between the states, territories and the Commonwealth. Every five years the state and territory health ministers and premiers work hard at the time of the signing of AHCAs to get the best deal from the Commonwealth, since they must find the shortfall from their own revenue.

Under AHCAs, the states and territories must provide free in-hospital and ambulatory care to all citizens in a timely manner, including all emergency or hospital outpatient care as well as elective surgery and medications needed by patients during their hospital stay. The AHCAs require ‘timely care’ but patients needing elective surgery or appointments with a medical specialist may have a waiting period. Waiting periods must be made public and must not go beyond what is considered safe for the patient.

The difficulties of funding the public hospital sector, and the many community services for which state and territory governments are responsible, leads them to develop a range of reforms. For example, since the early 1990s, state governments moved from funding hospitals on an historical basis to funding them through a casemix model called Diagnosis Related Groups (DRGs). This system provides funds to hospitals based on their output. Each patient episode of care has a diagnosis, each diagnosis is classified and an amount of money allocated. For example, for the DRG, ‘coronary artery bypass surgery (CABS)’ a specific amount of money is paid to the state, or territory, and hospital to cover the surgical, medical, nursing and allied health care based on an assumption about the length of time the patient will be in hospital. If the patient stays longer, the hospital funds the difference. Other reforms have included restructuring of services or administration to increase productivity and efficiencies (Brooker 1997).

The states and territories also operate the psychiatric services for people with mental illness, and community health programs as well as community-based programs such as Home and Community Care (HACC). Like Medicare, funding for these services is jointly shared with the Commonwealth; that is, the Commonwealth provides some of the money, makes policy on how the money will be used, and the state or territory government operates the service.

Dental care is a vexed area of health care in Australia. In the 1996–97 Federal budget payments to the states and territories for dental programs ceased (Leeder 1999). Consequently there are long waiting lists for public dental care, particularly in rural and remote areas. Most state and territory governments operate school dental programs providing free or co-payment dental care for children, and some states have reinstituted public dental programs (Duckett 2004). Ambulance services vary from state to state and territory, with private providers and non-government agencies, such as St John, making varying contributions along with state services (AIHW 2006b). The states and territories are also responsible for the regulation of private hospitals.

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