C L I N I C A L
A N D
E X P E R I M E N T A L
OPTOMETRY GUEST EDITORIAL
Is national health spending on an unaffordable trajectory? Clin Exp Optom 2015; 98: 105–106
Roger Kilham BEc Kilham Consulting Pty Ltd, Melba, ACT, Australia E-mail: [email protected]
An ageing population raises the spectre of ever increasing health expenditure. Federal government ministers have expressed concerns that the growth in health spending is unsustainable, especially in the context of a persistent budget deficit and that steps must be taken to curtail federal outlays. If national health spending is indeed on an unsustainable trajectory, then it will be unaffordable to the nation as a whole; however, the measures proposed in the 2014–2015 Federal Budget do not seek to curtail national health spending. Their effect is to shift the costs to other payers. Taking the Federal Budget estimates at face value, the intended shifting of health costs to households is almost $6.8 billion over four years.1 The components are: • the medical service copayment ($3.5 billion cost shift) • the fee freeze for non-GP Medicare rebates ($1.7 billion cost shift) • increases in Pharmaceutical Benefits Scheme (PBS) co-payments (+$5.00 for general, +$0.80 for concessional, a $1.3 billion cost shift) • a $5 reduction in the benefit for optometric items with a clear expectation that this will result in co-payments being charged (a cost shift of some $90 million over four years) • a less generous Medicare safety net (a cost shift of some $267 million over four years). It is also proposed to shift health costs from the Federal Budget to state and territory budgets (therefore to taxpayers) through materially lower rates of indexation of Federal contributions toward the cost of public hospitals. The end point of this and other similar measures (for example, in education) may be that the state and territory
DOI:10.1111/cxo.12245
governments will have no option in future but to canvass for an increase in the rate of the Goods and Services Tax. Is national health spending on an unaffordable trajectory? Australian Institute of Health and Welfare estimates suggest that the growth in national health spending has been relatively modest. Despite a significant ageing of the population over the past couple of decades, national health spending remains below 10 per cent of gross domestic product (GDP). Measured in current price terms, national health expenditure has increased slowly as a percentage of GDP, from 8.59 per cent in 2002–2003 to 9.67 per cent in 2012–2013.2 Throughout the decade, Australia’s ratio of health spending to GDP sat around the Organisation for Economic and Co-operative Development (OECD) median and a little below the arithmetic mean in most years, consistently below since 2008.3 Prior to the Global Financial Crisis in 2008, Federal and state/territory government expenditure on health-care remained relatively stable at around 20 per cent of tax revenue. The Global Financial Crisis cut into revenues but government expenditures on health-care continued to grow. In recent years, as revenues have recovered somewhat, government expenditure has fallen back as a share of tax revenue, albeit not to pre-Global Financial Crisis levels. Ultimately, the level of national health spending cannot be determined by governments alone. The amount a nation spends on its health-care is a matter of choice or more precisely, choices. There are many decision points, some taken by governments, some by households and some by other players, including financiers (for example, private health insurers) and providers, which have a bearing on the final outcome. It seems inevitable that people of Australia’s ‘baby boomer’ generation, with their significant wealth, will choose to spend more of their private resources on health-care than
© 2015 The Author Clinical and Experimental Optometry © 2015 Optometry Australia
their less prosperous forebears. Should that be a matter for concern? The answer is ‘No, not at all’. Public and private choices together determine the way health costs are shared between households as taxpayers, households as purchasers of co-insurance products, households as direct (out-of-pocket) spenders and non-household parties (primarily compensable insurers). There is no comparable country in the world that does not have a role for co-payments in its health financing system. Most highly developed nations claim to have universal health-care systems (the USA is a notable exception). Universal health-care systems are sometimes erroneously equated with ‘free’ health-care systems, meaning free at point of service. A universal health-care system is one that seeks to provide affordable and accessible health-care to all citizens. The notion of affordability must be assessed with regard to tax obligations, the cost of co-insurance and out-of-pocket health-care costs. The emphasis placed on co-insurance and out-of-pocket health-care costs varies from country to country. In 2012–2013, Australia’s recurrent national health spending was $138.8 billion. Household out-of-pocket costs contributed $26.7 billion (19.2 per cent) and co-insurance products contributed $11.8 billion (8.5 per cent). International comparisons of health spending indicate that Australia has been sitting near the top in the emphasis placed on household out-of-pocket costs and this is before the effect of the measures proposed in the 2014–2015 Federal Budget. OECD data show that, excluding the Scandinavian countries, Europe places a similar emphasis on household out-ofpocket health costs. Canada, in so many ways the country with the greatest number of health financing system similarities to Australia, meets 15 per cent of health costs through household out-of-pocket contributions. In the USA, it is 12 per cent, while the Clinical and Experimental Optometry 98.2 March 2015
105
Is national health spending on an unaffordable trajectory? Kilham
Scandinavian countries place less reliance on household out-of-pocket costs and more reliance on public funding.4 When it comes to co-insurance products, the USA stands well apart from other developed nations with 30 per cent of health-care costs funded by private health insurance. A handful of developed nations has a larger role for private health insurance than Australia: Ireland (16 per cent), Canada (15 per cent) and France (14 per cent) are examples. Australia’s 8.5 per cent is significantly higher than for Europe as a whole, which averages 3.5 per cent.5 A swag of policy considerations has a bearing on the health financing mix. These include budget generic issues, such as the willingness or otherwise of governments to levy taxes, the capacity of households to pay and the competing demands for budget expenditure. There are also some health-specific considerations. Poorly designed health financing measures can cut access to necessary health-care and result in poorer health outcomes and reduced effectiveness in health-care spending. Measures that deter patients from seeking appropriate primary and preventative services can result in higher and avoidable tertiary health-care costs later. Public health financing plays an important redistributional role. The socioeconomic determinants of health-care status are well evidenced. Poverty often sits with low educational attainment and poor health outcomes, including lower life expectancy and greater mental health problems, which compound lack of access to employment. Without income redistribution through the health financing framework, the disparity in health outcomes between rich and poor would be markedly higher than it is now. A recent Australian study has found that high out-of-pocket costs are placing major, disproportionate burdens on particular patient populations with serious, often chronic illnesses, co-morbidities and needs falling outside the ‘mainstream’ health services (home modifications, social support, transport).6 The study concludes that: ‘The available evidence indicates that the out-of-pocket costs of treatment and selfmanagement and loss of income from chronic disease and disability are associated with economic hardship, catastrophic health-care spending and non-compliance with medical treatment.’ Clinical and Experimental Optometry 98.2 March 2015
106
Should Australia push the financing envelope even further toward household out-ofpocket costs? Would that ultimately mean the end of universal health-care in Australia? Is it possible to go further down the pathway of out-of-pocket costs, while still maintaining access to health-care for the less well-off Australians? The design of the proposed Medical services co-payment and the implied copayment on optometric services illustrates the tensions. Overseas precedents show that successful co-payment systems have two key characteristics: • protection for the underprivileged (appropriate exemptions, concessional co-payments and/or strong safety nets) • protection for preventative health services. Australia’s own long-running PBS copayment system has the first characteristic but not the second. In contrast, the proposed Medical services co-payment has no concessional rate like the PBS co-payment and exemptions for preventative health-care are very limited. There is a safety net for concessional patients. The implied co-payment on optometric services has no protections despite the evidence that eye checks are a low-cost and highly effective form of preventative health-care. Turning again to overseas precedents, how are co-payment systems accepted? The evidence is mixed. Take two examples. • Since 1982, Sweden has had a highly socialised (over 80 per cent taxpayerfunded) health-care system built on strong principles of human dignity, need, solidarity and cost-effectiveness. Co-payments were a feature of the system from the outset and have been enduring. Their rationale was that they would encourage responsible use of services (discourage frivolous demand). Nonetheless, Sweden struggles with long waiting times and a high burden of bureaucracy. Health outcomes are acknowledged to be very good. • In 2004, Germany introduced a formal co-payment system (the Praxisgebühr). Set initially at €7, it applied to doctor, dentist or psychotherapist visits, emergency medical services and visits to hospital emergency departments. There was a quarterly safety net and key preventative services were exempted. The aims were to control demand, reduce trivial use of physicians, reduce self-referrals and generate
savings in outlays. It was widely despised by patients and providers alike and failed to achieve demand control. In late 2012, the German parliament voted unanimously to abolish the Praxisgebühr, the first unanimous vote in living memory.7 Empirical studies of the effects of co-payments on user behaviour again produce some mixed results; however, one conclusion remains clear: individuals with low income and in particular need of care generally reduce their use relatively more than the remaining population in consequence of co-payment.8 The proposed medical services copayment and the implied co-payment on optometric services will each increase transaction costs. No payment system comes within cooee of Medicare bulk-billing for technical efficiency. There are other ways to skin this cat. One is a Medicare levy surcharge based on usage of specified services. It is not a new tax, so can be implemented at low cost. It automatically protects low-income earners, who are exempt from paying the levy. It avoids imposing a red tape cost on health-care providers and it puts the co-payment discussion where it belongs, as a dialogue between the government and the people about how best to pay for health-care. REFERENCES 1. Commonwealth of Australia. Budget papers 2014–15 and Portfolio Budget Statements 2014–15, Budget Related Paper 1.10 together with relevant Ministerial statements and departmental budget materials. May 2014. 2. Australian Institute of Health and Welfare 2013. Health expenditure Australia 2012–13. Health and welfare expenditure series no. 52. Cat. no. HWE 61. Canberra: AIHW. 3. OECD Health Statistics 2014. Frequently Requested Data. [Accessed 11 June 2014]. 4. OECD. Coverage, Cost Sharing and Exemptions.xlsx. http://www.oecd.org/els/health -systems/measuring-health-coverage.htm accessed 22 July 2014. 5. World Health Organization. Health Financing: Health Expenditure Ratios: Data by Country. http://apps.who.int/gho/data/view.main .1900ALL?lang=en [Accessed 11 June 2014]. 6. Jan S, Essue B, Leeder S. Falling through the cracks: the hidden economic burden of chronic illness and disability on Australian households. Med JAust 2012; 196: 29–31. 7. German Bundestag. Decision and recommendation report: Abolish the Practice Fee. Printed matter 17/11396, 17th electoral term, 07 11, 2012. 8. Kiil A, Houlberg K. How does copayment for health care services affect demand, health and redistribution? A systematic review of the empirical evidence from 1990 to 2011. Eur J Health Econ 2013; 15: 813–828.
© 2015 The Author Clinical and Experimental Optometry © 2015 Optometry Australia
Copyright of Clinical & Experimental Optometry is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.
A N D
E X P E R I M E N T A L
OPTOMETRY GUEST EDITORIAL
Is national health spending on an unaffordable trajectory? Clin Exp Optom 2015; 98: 105–106
Roger Kilham BEc Kilham Consulting Pty Ltd, Melba, ACT, Australia E-mail: [email protected]
An ageing population raises the spectre of ever increasing health expenditure. Federal government ministers have expressed concerns that the growth in health spending is unsustainable, especially in the context of a persistent budget deficit and that steps must be taken to curtail federal outlays. If national health spending is indeed on an unsustainable trajectory, then it will be unaffordable to the nation as a whole; however, the measures proposed in the 2014–2015 Federal Budget do not seek to curtail national health spending. Their effect is to shift the costs to other payers. Taking the Federal Budget estimates at face value, the intended shifting of health costs to households is almost $6.8 billion over four years.1 The components are: • the medical service copayment ($3.5 billion cost shift) • the fee freeze for non-GP Medicare rebates ($1.7 billion cost shift) • increases in Pharmaceutical Benefits Scheme (PBS) co-payments (+$5.00 for general, +$0.80 for concessional, a $1.3 billion cost shift) • a $5 reduction in the benefit for optometric items with a clear expectation that this will result in co-payments being charged (a cost shift of some $90 million over four years) • a less generous Medicare safety net (a cost shift of some $267 million over four years). It is also proposed to shift health costs from the Federal Budget to state and territory budgets (therefore to taxpayers) through materially lower rates of indexation of Federal contributions toward the cost of public hospitals. The end point of this and other similar measures (for example, in education) may be that the state and territory
DOI:10.1111/cxo.12245
governments will have no option in future but to canvass for an increase in the rate of the Goods and Services Tax. Is national health spending on an unaffordable trajectory? Australian Institute of Health and Welfare estimates suggest that the growth in national health spending has been relatively modest. Despite a significant ageing of the population over the past couple of decades, national health spending remains below 10 per cent of gross domestic product (GDP). Measured in current price terms, national health expenditure has increased slowly as a percentage of GDP, from 8.59 per cent in 2002–2003 to 9.67 per cent in 2012–2013.2 Throughout the decade, Australia’s ratio of health spending to GDP sat around the Organisation for Economic and Co-operative Development (OECD) median and a little below the arithmetic mean in most years, consistently below since 2008.3 Prior to the Global Financial Crisis in 2008, Federal and state/territory government expenditure on health-care remained relatively stable at around 20 per cent of tax revenue. The Global Financial Crisis cut into revenues but government expenditures on health-care continued to grow. In recent years, as revenues have recovered somewhat, government expenditure has fallen back as a share of tax revenue, albeit not to pre-Global Financial Crisis levels. Ultimately, the level of national health spending cannot be determined by governments alone. The amount a nation spends on its health-care is a matter of choice or more precisely, choices. There are many decision points, some taken by governments, some by households and some by other players, including financiers (for example, private health insurers) and providers, which have a bearing on the final outcome. It seems inevitable that people of Australia’s ‘baby boomer’ generation, with their significant wealth, will choose to spend more of their private resources on health-care than
© 2015 The Author Clinical and Experimental Optometry © 2015 Optometry Australia
their less prosperous forebears. Should that be a matter for concern? The answer is ‘No, not at all’. Public and private choices together determine the way health costs are shared between households as taxpayers, households as purchasers of co-insurance products, households as direct (out-of-pocket) spenders and non-household parties (primarily compensable insurers). There is no comparable country in the world that does not have a role for co-payments in its health financing system. Most highly developed nations claim to have universal health-care systems (the USA is a notable exception). Universal health-care systems are sometimes erroneously equated with ‘free’ health-care systems, meaning free at point of service. A universal health-care system is one that seeks to provide affordable and accessible health-care to all citizens. The notion of affordability must be assessed with regard to tax obligations, the cost of co-insurance and out-of-pocket health-care costs. The emphasis placed on co-insurance and out-of-pocket health-care costs varies from country to country. In 2012–2013, Australia’s recurrent national health spending was $138.8 billion. Household out-of-pocket costs contributed $26.7 billion (19.2 per cent) and co-insurance products contributed $11.8 billion (8.5 per cent). International comparisons of health spending indicate that Australia has been sitting near the top in the emphasis placed on household out-of-pocket costs and this is before the effect of the measures proposed in the 2014–2015 Federal Budget. OECD data show that, excluding the Scandinavian countries, Europe places a similar emphasis on household out-ofpocket health costs. Canada, in so many ways the country with the greatest number of health financing system similarities to Australia, meets 15 per cent of health costs through household out-of-pocket contributions. In the USA, it is 12 per cent, while the Clinical and Experimental Optometry 98.2 March 2015
105
Is national health spending on an unaffordable trajectory? Kilham
Scandinavian countries place less reliance on household out-of-pocket costs and more reliance on public funding.4 When it comes to co-insurance products, the USA stands well apart from other developed nations with 30 per cent of health-care costs funded by private health insurance. A handful of developed nations has a larger role for private health insurance than Australia: Ireland (16 per cent), Canada (15 per cent) and France (14 per cent) are examples. Australia’s 8.5 per cent is significantly higher than for Europe as a whole, which averages 3.5 per cent.5 A swag of policy considerations has a bearing on the health financing mix. These include budget generic issues, such as the willingness or otherwise of governments to levy taxes, the capacity of households to pay and the competing demands for budget expenditure. There are also some health-specific considerations. Poorly designed health financing measures can cut access to necessary health-care and result in poorer health outcomes and reduced effectiveness in health-care spending. Measures that deter patients from seeking appropriate primary and preventative services can result in higher and avoidable tertiary health-care costs later. Public health financing plays an important redistributional role. The socioeconomic determinants of health-care status are well evidenced. Poverty often sits with low educational attainment and poor health outcomes, including lower life expectancy and greater mental health problems, which compound lack of access to employment. Without income redistribution through the health financing framework, the disparity in health outcomes between rich and poor would be markedly higher than it is now. A recent Australian study has found that high out-of-pocket costs are placing major, disproportionate burdens on particular patient populations with serious, often chronic illnesses, co-morbidities and needs falling outside the ‘mainstream’ health services (home modifications, social support, transport).6 The study concludes that: ‘The available evidence indicates that the out-of-pocket costs of treatment and selfmanagement and loss of income from chronic disease and disability are associated with economic hardship, catastrophic health-care spending and non-compliance with medical treatment.’ Clinical and Experimental Optometry 98.2 March 2015
106
Should Australia push the financing envelope even further toward household out-ofpocket costs? Would that ultimately mean the end of universal health-care in Australia? Is it possible to go further down the pathway of out-of-pocket costs, while still maintaining access to health-care for the less well-off Australians? The design of the proposed Medical services co-payment and the implied copayment on optometric services illustrates the tensions. Overseas precedents show that successful co-payment systems have two key characteristics: • protection for the underprivileged (appropriate exemptions, concessional co-payments and/or strong safety nets) • protection for preventative health services. Australia’s own long-running PBS copayment system has the first characteristic but not the second. In contrast, the proposed Medical services co-payment has no concessional rate like the PBS co-payment and exemptions for preventative health-care are very limited. There is a safety net for concessional patients. The implied co-payment on optometric services has no protections despite the evidence that eye checks are a low-cost and highly effective form of preventative health-care. Turning again to overseas precedents, how are co-payment systems accepted? The evidence is mixed. Take two examples. • Since 1982, Sweden has had a highly socialised (over 80 per cent taxpayerfunded) health-care system built on strong principles of human dignity, need, solidarity and cost-effectiveness. Co-payments were a feature of the system from the outset and have been enduring. Their rationale was that they would encourage responsible use of services (discourage frivolous demand). Nonetheless, Sweden struggles with long waiting times and a high burden of bureaucracy. Health outcomes are acknowledged to be very good. • In 2004, Germany introduced a formal co-payment system (the Praxisgebühr). Set initially at €7, it applied to doctor, dentist or psychotherapist visits, emergency medical services and visits to hospital emergency departments. There was a quarterly safety net and key preventative services were exempted. The aims were to control demand, reduce trivial use of physicians, reduce self-referrals and generate
savings in outlays. It was widely despised by patients and providers alike and failed to achieve demand control. In late 2012, the German parliament voted unanimously to abolish the Praxisgebühr, the first unanimous vote in living memory.7 Empirical studies of the effects of co-payments on user behaviour again produce some mixed results; however, one conclusion remains clear: individuals with low income and in particular need of care generally reduce their use relatively more than the remaining population in consequence of co-payment.8 The proposed medical services copayment and the implied co-payment on optometric services will each increase transaction costs. No payment system comes within cooee of Medicare bulk-billing for technical efficiency. There are other ways to skin this cat. One is a Medicare levy surcharge based on usage of specified services. It is not a new tax, so can be implemented at low cost. It automatically protects low-income earners, who are exempt from paying the levy. It avoids imposing a red tape cost on health-care providers and it puts the co-payment discussion where it belongs, as a dialogue between the government and the people about how best to pay for health-care. REFERENCES 1. Commonwealth of Australia. Budget papers 2014–15 and Portfolio Budget Statements 2014–15, Budget Related Paper 1.10 together with relevant Ministerial statements and departmental budget materials. May 2014. 2. Australian Institute of Health and Welfare 2013. Health expenditure Australia 2012–13. Health and welfare expenditure series no. 52. Cat. no. HWE 61. Canberra: AIHW. 3. OECD Health Statistics 2014. Frequently Requested Data. [Accessed 11 June 2014]. 4. OECD. Coverage, Cost Sharing and Exemptions.xlsx. http://www.oecd.org/els/health -systems/measuring-health-coverage.htm accessed 22 July 2014. 5. World Health Organization. Health Financing: Health Expenditure Ratios: Data by Country. http://apps.who.int/gho/data/view.main .1900ALL?lang=en [Accessed 11 June 2014]. 6. Jan S, Essue B, Leeder S. Falling through the cracks: the hidden economic burden of chronic illness and disability on Australian households. Med JAust 2012; 196: 29–31. 7. German Bundestag. Decision and recommendation report: Abolish the Practice Fee. Printed matter 17/11396, 17th electoral term, 07 11, 2012. 8. Kiil A, Houlberg K. How does copayment for health care services affect demand, health and redistribution? A systematic review of the empirical evidence from 1990 to 2011. Eur J Health Econ 2013; 15: 813–828.
© 2015 The Author Clinical and Experimental Optometry © 2015 Optometry Australia
Copyright of Clinical & Experimental Optometry is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.
