A Healthier Future for all Australians - Final Report June 2009
6.6 ‘Medicare Select’: building on and expanding Medicare
The overall aim of ‘Medicare Select’ is to improve the responsiveness and efficiency of Australia’s health system, and its capacity for innovation, through three main levers:
- greater consumer choice;
- greater provider competition; and
- better use of public and private health resources.
In a nutshell, ‘Medicare Select’ is based on the establishment of health and hospital plans to deliver on their members’ universal Medicare entitlement. All Australians would automatically belong to a government operated health and hospital plan, but could select to move to another plan, which could be operated by a not-for-profit or private enterprise. Health and hospital plans would receive funds from the Commonwealth Government on a risk-adjusted basis for each person. In effect, people would take their universal service entitlements under ‘Medicare Select’ – including their entitlement to Medicare Benefits Schedule (MBS), Pharmaceutical Benefits Scheme (PBS) and public hospital care – to their plan. Through contracting arrangements with public and private providers, plans would purchase services to meet the full health care needs of their members. This would entail a strategic approach to innovative purchasing, focusing on people’s health needs over time, and across service settings, rather than on the purchase of individual elements of the service.
In Table 6.2 below, we outline the features of the ‘Medicare Select’ concept in terms of arrangements for financing, funding, policy and regulation, purchasing and provision of health services. We emphasise that this is just an illustrative example of the arrangements as we recognise that more work is needed to fully develop the approach and test its feasibility in the Australian context.
Finally, we make the obvious point that, under ‘Medicare Select’, the Commonwealth Government would need to take direct responsibility for some health activities. It is likely that biosecurity, ambulance services, some public health activities (for example, communicable disease control and environmental health), and some highly specialised areas of medicine (for example transplant surgery) would be planned, funded and, in some cases, delivered by the Commonwealth Government. It would also maintain a significant role in fostering and funding research and supporting clinical education and training.
Table 6.2: Illustrative model of ‘Medicare Select’
Under ‘Medicare Select’, the Commonwealth Government would be the sole government funder of health services. There are a number of possible financing mechanisms. ‘Medicare Select’ could be financed from consolidated revenue. Alternatively, to aid the community’s understanding of the cost of the universal entitlement to health care, it could be financed through a publicly identified share of consolidated revenue or from a dedicated levy.
The Commonwealth Government would determine the universal service entitlement and service obligation for all Australians.
All Australians would automatically belong to a government operated health and hospital plan, which could be a national plan, a plan operated by a state government or by a not-for-profit or for-profit organisation. People could readily select to move to another health and hospital plan, which could be another government operated plan, or a plan operated by a not-for-profit or private enterprise. Plans could not refuse a member.
Similar to Medicare now, health and hospital plans would cover a mandatory set of health services made explicit in a universal service obligation, which would include hospital and medical care and pharmaceuticals.217
As is the case now with private health insurance, people could purchase from private health insurers additional coverage not included under the universal service obligation (such as for extended allied health coverage, advanced dental care, enhanced hospital amenity and access). Similarly, third party insurers would be retained.
Specific plans, such as those provided by the Department of Veterans’ Affairs and the proposed National Aboriginal and Torres Strait Islander Health Authority, would remain available to those entitled. It is also possible that providers of health and hospital plans would provide a specific plan focusing on serving the needs of people living in remote areas of Australia.
The Commonwealth Government would distribute funds to health and hospital plans on a risk-adjusted basis for each person. That is, funding would follow the person and reflect the likely health needs of that person, based on factors such as age, known health risks and previous health service utilisation. In effect, people would take their universal service entitlements under ‘Medicare Select’ – including their entitlement to MBS, PBS and public hospital care – to their health and hospital plan. There may also be a risk equalisation mechanism supporting the risk adjusted payment approach.
Through contracting arrangements with providers, health and hospital plans would purchase the services to meet the full health care needs of their members. This would entail a strategic approach to purchasing, focusing on people’s health needs over time, rather than on the purchase of individual elements of the service. They would have responsibility for the full continuum of health services under the universal service obligation.
Health and hospital plans would negotiate contractual arrangements with both public and private providers. In response to the incentives and requirements set by the contracting process, providers would compete to increase efficiency and quality – including access, patient satisfaction, and use of best knowledge and practice.218
Strategic purchasing in the context of provider competition offers the promise of innovative approaches to improve patient care and service delivery.
The providers of health and hospitals plans would also have a motivation to invest in wellness and prevention to encourage and support members in healthy living, understand and manage health risks, intervene early and coordinate chronic and complex care needs over time.
The Commonwealth Government would be responsible for the policy and regulatory parameters for ‘Medicare Select’. If the full benefits of choice and competition are to be realised, the Commonwealth Government must design a policy and regulatory framework which includes a number of key elements.219
Importantly, there must be enough alternative plans to allow for competition and consumer choice. The Government would need to develop regulation governing the establishment and operation of health and hospital plans. The regulatory standards would influence the numbers of plans that could operate efficiently in the Australian market. For the market to be truly competitive, consumers would need to be able to change plans with relative ease. Funding must follow the choices of individuals. The threat of consumers switching plans would place pressure on health and hospital plans to ‘perform’.
The Commonwealth Government would have a very important role in establishing a regulatory framework to control and monitor health and hospital plans. Mechanisms such as sound risk equalisation, a consumer ombudsman and requirements that plans must accept all members should address potential ‘cream skimming’. Co-payments for mandatory coverage would also be limited by regulation. There would also be accountability and performance monitoring arrangements for plans set by the Commonwealth Government, such as access targets, quality indicators and performance benchmarks.
6.6.1 Key benefits of ‘Medicare Select’
Potentially, ‘Medicare Select’ would have a number of benefits.
Under ‘Medicare Select’, both the Commonwealth and state governments could retain a significant presence in health care, but with rational allocation of roles and responsibilities. The Commonwealth Government would be responsible for setting the policy parameters, financing the national program, establishing appropriate accountability arrangements, managing risk adjusted funding, and regulating health and hospital plans and contracting arrangements. The Commonwealth Government would also operate a health and hospital plan. The states could retain responsibility for the provision of public hospital and other health services, and could also operate a health and hospital plan.
‘Medicare Select’ would retain a mixed public and private system of financing and service provision, reflecting community preferences. But the private sector would be embedded in the national system, allowing better use of both public and private health resources.
Under ‘Medicare Select’, universal coverage of people and their families would be maintained, and even strengthened with consumer choice of health and hospital plan. Health plans would be responsible for caring for people’s full health needs – potentially having responsibility for the whole of a person’s care throughout life – providing strong incentives to focus on prevention, health coaching for healthy behaviours, and better management of chronic diseases through early intervention, service integration and coordination.
Through strategic purchasing, health and hospital plans would encourage innovative approaches to funding aimed at improving patient care and service delivery. Competition for contracts would, in turn, place pressure on service providers to improve the quality and efficiency of care.
We agree that a single payer for each person with flexibility and incentives to purchase the most cost-effective services would be an important governance reform. Consistent with this, under ‘Medicare Select’, plans could develop flexible and innovative approaches to attracting membership from people living in rural and remote areas – for example, by including coverage for telehealth and patient travel.
In summary, ‘Medicare Select’ – driven by consumer choice, competition, and the best use of the public and private health resources – has the potential to create a more dynamic system, encouraging continuous improvement in the health system in response to future challenges.
It would provide the mix of drivers required for a self-improving public health system:
- pressure from the top, with government determining the strategic direction, standards and regulation, as well as accountability and performance management arrangements;
- horizontal pressure, with competition and contestability for providers on the supply side; and
- bottom-up pressure, with increased consumer choice on the demand side.220
As one submission concluded:
Above all, it would lead us closer to a health system that actually works as a SYSTEM rather than as a series of disjointed silos and structural relationships embodying perverse incentives.221
While agreeing that ‘Medicare Select’ offers a number of potential advantages, we recognise that there are complex issues and potential risks that must be thoroughly evaluated and resolved. As an indication of the scope of these issues, they include:- the type and extent of services covered under the universal service obligation;
- the financial transfers between state, territory and local governments and the Commonwealth Government required to achieve a single national pool of public funding to be used for funding health and hospital plans;
- the basis for raising financing for health and hospital plans, including the extent to which transparency should be promoted through use of a dedicated levy or through publicly identifying the share of consolidated revenue that makes up the universal service obligation;
- the approach to ensuring equitable access to health services in areas of market failure, particularly in remote and rural areas of Australia;
- the regulatory framework to support the establishment and operation of health and hospital plans;
- balancing the ease of movement in and out of funds with the need to give plans a long-term incentive to invest in the health and wellness of their members;
- ensuring consumers have access to adequate information so that it allows them to make an informed choice about plans; and
- equitable and viable methods of funding health and hospital plans based on members’ risk in terms of factors such as age, known health risks and previous health service utilisation.
89.
We believe that there is a real need to further improve the responsiveness and efficiency of the health system and capacity for innovation. We agree that greater consumer choice and provider competition and better use of public and private health resources could offer the potential to achieve this, through the development of a uniquely Australian governance model for health care that builds on and expands Medicare. This new model is based on the establishment of health and hospital plans, and draws upon features of social health insurance as well as encompassing ideas of consumer choice, provider competition and strategic purchasing. We have given this new governance model the working title ‘Medicare Select’.90.
We recommend that the Commonwealth Government commits to explore the design, benefits, risks and feasibility around the potential implementation of health and hospital plans to the governance of the Australian health system. This would include examination of the following issues:90.1
The basis for determination of the universal service entitlement to be provided by health and hospital plans (including the relationship between the Commonwealth Government and health and hospital plans with regard to growth in the scope, volume, and costs of core services, the process for varying the level of public funding provided to the health and hospital plans for purchasing of core services; and the nature of any supplementary benefits that might be offered by plans);90.2
The scope, magnitude, feasibility and timing of financial transfers between state, territory and local governments and the Commonwealth Government in order to achieve a single national pool of public funding to be used as the basis for funding health and hospital plans;90.3
The basis for raising financing for health and hospital plans (including the extent to which transparency should be promoted through use of a dedicated levy or through publicly identifying the share of consolidated revenue that makes up the universal service entitlement);90.4
The potential impact on the use of public and private health services including existing state and territory government funded public hospitals and other health services (incorporating consideration of whether regulatory frameworks for health and hospital plans should influence how plans purchase from public and private health services including whether there should be a requirement to purchase at a default level from all hospitals and primary health care services);90.5
The approach to ensuring an appropriate level of investment in capital infrastructure in public and private health services (including different approaches to the financing of capital across public and private health services and the treatment of capital in areas of market failure);90.6
The relationship between the health and hospital plans and the continued operation of the Medicare and Pharmaceutical Benefit Schemes (including whether there should continue to be national evaluation, payment and pricing arrangements and identifying what flexibility in purchasing could be delegated to health and hospital plans concerning the coverage, volume, price and other parameters in their purchasing of medical and pharmaceutical services in hospitals and the community);90.7
The potential role of private health insurance alongside health and hospital plans (including defining how private health insurance would complement health and hospital plans, the potential impact on membership, premiums, insurance products and the viability of existing private health insurance; and any changes to the Commonwealth Government’s regulatory, policy or financial support for private health insurance);90.8
The potential roles of state, territory and local governments under health and hospital plans (including issues related to the handling of functions such as operation of health services, employment of staff, industrial relations and the implications for transmission of business and any required assumption of legislative responsibility by the Commonwealth Government related to these changed functions, together with the operation by state and territory governments of health and hospital plans);90.9
The range of responsibilities and functions to be retained or assumed by Australian governments (and not delegated to health and hospital plans) in order to ensure national consistency or to protect ‘public good’ functions (including, as potential examples, functions such as health workforce education and training, research, population and public health and bio security);90.10
The approach to ensuring equitable access to health services in areas of market failure including in remote and rural areas of Australia (including the relevant roles of health and hospital plans in regard to the development and capacity building of a balanced supply and distribution of health services, and the approach by plans to regional and local consultation and engagement on population needs);90.11
The necessary regulatory framework to support the establishment and operation of health and hospital plans (including issues relating to entry and exit of plans, minimum standards for the establishment of plans, any requirements relating to whether plans are able to also provide health services, and the potential separation of health and hospital plans and existing private health insurance products);90.12
The development of appropriate risk-adjustment mechanisms to protect public funding and consumers (including potential mechanisms such as the use of risk-adjusted payments by the Commonwealth Government to health and hospital plans, reinsurance arrangements and risk-sharing arrangements related to scope, volume and cost of services covered under health and hospital plans); and90.13
The necessary regulatory framework to protect consumers (including potential requirements around guaranteed access, portability, co-payments, information provision on any choices or restrictions relating to eligible services and health professionals/health services covered under individual health and hospital plans, measures to regulate anti-competitive behaviours and complaints mechanisms).217While this outline of health and hospital plans focuses on health care, we note the advantages of possibly extending coverage to disability services. Access to disability services has been labelled a ‘lottery’, varying according to type of disability, how the disability was acquired, age of the person with a disability, as well as income and geographic location. Support is fragmented across program areas, multiple government departments and jurisdictions. (B. Bonyhady, ‘Support in short supply for disabled’, The Australian, 7 May, 2009.) In response to the suggestion at the 2020 Summit, the Government has agreed to consider the development of an insurance model to meet the costs of long term care for people with disabilities. (Australian Government 2009, Responding to the Australia 2020 Summit, at http://www.australia2020.gov.au/docs/government_response/2020_summit_response_full.pdf, p. 126.)
218M Dusheiko, M Goddard, H Gravelle and R Jacobs (2006), ‘Trends in health care commissioning in the English NHS: an empirical analysis’, CHE Research Paper 11, Centre for Health Economics, York University, pp. 1-2.
219Prime Minister’s Strategy Unit 2006, The UK Government’s Approach to Public Service Reform – A Discussion Paper, Cabinet Office, London, p. 47.
220Prime Minister’s Strategy Unit 2006, The UK Government’s Approach to Public Service Reform – A Discussion Paper, Cabinet Office, London, Chapter 4. This model of public service reform also includes measures to improve the capability and capacity of the workforce. These issues are discussed in Chapter 5.
221H Owens (2009), Submission 250 to the National Health and Hospitals Reform Commission: Second Round Submissions.
