It’s amazing what you can turn up if you actually bother to read policy documents. While the immediate reaction from the mainstream media to Labor’s health policy announcement was all about the proposed policy of a federal takeover, there’s a whole lot more in it than that.
In the discussion paper, they have a section on alternative funding models for the health sector, which discusses some of the expert proposals floating around for this purpose.
One proposal discussed is by Andrew Podger, in which the Commonwealth takes over funding responsibility, giving the money to regionally-based councils would be responsible for purchasing health services for their regions, with broad policy oversight from Canberra. But there’s another, considerably more out-there model discussed:
From the policy:
Others such as Scotton advocate a ‘managed competition’ model, under which both Commonwealth and state funds are channelled through private health insurance funds using vouchers equal to each individual’s risk-rated premium which the individual may pass to the fund of their choice, the fund then having full responsibility as funder/purchaser of all their health and aged care services.
That’s right, Scotton’s proposal would represent the complete privatization of the health system, with the government merely acting as regulator and subsidiser.
To be clear, the policy document in no way commits Labor to any such model, merely notes that such proposals have been made. It further goes on to say that
Any alternative hospital funding approach would also need to be evaluated thoroughly to ensure that consumers existing access to programs such as Medicare, the Pharmaceutical Benefits Scheme and private health insurance rebates are not in any way eroded.
But the fact that Labor is floating such ideas in an election policy document would surely indicate that they’re giving the concept some consideration – at least as a thought experiment.
On the merits of such a scheme, I’m unconvinced. Aside from the sheer scale of the transition involved – it makes the Telstra or Commonwealth Bank privatisations look like chicken feed – there are many aspects of the health system that are natural monopolies. Furthermore, the system seems to resemble (at least in parts) the HMO system of managed care in the United States; HMOs are one of the most hated organizations in that country, as I understand it. And then there’s the question of what would happen to the altruistic aspects of health care if the whole system’s run for profit.
But, hey, at least there’s some policy thoughts going on in Labor HQ, even if they are ones that the Catallaxy crowd would feel right at home with…
Elsewhere: Speak of the Devil…Jason Soon adds his thoughts, noting the similarities with some of Craig Emerson’s ideas.
I’m American by birth, and have only been an Australian citizen a couple months. That said, I would never, ever, ever want to trade the Australian health system for US HMO-style private health insurance.
For one thing, they do everything conceivable in their power not to actually cover you.
For another, the cost is astronomical. To get health insurance in the US, your employer pays for it, or else you end up paying hundreds of dollars per month for it. Thus, the vast majority of lower-income people have no coverage.
The Australian system isn’t perfect; but then, none is. It is, however, light years ahead of the US ‘system’.
Rudds super GP clinics are a guaranteed successful concept. The Australian government had such clinics in New Guinea in the 50′s and they worked very well. This is by far the most practical way of expanding access to broad scope health care at minimal cost. It would provide for general health the same functionality as we take for granted from dental clinics (a one stop shop). I would expect this to be appealing to medical practioners as well. Thumbs up.
With the US education system producing quality product like this, why would we follow their Health System?
steve, Scotton does not advocate a less-than-universal health care system. I’m not sure that any serious political group in Australia is advocating a less-than-universal health care system. Accordingly, any Australia-based ‘managed competition’ model would remain vastly different from the American approach. Fair point re: American schools, though. Why are American governments so bad at education? They’re brilliant at everything else, aren’t they?
Robert, I’m intrigued by your reference to natural monopolies. I would not have thought the cost structures in health are such that natural monopolies arise. What specific parts of the health system do you think are natural monopolies?
Cheers
BBB
The real health reform would be to end the priveleged position of doctors in this country brought about by a 1946 constitutional amendment that prevented them from being conscripted for civil service.
This has the effect that we have a mongrel of a health system in which health care is not the national policy objective, but national health insurance…. Less expensive then the nightmare that is the US, but less efficent then a real national health system.
BBB: two areas of natural monopoly. Regional and rural Australia is one. The really high-end interventions are another. There’s only one spinal unit in Victoria, for instance.
After watching SiCKO and seeing the French and British systems in action I was left feeling that our health system in Australia has a lot of room for improvement.
I think it might be debatable whether or not health constitutes a natuiral monopoly – though when your talking about hospitals and the economies fo scale for medical equipoment and medical expertise then there appears to be a case for natural monpooly arguments.
However, there is a storng case that health has public good characteristics. Public goods and services are those that cannot be provided exclusively to an individual and his or her consumption does not reduce the amount of product available to others. In these circumstances there will be limited incentive for private provision and achieving the socially optimal level of production will require government intervention. Preventive measures against infectious disease are an obvious example. However there are more general public
good aspects that pertain to all health services.
Scratch that request, Robert. Having had a look at some of the material, it makes sense. A hospital is not a cheap thing to build.
Cheers
BBB
From your short description, the Podger proposal seems to be basically what we have here in New Zealand, where funding is doled out by the Ministry of Health to District Health Boards. The trick though is that the funding is tied – MoH contracts with each DHB to do so many hip ops, so many hernias etc every year, so central government retains effective control. The primary purpose of the DHBs seems to be as a blame sink, something the government can point to as being responsible for any problems, while ignoring the fundamental one of not enough bloody money. As a result, public accountability for the problems of our health system just falls through that administrative gap.
Now ain’t that interesting. A policy document which at least discusses an HMO type approach to health care, and what does the Government seize on? The possible withholding of Commonwealth funding if states fail to meet benchmarks. AND they use this to suggest that it will mean (tremendous leap, here) an increase in the GST.
Muh?
I seem to remember a few years ago, when one of the US HMOs bought into an Australia health care provider, that there were fears expressed about the possibiliuty of ‘US style health care’ creeping into Australia. I think Abbott responded to these fears at the time by saying there were many good things about the US health care system, and that it was typical of the woolly left to equate ‘US style’ whatever with ‘bad’.
He saw no reason to decry the HMO approach to health then, and no one in the Government is saying anything about it now.
I’m sure I’m not the only one worried about this.
“Scotton’s proposal would represent the complete privatization of the health system, with the government merely acting as regulator and subsidiser.”
In other words, a system that cannot succeed at meeting the requirements of private business, or at providing the affordable service required by public patients.
Rudd should watch Sicko, and scrub this idea.
Private companies are required by corporate law to maximise their returns to shareholders. I have an instinctive disgust at the idea of companies profiting from illness and injury.
In addition, private health providers are under pressure to:
1. Sell patients treatments and drugs that they do not need.
2. Charge as high prices as possible.
and private insurers are under pressure to:
1. Charge as high premiums as possible.
2. Refuse to pay up wherever possible.
And the phony competition that requires multiple insurers to operate just increases administration and advertising expenses which are a waste of everyone’s money.
Private insurers currently charge so much in Oz that Ratty considered it necessary to get the rest of us to subsidise “private” premiums, which is just plain immoral.
It is unethical and inefficient to privatise essential and routine/basic medical care.
Nationalise the whole lot, put in competent non-for-profit administrators rather than idiot cronies, and charge an appropriate single-rate medicare levy.
The real discussion should be focussed on what treatments/drugs are fully covered, and what are too trivial/expensive/elective/non-urgent to be 100% Medicare.
Anyone who doesn’t like being civilised can move to the USA and try their luck there.
andyc, do you have a similar disgust for companies profiting from the human need for food and drink? Or is just because there is a pain element in healthcare? Serious question. Every now and again I cut myself in the garden, but thankfully there are a few companies out there trying to sell me a better Band-Aid. Surely there’s no reason to be disgusted by the pain-profit connection there.
It’s all the better if we can get the profit motive into more areas of the health system. In informed markets the profit motive tends to: (1) improve the quality of good and services over time, and (2) lower the cost. But that won’t happen unless you get the incentives right. Getting the incentives pulling in the right direction is what really matters, more so than whether assets are publicly or privately owned. Sure, you need some fairly serious government oversight and market disclosure requirements to make sure that health insurers and ordinary citizens can make genuinely informed decisions. But a largely privatised system is not incompatible with universal coverage, or high-quality care for the poor.
Cheers
BBB
BBB: aren’t you making a rather big assumption in your belief that the market for health insurance will be particularly well-informed?
“But a largely privatised system is not incompatible with universal coverage, or high-quality care for the poor.”
In theory, no.
BBB is also making a big assumption that maximising profit somehow improves quality of goods/services and lowers cost, when the opposite is actually true in an oligopoly with relatively inflexible demand (ie basic/routine and emergency/essential healthcare). That environment is a license for companies to rip off
patientscustomers as much as they can get away with.It is possible to run a public system so that cost are kept to a minimum by not having to spend on advertising, not reduplicating administration, and buying in bulk. It is also possible to keep quality high by spending enough on infrastructure, qualified staff and equipment where it matters, and raising the money to cover this. Admittedly, this requires the system to be run by people with a clue.
Robert, I’m not really assuming anything. Australian citizens are capable of making rational decisions about their healthcare and health insurance, but the nature of healthcare and health insurance requires a relatively high degree of government intervention. As I said: “…market disclosure requirements [would be required] to make sure that health insurers and ordinary citizens can make genuinely informed decisions.” What particular form those disclosure requirements might take, I’m not sure. A whole range of things would probably need to be covered. But none of those things are beyond the mental capacity of the average Australian.
This is not really a debate between ‘all private’ and ‘all public’. There are probably lots of areas where government ownership and operation is the best approach. Sparsely populated areas are one (as you’ve suggested). A fully nationalised healthcare system, of the kind Andyc proposes, is almost certainly not the optimum system-wide solution though.
Cheers
BBB
My preference for funding would be the NZ no fault accident compenstion scheme. This would be difficult to pull off in Australia. The scheme has its problems, but there are many advantages. As for general health funding, it will always be hard to set the appropriate level of support that the system can sustain balanced against the wealth of the country.
“BBB is also making a big assumption that maximising profit somehow improves quality of goods/services and lowers cost, when the opposite is actually true in an oligopoly with relatively inflexible demand (ie basic/routine and emergency/essential healthcare).”
But I thought this is what the ‘managed competition’ model is meant to remedy. The ‘budget holders’ are the purchasers, not the patients. Patients consume only coverage under a health fund, and that consumption is paid for through the risk-rated premium voucher (to ensure universal coverage). So disclosure on the fund side is what will matter, which I presume will be similar in scope to the current informational arrangements that apply in the private health insurance market.
Anway, here is a cracking PC paper on Scotton’s model: [link]
Cheers
BBB
Putting this proposal forward in a policy document is ridiculous. HMOs in America have failed to do the job and there’s nothing to suggest to me that it will be different in Australia. Medicare is a great system and for it to continue to work properly we must keep public hospitals in public hands. Handing the health system over to business interests will see private health premiums go through the roof and a significant lack of investment in new health infrastructure (just like the privatisation of Victoria’s rail system).
I am pretty much speechless.
Robert
I’ve riffed a bit on your post and noted the similarities of the ideas in the policy document to some pages from Craig Emerson’s book
http://catallaxyfiles.com/?p=3098
Robert,
I think your post requires clarification. Scotton’s proposal envisages a high degree of participation by State governments, including through universally-accesible public health funds and ownership/operation of public health facilities. Scotton does not advocate “the complete privatization of the health system.” Instead, Scotton seems to be advocating a series of Medicare-like funds, some public (State) and some private (presumably the successors of the private health insurers). These funds contract with public (State) and private health providers (eg. public/private hospitals, GP groups, etc). Both kinds of fund are granted capitation payments from the Commonwealth that reflect the risk profile of the fund’s enrolled population. If a person chooses not to enrol in one of the private funds, then they are automatically covered by the State government fund.
I think this approach has much to commend it. It is really about lining up the financial incentives while ensuring universal coverage and State-government ownership of baseline health facilities. There is a superficial resemblance to the American system and its HMOs, but when you scratch the surface Scotton’s proposals appear quite different.
Cheers
BBB
Fair enough, BBB. I went away and read some more, and it seems that there’s no automatic privatisation of State-owned hospitals. But if they’re basically acting as contractors for private health insurance companies, surely the next logical step is privatizing all the hospitals themselves?
You might be right, Robert.
Anyway, the ALP gets full marks from me for engaging with reform options. I wonder, however, what the reaction would be if the Coalition had this in a high-profile, pre-election health policy document. I suspect we’d get all sorts of braindead references to ‘American-style’ healthcare and the ‘dismantling’ of Medicare.
Cheers
BBB
braindead references
If there’s a reliance on private insurers, then yes we are heading towards something more like the American system, and you can try and shut down debate by insulting people but it won’t work.
The most stupid thing would be to tie medical insurance to employment as the US does. What genius thought that one up, I wonder?
[...] piece about the Labor health plan – the irony being that if he had taken the time to read the plan he might have found something to generate actual concern. [...]
I disagree with BBB’s assertion that “if we can get the profit motive into more areas of the health system” then this might somehow improve it.
It is competition for profit that rightly drives many companies and industries — but the ultimate goal of a healthcare system should be to reduce the number of “clients” over time. This is obviously antithetical to a profit based corporation where growth of profit and clients is necessary to continue in business (especially true for public companies).
It seems to me that healthcare has something in common with energy and water in that the less of it used, the better for everyone. (And, obviously, I disagree with these organisations being privately owned as well).
The idea that there is One True Way to efficiently allocate resources in our community should be well and truly dead. Public transport in Melbourne is a disaster. My water supplier sent me an overdue telegram before I took possession of my house.
I am a current business owner and a former healthcare informatics worker. I know that stories about private healthcare operators renting closets in doctor’s surgeries are true. And I believe that while the profit motive works well in my new business, it makes no sense to apply this across the spectrum of all endeavours.
Yes, its probably been noted, but private health is woefully inefficient, spending 14% of revenue on administration compared to 4% for public.
And dont even get me started on insurers.
I also take issue with BBB’s attempt to equate food and drink with healthcare. It’s ridiculous to compare the two. Healthcare is not a dinner for 2 in a fancy restaurant, it is a long term process consisting of a large number of disparate goods and services, custom tailored to the patient’s requirements. Or at least it should be; I don’t even know my GP’s name since they move through my closest medical centre so quickly.
In a world with a plentiful supply of food, I have nothing against profiting from people’s hunger. But does anyone really believe that in an environment where food supply was strongly constrained, that the profit motive would continue to be considered benign? Most would insist on rationing scarce resources in order to ensure that the neediest also had access.
But medical care is scarce, and supply of specialist drugs and services even more so. The services required are determined by the illness and not by the patient (demand inelastic) and changing the supply of treatments and staff takes a very long time (supply-side inelastic). So we have a lot of scarcity. I believe that everyone is entitled to be as healthy as possible, so using one’s ability to pay as a means of distributing healthcare (as it is used as a means of distributing food) is simply not a world I want to live in.
Medical care and food manufacturing and distribution are entirely different fields with (until the water and/or oil runs out) completely different economics. Unless we want a world in which only rich cancer patients get treated (but not cured!), we have to stop thinking that cancer = sushi.
Mark Lillywhite and Lefty E:
Absolutely!
Not all human activities can be appropriately shoehorned into the for-profit business model, and trying to do so causes inefficiencies.
I remain gobsmacked that people can still believe otherwise, after seeing so many crummy consequences of privatisations here and in the UK.
I thought HIH and FAI were supposed to be what all in the business would aspire to be. Then there was the Doctors Insurers who twisted the arms of Government to cut down the payments for personal injury claims.
Still don’t know why every Federal Health Minister in the past decade has given the Health funds whatever ambit claim they serve on the Federal Government. If any other organisation turned up with claims like the Health Funds the Government would scream they were being blackmailed and scrub them from the list of people they deal with.
I would have thought that its ultmate goal should be to keep them alive and healthy. I’m not sure we’re ready yet for euthanasia as an integral part of our healthcare system. Even Philip Nitschke thinks it should be optional.
t
Under this Federal Government this just isn’t happening. Socking surpluses away for tax cuts and porkbarrelling is no way to improve a health system. It may well be an ultimate goal to Tory cheersquads but achieving this on a daily basis is preferable for more sane minds. Makes one doubt their economic credentials when this is the best that can be done.
No. I was merely posing a question to get at the underlying principle of Andyc’s comment. It may ridiculous to compare healthcare and food/drink. It is not ridiculous to ask what the difference is to a person who has just said he is disgusted by the existence of the profit motive in one of those areas. To take your point, though: the notion that health care is necessarily more scarce than food or drink is absurd. For all intents and purposes we, as a society, can have as much of both as we like. Now so far as the profit motive and the number of clients is concerned, under Scotton’s proposal it doesn’t really matter to a health fund how many ‘basic/routine’ or ‘emergency’ cases it gets – these are always covered by the basic package and capitation payments from the Commonwealth.
Healthcare is something consumed by people when they need it. It is simply responding to a humen need that arises from time to time. It is desirable for healthcare to be consumed right up to the point where it is no longer effective. If that is a lot, then so be it. If it is not a lot, then I guess we save resources but there is nothing inherently good or bad about the abundance or scarcity of healthcare.
Health funds in this context are only insurers for the extras (ie. over and above what Medicare already provides). State government will run ‘free’ funds. There is no reliance on privatised insurance. There is, however, heavy reliance on public insurance, since all funds are paid from the pool raised by taxation according to the risk profile of their members. Like I said, the resemblance is superficial. And you are rather proving my point…
Cheers
BBB
BBB: ” It is desirable for healthcare to be consumed right up to the point where it is no longer effective. If that is a lot, then so be it. “
No, because good health of the populace may be maximised by a wide spectrum of methods ranging from
(i) cheap, low-tech preventative medicine such as good basic health education and easy and cheap access to GPs allowing good advice, regular checkups etc at the one end, to
(ii) extremely expensive surgical procedures and long-term drug treatments at the other.
If you want to maximise your profit, then you don’t want to spend on GPs’ salaries for (i), but you do want to collect your markup from (ii). This can result in an overuse of resources and endangering of people’s lives.
If you want to maximise general health at minimum cost, then you emphasise (i), only resorting to (ii) in essential cases, but you are not maximising your profit by doing so.
Note that regular health maintenance is not a consumable for which need “arises from time to time”, but should be an ongoing part of everyone’s lives.
Actually, it is. We’re in 100% agreement about ongoing healthcare. But leaving aside illness, I don’t need check-ups everyday. For a reasonably healthy person, once or twice a year ought to do it. But I think you would agree that (say) 6 check-ups a year is excessive for the average person. This is just one example. This is what I meant by “the point where it is no longer effective.”
Look at Scotton’s proposals more carefully: health funds are not paid by patients, they are paid by the broader public insurance scheme operated by the Commonwealth based on the risk profile of their enrolled populations. In this context, there is a powerful incentive to encourage low-cost primary healthcare that incorporates a high degree of preventative medicine. Just like there is in Medicare at the moment. At the same time, there is a comprehensive regulatory regime that governs service standards. And of course, there is always an applicable public State-government system that everyone is enrolled in by default. You are arguing against a system that nobody here is proposing. It is really about getting price signals into the block purchasing of healthcare on behalf of patients, while guaranteeing universal access.
The
Cheers
BBB
Yes. Not only benign but good and virtuous and necessary. Only a complete economic illiterate would think otherwise. The profit motive means that in a situation of food shortages resources will be committed to increasing food production, thus ending the food shortage.
Look at China as the exemplar. Under Mao, the profit motive was reviled and food shortages were such that millions starved. Still it was a nice little earner for Australian wheat farmers who got paid hard cash to make up the deficit so that the Chinese cities didn’t come out in open insurrection.
Then under Deng Xiao Peng’s agricultural reforms the profit motive was restored and food production soared to the point where food rationing was abolished in the cities. http://www.card.iastate.edu/iowa_ag_review/winter_07/article2.aspx
Much the same happened in Vietnam with the introduction of the Doi Moi reforms in 1986.
Too bloody right, GregM.
BBB
The reform proposals Labor are floating have been considered many times over the last two decades. The Scotton proposal was strongly supported by Latham in one of his books. Medicare Gold was like managed care for the 70+ population. And Medicare Gold is very like the scheme we already have for the Gold Card veterans.
All of these proposals recognise that we already have a system where 2/3 of the services are provided by private providers, and the quality of the system depends on how you manage all types of providers, and whether they happen to be public or private doesn’t make a huge amount of difference. Its not the label at the front door that counts, but whether they can catch mice.
I work for the RNSH and it’s obvious to anyone with a brain that privatisation is ther government’s goal no matter which model they choose.
Most non-medical services at RNSH are right now in the process of being outsourced. My job to which I have just been appointed is to be outsourced next year. When I applied for the position it was a long term permanent position. At the interview I was informed that NOW it’s only a nine month contract which won’t be renewed at it’s completion.
This shows the ruthless nature of these people.
This is simply the thin end of the wedge. Eventually nursing and other medical positions will be out-sourced as well.
Just another baby step in the push to globalise the planet. The mega-rich families at the very top want to squeeze profit out of every single human endeavour in which we participate.
Mark my words, eventually we will all be serfs under one global corporation.
Unless the drones of this society wake up, which is very very doubtful.