Government–Market Mixes for Health Care

Abstract

Australia provides universal health insurance cover, but its health system has extensive private sector involvement in both service delivery and health insurance. The overall cost of the system, at 10 per cent of GDP, is around the OECD average but the public share is relatively low. The system achieves amongst the best health outcomes in the OECD; however, it involves relatively high out-of-pocket costs for patients and other obstacles to access to hospital services for those without private health insurance (PHI) cover. The public health insurance system (Medicare) is designed to contain both government costs and patient co-payments. While doctors are free to set their own fees, a range of measures are used to contain costs including competition, financial incentives and negotiated agreements, with mixed success. PHI is heavily regulated and subsidised, and has never really been integrated with Medicare. Two very different reform directions could be taken: to remove the subsidies and most of the regulation leaving PHI a residual role in the system; or to give PHI a more direct role in Medicare by replacing existing subsidies with vouchers representing Medicare’s risk-rated premiums and holding the PHI funds responsible for all their members’ Medicare entitlements.