MEDICUS FEBRUARY 2016

C O V E R S T O R Y

perspective to successfully reform its healthcare system design.

Those choosing private insurance would receive a risk-adjusted subsidy towards the cost of their premium. Risk-adjusted subsidies or risk- equalisation schemes have been in place for a long time already (in different forms) in all countries with competitive social health insurance such as Belgium, Germany, Israel, the Netherlands, Switzerland etc. As a result, high-risk individuals would receive larger subsidies than low-risk individuals. This scheme would provide stronger incentives for efficiency, a more stable PHI market with affordable premiums, and a reduction in waiting lists in the public sector. A crucial element of this option is that it removes overlap in coverage by allowing individuals to choose to be enrolled in one insurance plan or the other. Open enrolment would continue to be required, and importantly private health insurers would have to cover all types of health services specified in a minimum benefits package (identical to Medicare’s) and cover all related expenses. The current so-called risk equalisation (reinsurance) scheme and the community rating regulations would no longer be necessary, although premium bands – that constrain the variation in the premium that can be charged for any insurance product – might still be required. This option would also address the high out-of-pocket expenditure levels, particularly significant for primary care

(pivotal in flexible healthcare systems that focus on chronic rather than episodic care). At present, considering that GP fees are virtually uncapped and PHI cannot provide coverage for these services, individuals often face high out-of- pocket expenditures at the point of service. Insurers aren’t involved in ensuring effective and efficient primary care interventions for patients (particularly the chronically ill) to experience and benefit from continuity of care, and GPs cannot fully exercise their gatekeeping functions. Such design is questionable on both equity and efficiency grounds, because (low-income) individuals might forgo necessary care (e.g. GP) today which might result in more costly treatment later. Alternatively, they might decide not to use PHI and join the queue in the public hospital system to avoid the risk associated with ‘unknown’ gaps, impacting negatively on both waiting times and public finances. Similar to the Clash’s revolutionary tunes those decades ago, the many challenges that lie ahead for the Australian healthcare system require a new approach. At the same time, the health sector would benefit from a coherent holistic vision followed by consistent incremental action to design and implement the policy changes necessary to guarantee a modern, sustainable and durable healthcare

The current duplication in the public/ private mix in Australia hasn’t (yet) shown to be effective in reducing the pressure on public finances or to provide an incentive framework compatible with maintaining stable and reasonable waiting times. In addition, it hasn’t structurally dealt with the problems of stability in the PHI industry and the long-term scenario of a two- tier system, potentially reinforced by the changes to the Rebate and the MLS and the ‘privatisation’ of MPL. Not to mention the extraordinary amount of reforms and policy changes in the past decades, which have caused great regulatory uncertainty for all the stakeholders (e.g. practitioners, consumers and insurers) operating in healthcare. These are important signs of the need for a coherent and comprehensive reform of the current fragmented and inefficient design of healthcare financing and provision in Australia. One way to address the above distortions that combine competition and choice, and to increase efficiency with affordable access to quality care, is to allow individuals to choose between public (Medicare) and private health insurance. This model would make private cover fully substitutable for Medicare (no overlap). Every resident would be mandatorily covered either by a public or private fund for a nationally defined benefit package. HOW TO REFORM?

system capable of responding efficiently and equitably to the evolving needs of Australians. ■

Associate Professor Francesco Paolucci heads the Health Policy Program in the Sir Walter Murdoch School of Public Policy and International Affairs, at Murdoch University. Formerly Reader of Health Economics and Policy at the University of Northumbria Newcastle in the UK, Associate Professor at the University of Western Australia and Fellow at the Australian National University in Australia, Dr Paolucci has also worked for government, non- government and private sector national and international organisations, and held visiting appointments from the University of Oslo, Norway; Erasmus Universiteit Rotterdam, the Netherlands; the Universitad Complutense de Madrid, Spain; and the University of Newcastle, UK .

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