Australian Health Care - An Overview

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TAGS: ECON PGOV SOCI AS
SUBJECT: Australian Health Care - An Overview

Summary
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1. (SBU) Australia's mixed public and private health care system
achieves some of the best health outcomes in the OECD despite
healthcare spending comprising less than 10% of GDP. Australia is
second in the OECD for life expectancy at birth and 16th in
percentage of GDP spent on healthcare. Australia's Medicare system
provides universal access to those without private health insurance
while using rebates and tax penalties to encourage as many people as
possible to purchase private health insurance. Most physicians are
self-employed or work for private hospitals or clinics. Private
hospitals and insurance play a key role in the overall system, with
44% of the population covered by private health insurance. About
two-thirds of total hospital beds are provided by the public system,
with the balance provided by private hospitals. With state
governments responsible for delivering public health services but
dependent on Commonwealth funding to cover costs, the public health
system has been an issue in recent state elections. The system is
imperfect, with often lengthy delays for elective medical
procedures, significant problems for aboriginal and rural health
access, and rising costs. The current system is largely popular
with patients and practitioners, and generally delivers on the
stated social goal of universal access and good outcomes at a
comparatively low cost. End summary.

AUSTRALIAN MEDICAL SYSTEM - A BRIEF OUTLINE
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MEDICARE AND PHARMACEUTICAL DRUGS


2. (U) The main pillar of Australia's health care system is the
universal health insurance system funded by Australia's Federal
government, first introduced in 1974 and modified several times
since. Now known as Medicare, this program provides guaranteed
access at low costs to basic health care for all Australian
residents. Medicare subsidizes payments for services provided by
doctors and other health professionals. Though funded in large part
by the Federal government, the system is run by Australia's eight
state and territory governments, which fund and operate public
hospitals that provide services that are covered by Medicare. With
the exception of some employed by public hospitals or state
universities, doctors are not salaried employees on a government
payroll. They are either self-employed or members of a medical
practice. Medical providers are free to charge what they want for
their services, although reimbursement from the Federal government
is capped based on the Medicare Benefits Schedule (MBS).


3. (U) According to analysis by the Congressional Research Service
of 2006 OECD Health Data, Australian specialists earn an average
US$247,000/year (PPP basis),7.6 times better than per capita GDP
and double the OECD average of US$113,000. General practitioners
(GPs) averaged US$91,000 (2.8 times per capita GDP, slightly above
the OECD average US$83,000),and nurses US$48,000 (OECD average
US$33,000). In 2005-06, the Australian health sector employed
753,000 people, 7% of the civilian work force.


4. (U) Medicare provides no dental coverage (a debate is underway
whether dental care should be covered); similarly, ambulance
services are not part of the system and are paid for by the
individual or their private insurance. Low income people are
Qindividual or their private insurance. Low income people are
eligible for some subsidies for these services, which falls outside
of Medicare.



5. (U) Fees for medical services provided by private practitioners
are established by the federal Department of Health and Ageing, in
conjunction with medical profession experts from both the public and
private sectors. These "schedule fees" serve as a floor for private
physicians and hospitals, who may charge whatever they wish for
their services. For patients admitted to hospitals, the Medicare
benefit (i.e., what the GOA will cover) is equal to 75% of the
schedule fee; for nonhospital services, Medicare pays up to 100% of
the schedule fee for consultations with General Practitioners (GP)
and up to 85% for services from specialists. The patient pays the
difference ("gap") between the benefit paid and the schedule fee, to
a maximum of A$65.20 (indexed annually),and pay any costs above the
schedule fee. In addition, all families have a cap of around
A$365/year (US$274 based on 5/15/09 exchange rate of A$1.00 =
US$.76) for "gap" payments for out of hospital services, after which
they are reimbursed 100% of the schedule fee (but still not for
anything above the schedule fee). Some are eligible for other
benefits for medical fees, and a 20% tax rebate on expenses over
A$1500 (US$1125) can be claimed on medical expenditure in certain

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categories including Medicare payable items.


6. (SBU) Australia's health care system has evolved into its current
form over the past 60 years. The Pharmaceutical Benefits Scheme
(PBS) is the oldest element of the system. PBS was introduced in
1948 to provide a limited range of "life-saving" medicines; it is
now the price setter for all prescription medicines in Australia.
Prescriptions are filled by pharmacies which purchase their drugs
from providers at a wholesale price established by the PBS and
charge customers a set price negotiated with the PBS, with a
relatively low cost (co-payment) to the patient that is set by PBS.
For 2005-06 the average patient cost per prescription was A$6.70
(US$5, does not include non-PBS prescriptions; costs are cheaper for
some categories of patient); PBS picked up A$32.10 per prescription.
As of December 2007, PBS covered 819 drug substances (generic
drugs),available in 2749 forms and strengths (items) and marketed
as 3481 products (brands). PBS is very popular with the public and
medical practitioners, although not with pharmaceutical companies,
who complain about PBS's squeezing costs at their expense.

PRIVATE SECTOR THRIVES


7. (SBU) The private sector is a key component of the Australian
medical system - not only do private hospitals, pharmacies, and
health insurance funds exist, they are explicitly encouraged and
subsidized by the Federal government. As Angela Pratt, chief of
staff to Health Minister Nicola Roxon, and others have told us, the
competitive tension between public and private hospitals and
providers is an important part of the system. And the presence of
the private sector reduces the burden on public hospitals.


PRIVATE INSURANCE


8. (U) The system deliberately encourages Australians to purchase
private insurance if possible. Private health insurance is readily
available in Australia, but must meet certain conditions. Since
1983, insurers have been required to offer health insurance to all
on a community-rated basis which prevents them from charging more
(or refusing coverage) based on pre-existing conditions, age, or
other factors. Policies are available that exclude certain medical
developments such as care related to pregnancies and childbirth, or
certain medical conditions, making the policy cheaper and leaving
the patient to rely on Medicare for those issues should they arise.
Further, they are restricted by law to insuring only in-hospital
procedures. Insurance is bought by individuals directly. Employers
do not pay insurance premiums for employees - they have no direct
role in funding health. As a result, insurance is fully portable
and is not linked to specific employment. Individuals can also
choose to purchase more expensive insurance policies that offer more
extensive coverage. Overall insurance costs are contained by the
strong influence of the Medicare system's fee structure.


9. (SBU) As Australian Health Insurance Association CEO Michael
Armitage told embassy, while these restrictions have helped keep
private insurance relatively cheap, it has limited their ability to
innovate or expand into new areas. Still, private insurers pay for
an estimated 11% of medical costs in Australia, including about 55%
of all operations. Criticism that private health care has created
additional demand rather than accommodating overflow from the public
Qadditional demand rather than accommodating overflow from the public
sector is unfair, according to Armitage, who pointed out that
private insurers pay for many Medicare-covered procedures such as
joint replacements and chemotherapy.


10. (U) Private health insurance covers procedures done in private
hospitals, or done in public hospitals by private physicians.
Private hospitals, which include for-profit operations, offer a
choice of provider, shorter waits for certain procedures, and
generally better amenities for both patients and doctors when
compared to the comparatively spartan public hospitals. In any
case, the public and private health systems are quite
interdependent. They often share the same workforce and facilities,
and there is frequent coordination between public and private health
providers in treating a patient.


11. (U) The private sector is also subsidized by the government. At
one point in the 1990s, the share of Australians holding private
insurance had dipped to near 30%. In response, the GOA introduced a
rebate, returning 30% of private insurance premiums to the purchaser
- a A$3 billion (US$2.25 bn) per year subsidy for insurers. With
that carrot, the GOA wields two sticks; a medical levy surcharge of
1% of income if an individual earns over A$70,000 (US$53,000) and
does not carry private insurance, and a 2% surcharge on private
health insurance premiums for every year past age 30 that a person

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does not own private insurance, up to a maximum 60% surcharge. (In
the budget issued May 12, the GOA proposes to phase out the rebate
for high income earners, and increase the medical levy surcharge for
the same high income people to 1.5%. Health Minister Nicola Roxon
says GOA modeling shows this would have a negligible impact on the
purchase of private health insurance.) With these policies,
insurance ownership has rebounded and around 44% of all Australians
now own private hospital insurance. Nearly half of the insured
population has gross household incomes under A$70,000, which means
that nearly 4.3 million holding private insurance earn less than the
average income.


12. (U) The government reaps benefits from subsidizing the private
insurance sector. Private insurance directly supports private
hospitals and eases the burden on public hospitals. It gives
consumers greater choice, reduces government costs, and allows
government spending to flow to those with the greatest need. Costs
of private insurance vary significantly depending on the level of
coverage and the state of residence, making national comparisons
difficult. As an example, a basic policy for two adults plus
dependents in New South Wales (Australia's most populous state)
covering treatment in public hospitals only can be purchased for as
little as A$808/year (US$606). A policy for the same group (two
adults plus dependents) with access to "top" private hospitals and
"comprehensive" coverage would run A$4575/year (US$3440); both
figures are actual costs to consumers after the 30% rebate from the
government.


13. (SBU) The hybrid public/healthcare system is broadly supported
in Australia, although some argue that the A$3 billion/year
subsidizing private health insurance should be directed instead at
improving the public health system. Anecdotally, most Australians
believe that if you can afford insurance, you should buy it. But as
Francis Sullivan, Secretary General of the Australian Medical
Association, described it in a conversation with embassy, most
Australians are comfortable with less choice in exchange for
guaranteed access to essential medical services.

HOSPITALS


14. (U) Hospitals account for more than one-third of recurrent
health expenditure in Australia, and are the single biggest cost for
the states' and territories' medical budgets; this also makes health
care a big campaign issue in state elections. Patients generally
access public hospitals via a referral from a general practitioner
(GP),or through emergency departments. Public hospital emergency
and outpatient services are free, as is inpatient treatment for
public (Medicare) patients. People admitted to a public hospital
can choose to be treated there as either a public or private
patient, or can choose to be admitted directly to a private
hospital. Private patients treated in a private hospital can choose
their specialist, but charges apply for all of the hospital's
services such as accommodation and surgical supplies. Medicare
subsidizes the fees charged by doctors in both public and private
hospitals, and private health insurance contributes towards medical
fees and hospital costs.


15. (U) In 2005-06 Australia had 1302 hospitals and 80,828 beds. Of
those, 755 were public hospitals providing 54,601 beds. Public
Qthose, 755 were public hospitals providing 54,601 beds. Public
hospitals accounted for 16,993 patient days, private hospitals 7473.


GENERAL PRACTITIONERS


16. (U) General practitioners (GPs),whether private or public
employees, play a key role in the Australian system. They are
usually the first point of contact for patients, and serve as the
primary care provider. Referrals to specialists and other health
workers and for medical tests usually come through GPs. The results
of tests and visits to specialists are then passed back to the GP,
who is responsible for coordinating the ongoing care for the
patient. The Australian Medical Association describes GPs as "a
gatekeeper to health services," and stresses that GPs have the right
to refuse a request from a patient for a referral the GP feels is
inappropriate. However, some patients do "self-refer" to
specialists without going through a GP (in Australia, "general
practitioner" is a specialty in its own right, with its own specific
training). "Self-referring" is discouraged, including by many
specialists who will only see patients armed with a GP's referral
letter. This can be a serious impediment in urgent cases. It is
also penalized financially; a self-referring patient will get a
lower benefit from the government for a given procedure.

WHO PAYS FOR IT, AND HOW MUCH DOES IT COST?

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17. (U) In FY 2005-06 Australia spent A$86.9 billion (US$65.2 bn),
then about 9.0% of GDP, on health to cover a population that is
currently 21 million. Spending on health has crept up steadily.
FY2005-06 spending itself was about 45% more per person than ten
years earlier, and now this spending is an estimated 9.8% of GDP.
Of the total spent on health care, the GOA expenditure was 43%, and
states and territories paid 25% (this total of 68% compares with an
OECD average of 73% of health spending being paid by public
sources). Private insurers covered another 7% (according to GOA
figures that take into account the A$3 billion/year subsidy on
health insurance premiums),and direct payments by individuals
comprised 17%. Federal money was spent mostly on medical services
(A$12 billion),public hospital services (A$10 billion),and
pharmaceuticals (A$6 billion). States/territories (and some
localities) spent A$22 billion in FY2005-06, of which A$12 billion
was for hospital services. Federal funding for healthcare is
sourced in part by the Medicare levy of 1.5% of taxable income,
which generated A$6.5 billion in FY2005-06. General revenues cover
the majority of federal funding for health. (See table at end of
cable for comparisons with OECD countries for health care
spending.)


18. (U) Over half of the 32% paid by non-government sources was from
private individuals, including where patients paid for the entirety
of a good or service, and instances where costs were split with
private insurers or the GOA. Of the A$28 billion of out-of-pocket
costs, nearly A$8 billion was for dental care. Medications were
split between the GOA (A$6.1 billion) and customers (A$5.3 billion).



19. (U) The private sector is leading the way on capital health
expenditures. In 2005-06 non-government spending on medical
infrastructure (total A$5.2 billion) was nearly 60%; the states
spent 37% and the GOA only 3.5%.

HOW IS IT WORKING
--------------

THE GOOD NEWS


20. (U) For the share of GDP spent on health care, Australia does
well in the OECD health data. Australia's 9.0% (2005-06 GOA figure,
now estimated 9.8%) of GDP spent on medical care and per capita
spending were close to the OECD average. According to OECD data,
per capita health administration and insurance costs for Australians
in 2004 was US$86 (PPP basis),compared to US$65 in the United
States, US$238 in France, and the OECD average of US$104. (The OECD
does not compile data comparing costs for specific procedures across
economies.)


21. (U) Australia now has the second highest life expectancy (81.4
years) among OECD members, behind only Japan. Death rates among
children and young people have dropped by over 50% over the past two
decades - infant mortality was below OECD average. Smoking rates in
adults have dropped from 35% to 15%, in part due to public health
campaigns stressing its health risks. Death rates from conditions
like cancer, heart disease, strokes, injury, and asthma are
declining. More people are surviving heart attacks, which are
growing less common - although coronary heart disease remains
Australia's top cause of death. The number of people with
disabilities is rising, reflecting in part improved survival rates
from injuries or conditions that would have killed earlier
Qfrom injuries or conditions that would have killed earlier
generations. (See table at end of cable for comparisons with OECD
countries on life expectancy.)


22. (U) Although a small country, Australia has a vigorous medical
research sector. A medical researcher at Australian National
University told us that Australia, with under 1% of global
population, accounts for 4% of medical research publications
worldwide. The Federal government gives grants of about A$1 billion
per year, and the states and territories are competing to be centers
of medical research, kicking in their own funds and incentives. Two
Australian medical researchers have won Nobel Prizes in recent
years, and the new cervical cancer vaccine was developed in
Australia. However, as in other sectors, Australia lags in
commercializing its medical discoveries. They tend to be licensed
to overseas corporations rather than developed locally, in part
because of comparatively little venture capital and a small domestic
market.

THE BAD NEWS


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23. (SBU) There are problems. The worst is the abysmal situation of
indigenous Australians - aborigines and Torres Straits Islanders.
Life expectancy for them is some 17 years lower than other
Australians, despite per capita medical spending that is 17% higher.
But this is a subset of the overall problems of indigenous
Australians rather than one specific to the health care system, and
is beyond the scope of this report.


24. (U) Part of their problem is shared by many other Australians -
the tyranny of distance. Australia is the size of the continental
United States, but has a population of 21 million. A large majority
of those 21 million live in or near a few metropolitan areas -
Sydney, Melbourne, Brisbane, Adelaide, and Perth. "Country"
Australians find it very difficult to attract medical professionals
- doctors, nurses, pharmacists, dentists, technicians - to their
isolated towns and villages; the GOA has made more proposals to
encourage medical professionals to practice in these areas in its
May 12 budget. For many Australians, a visit to the doctor means a
drive of over a hundred miles - and visiting a specialist means
flying to one of the big cities. Even to give birth, now many rural
women must fly to a distant city where there is a hospital with a
birthing center. Emergency medical services in the outback are
often provided by the iconic Royal Flying Doctor Service or similar
air ambulance services. Even moderately large towns like
Australia's capital city Canberra (population 350,000) have a hard
time keeping higher-end specialists due to a small population base
and lack of amenities at the hospitals (one health expert told us
wryly that hospitals are competing to attract doctors not patients),
and air ambulance flights to Sydney for treatment are common.


25. (U) The size of Australia has defeated some efforts to introduce
managed care. There was a trial done in the 1990s to see whether it
was possible through bundled care to improve outcomes at no
additional cost for the 20% of the population that consume 80% of
medical spending. The conclusion is that it would be difficult to
make it work in Australia because of the small size and geographic
distribution of the population. This also contributes to
Australia's significant interest in telemedicine.


26. (U) Australia is proud to be #2 in the global standings for life
expectancy. Unfortunately, by some measures they have surpassed the
United States and Britain to take the #1 spot in the global obesity
table - with obvious concerns for the impact on health. Similarly,
although smoking has dropped rapidly thanks in large part to public
campaigns about the perils of tobacco, alcohol consumption remains
high. Generally, Australia has the same medical problems that come
with prosperity as most other wealthy societies. And like other
Western countries, Australia has an aging population, so it faces
challenges related to that and to chronic disease management.


27. (U) The public health sector has an explicit trade-off.
Everyone is guaranteed cheap and reasonably good treatment through
the public system. But it is very common to have to wait for
consultations with a specialist or elective surgery in a public
hospital. For example, in 2005-06 the median wait for an elective
coronary artery bypass graft in a public hospital was 20 days; for
Qcoronary artery bypass graft in a public hospital was 20 days; for
total knee replacement, nearly 180 days.


28. (U) Several experts noted to us that as in other countries,
Australia does not do well on prevention. Medicare is designed
around episodic treatments - fees for treating a patient, performing
surgery, etc. There is little incentive or funding available for
preventative measures; this is the subject for a task force set up
by the Rudd Government that is due to report back in mid-2009.


29. (SBU) Comment: Our government and private sector contacts all
agreed that the current system for Australia, despite its
imperfections and increasing costs, is working well. Australians
generally enjoy good health (which admittedly includes other factors
beyond the medical system such as access to clean water),costs are
not too high, and Medicare and the PBS are genuinely popular. Even
most physicians, who strongly opposed the imposition of a universal
health program in 1974, now support the current system. Nobody
loses access to medical care when they become unemployed; nobody is
refused insurance or even employment due to pre-existing medical
conditions. In addition to delivering good quality medical care to
all Australians at reasonable costs, and allowing for private
insurance and private hospitals for those able and willing to pay
more, the current system also appeals to the Australian sense of
fairness. Those who can afford to pay more and get more. But there
is a basic level of medical care made available for all Australians,
regardless of income, insurance, or employment status. End comment.



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HEALTH SPENDING (OECD, ranked by per capita income)

Country income per health per capita health
capita spending care expenditure
(US$, PPP) share %GDP US$ (OECD rank)
(OECD rank)


3. United States 43.8 15.3 (1) 8711 (1)

6. Canada 36.8 10.0 (8) 3678 (5)

10. AUSTRALIA 35.5 8.8 (16) 2999 (15)

12. Sweden 34.9 9.2 (12) 3202 (13)

14. United Kingdom 33.0 8.4 (18) 2760 (16)

16. Germany 32.0 10.6 (4) 3371 (10)

17. Japan 31.9 8.2 (21) 2474 (20)
All OECD 31.5 8.9 2824

18. France 31.0 11.1 (3) 3449 (8)

20. Italy 28.9 9.0 (15) 2514 (18)

22. New Zealand 25.9 9.3 (10) 2448 (22)

LIFE EXPECTANCY AT BIRTH (OECD ranking, ranked by life expectancy,
2005)

Country life expectancy infant mortality -
at birth (years) deaths per 1000 live births
(OECD rank)

1. Japan 82.1 2.8 (4)

2. AUSTRALIA 81.4 5.0 (20)

5. Italy 80.9 4.7 (18)

6. Sweden 80.9 2.4 (2)

7. France 80.4 3.6 (9)

8. Canada 80.4 5.3 (23)

11. New Zealand 79.6 5.1 (21)

16. Germany 79.3 3.9 (12)

19. United Kingdom 78.9 5.1 (21)

24. United States 77.9 6.8 (27)

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