Medicare HECS?

Terje Petersen considers reforming Medicare through a HECS-style payment system:

The level of debate regarding health care reform in Australia is really rather pedestrian. We should be opening up the health sector to more private involvement and more personal responsibility. We need more price signals on both the supply and the demand side of the equation. However it seems the best we can manage in price signals is a modest tax rebate from the Liberals if you buy private insurance, and a higher medicare levy by the ALP if you don’t. Neither of these is the sort of market price signal we need. We need price signals that link consumers to suppliers.

Currently the medicare levy raises about 1/6 th of the amount that the government actually spends on health. If the Medicare levy was meant to raise the revenue needed to pay for Medicare it would need to be about 9%. So if we increased in from 1.5% (there abouts) to 9% and cut income taxes by 7.5% we would still pay the same in taxes (the levy is a tax) but we would have a lot more transparency informing the debate.

Each quarter we ought to get mailed a statement from the Medicare office outlining how much expenditure we incurred using our Medicare card. Again this would not change the benefit we receive but it would improve transparency and better inform the debate.

If the Medicare statement suggested above was actually an invoice and we were required to repay the expenses we incurred using our medicare card this would allow us to cut taxes by about 9% (inclusive of the current 1.5% Medicare levy or else just the 9% levy suggested above). Given the dead weight cost of taxation this would be real boost to the economy.

However there is a social policy concern with this approach that cuts to the heart of why Australians overwhelmingly like Medicare. The cost may deter poorer people from getting treatment. Fair enough. We can fix this concern by allowing people who can’t or don’t pay the invoice to automatically roll the debt from their Medicare invoice onto their HECS debt. In short Medicare would become an income contingent loan from the government. The Medicare card would become an alternate payment system much like VISA or Mastercard but issued by the government and with an income contingent repayment plan. Social concern fixed because nobody is denied essential health care on the basis of affordability. HECS could be renamed to the “Health and Education Contribution Scheme” and still abbreviated as HECS.

Okay some people don’t want to burden their future self with such a debt. That is up to them. They can take out private insurance instead or pay as they go using cash. People will vary in their preference but nobody will miss out on medical service due to an incapacity to pay. And insurance could be bought unencumbered by the current prescriptive government rules about inclusions and excess thresholds. Consumer demand and insurance company innovation coupled via the market would allow a process of discovery to determine what health services get paid for by insurance and what get’s paid for via cash. Whether insurance has a small excess or a large excess. Whether we mostly all have the same scheme or if we want a lot of variety.

Having reformed the demand side of the equation we should seek to reform the supply side by privatising hospitals. We already have private GPs, private specialists, private medical centres and private pathology services. In fact most routine encounters with the medical sector is already through a private provider. We even have numerous private hospitals. It isn’t a sector that benefits from either government ownership or government operation so we should extricate the government from it and allow hospitals to focus on treating patients and allow governments to instead focus on making better laws.

Others have suggested that health care should be provided by governments issueing vouchers which people then use to pay for private insurance. My view is that this approach will lead to governments being prescriptive about what insurance policies must include. About what excess they must provide. They will tend to exclude the option to self insure for some medical expenses. In short I don’t think a voucher scheme would drive the same dynamic process of innovation.

Terje Petersen is a libertarian blogger and stood as a political candidate for the Liberal Democratic Party in the last two federal elections. This article was initially published at Thoughts on Freedom. 

 

Comments

[Give Me Freedom!]

1.

You are joking aren't you? No I didn't think so.
Again you would slug the "rich" and those who work hard all their lives to build something up to live on and hopefully pass to their kids.

This would ruin most people who have saved some money and leave the welfare junkies (no I don't include genuine recipients) laughing all the way to their next pack of fags or plasma screen.

With HECS, any debt owed is taken from your estate, normally this will be low. What you are suggesting, in effect, is death duties. Especially as older people will use more of the health budget than young and likely have massive debt.

More to the point, those with the means to do so will simply emigrate to a friendlier tax environment and/or put assets in their kids names... do you also want to introduce gift taxes?

See my point!

[TerjeP]

2.

Except you are wrong:-

http://www.austlii.edu.au/au/legis/cth/consol_act/hefa1988221/s106z.html

[TerjeP]

3.

p.s. That said I don't have any in principle problem with estates picking up the medical bill for those that failed to insure. It is normal for most debts to be picked up by a persons estate on death.

[Give Me Freedom!]

4.

The text you quote says: "Upon the death of a person who owes a debt (other than an HEC assessment debt) to the Commonwealth under this Chapter, the debt is taken to have been paid."

Note the key words "other than an HEC assessment debt".

I may be a little out of date (my HECS debt was paid off around 15 years ago) but this is my recollection of it!

[Give Me Freedom!]

5.

Whereas I would consider myself a conservative libertarian at heart, I do think there are some things the government should be into. One of them is healthcare, the others are utilities. If our government didn't piss our taxes down the toilet, there would be no healthcare argument. No, we apparently need a huge public service, offices for this and that, pink bats, green (useless) energy etc etc. We are approaching Brussels proportions in this country.

Back to the original topic: What would happen when one partner dies owing something? I don't know much about estate laws but the surviving partner would need to be protected from ruination by the tax office.

Again, do you want gift taxes introduced? That would have to happen under your scenario, it would be unworkable without one.

[bluebell]

6.

What the Gillards of this world don't understand is that by subsidizing middle and higher income earners to keep in PHI they are actually SAVING money. My 81 year old pensioner mother is in PHI - the government gives her a 40% rebate because she is over 75. By staying in private health she is saving the government a bucket load of money because of her health problems. It is the same for me as a self funded retiree who gets the 30% PHI rebate. My health problems are actually worse than my mothers. I have many auto immune problems and have already battled breast cancer - now I am off for another operation for a similar reason. I have to finance my own trip to Brisbane, pay for accommodation, pay a daily co-payment for my hospital stay, and that is even before I get slugged with the doctors bills. If I was to be admitted to a public hospital those costs would be billed to the taxpayer. Personally I think Howard had the balance right. Provide for the poor, and help the middle class to help themselves. That lessons the burden on government, and it's the same for private schools. Although I do concede that mega wealthy private schools such as Kings College ect should have their funds scaled back, with those savings being plowed into desperate public schools. Most private schools are far from wealthy. The private school my daughters attended was a modest Catholic school whose parents made great efforts to get the school where it is today. It does not have gyms, or swimming pools or manicured lawns like Kings. The problem with Labor is that it lacks balance. For them it is all or nothing, and punishing struggling middle class families is not the way to go....that is why they were called Howard's battlers.

[liberal elitist]

7.

The term "HEC assessment debt" is defined in section 34. It refers to a specific HECS repayment which has been assessed by the ATO, not the total HECS debt. So if you die after filing your tax return, and you have a tax debt because you earned enough for HECS repayments to kick in, that's still payable by your estate. The remaining HECS debt is written off.

Kudos to Terje for acknowledging the social policy reasons underlying the Medicare system before arguing for changes to it. There is one important difference between higher education and medical care: all higher education is elective. Under this system, people with expensive medical issues will generally end up poorer (even if nobody is prevented from getting medical treatment altogether). I'm not sure I think that is fair, although I suppose you could equally argue that it is not fair to be subject to higher taxation to pay for others' medical treatments.

I wonder if you have some evidence for the claim that the health sector doesn't "benefit from either government ownership or government operation so we should extricate the government from it." The fact that the various socialised health care systems cost (per capita) about half as much as the USA's private system doesn't seem to support your case, but I realise that there could be many other variables at play there. If the private sector can deliver health care cheaply and more effectively than the public sector, why has it failed to do so in the US?

[liberal elitist]

8.

What the Gillards of this world don't understand is that by subsidizing middle and higher income earners to keep in PHI they are actually SAVING money.

Most people with PHI will keep it even without the subsidy — so withdrawing the subsidy from them will save the government money. I suspect the wealthy are more likely to pay for PHI regardless of the subsidy, so if the subsidy is withdrawn only for wealthier citizens the government can reduce further the proportion of people who will return to the public system. The $750m per annum spent on rebates for PHI "extras" will be saved for sure, since those extras are not provided in the public system.

The government predicts that the partial withdrawal of the subsidy will save it $2.4b over 3 years. Do you have any evidence to suggest that these estimates are wrong?

[bluebell]

9.

Get a Labor politician to absolutely guarantee that the $2.4b over 3 years will be returned to the public hospital system first, then we might have something to talk about.

Of course that will never happen because they plan to use that money to help them fill their budget black hole. The black hole they created by recklessly spending like drunken sailors because they panicked and went overboard.

They are punishing ordinary working families for their gross incompetence. Also, experts are warning your Labor clowns that the Carbon tax is set far too high....it's the highest in the world. That is set to bite after July 1st....then watch the employment figures plummet like a stone as companies frantically offshore and downsize their operations.

[TerjeP]

10.

Liberal Elitist - if people don't want to end up with large medical debts they should buy insurance. If they decide otherwise they run the risk but won't be denied medical care. And yes there is an implicit assumption that smaller government is a good thing and health is a core obstacle. I think part of the problem in the US is private health insurance mandated which is what my reform tries to avoid.

I should have added one extra thing to the article. If the reform allows us to reduce taxes by 9% points it should also allow us to increase the HECS repayment rate by 9% points. Also that income threshold below which the repayment rate is currently 0% could be substantially lowered as part of the trade off for the tax cut.

[bluebell]

11.

The reason why people buy PHI is because the public hospital system is broken. Being a retired nurse I saw this coming like a freight train. Nation wide we are 16,000 nurses short, with the average age of our nurses standing at 50-56 years. Our doctor shortage is bad, and I will concede that Howard was at fault by slashing university places for the medical degree. We are desperately trying to plug the hole by importing foreign doctors, many of whom do NOT met Australian standards (despite our politicians bleating otherwise). To make matters worse governments are failing to make proper background checks - something that lead to the Dr Jayant Patel disaster. Nurse Tony Hoffman took a great risk (both professionally and personally) in exposing the creep. He was responsible for many deaths and dozens of injuries, many of them permanent. The nursing shortage is because our politicians (in their wisdom, sarcasm intended) closed down the training hospitals and herded nurses into university. I must tell you that has been an absolute disaster for this country. The drop out rate for nurses at university is nearly 70%. Those that do graduate are only given a 12 month guarantee of work at a public hospital, and after that they must find their own work...either at another public hospital or a private one. Even then, many are on contact, working part time, and/or doing agency work, going from hospital to hospital to make a decent wage. Those that do end up landing a full time job at the one hospital are the lucky few. The other thing too is many of our nurses are going offshore to work. They are going to places like England, Canada, the USA Dubai and Saudi Arabia. They are recruited via the Internet and their conditions and wages are superior to our own. This includes in some cases, free accommodation, Health and dental insurance.

Now you know why people no longer trust the public system and prefer PHI. This has been a failure of government on both sides of the fence. It has been a festering sore for decades, with politicians giving platitudes and bandaid measures to a very serious situation.

[bluebell]

12.

If I were in charge I would bring back basic nursing courses back into the hospital system and only send those nurses to university who want to upgrade their skills which cover highly complex procedures, or to specialize in a particular field.

I would vastly increase medical degree places in our universities for doctors,and make sure all nursing graduates had total job security - that means a full time job.

All foreign doctors MUST be up to the same standard of an Australian trained doctor and their backgrounds thoroughly checked for incompetence/malpractice or any prison sentences imposed. That is the only way you will prevent another Jayant Patel episode from occurring...and let's be fair about this. If it wasn't for Independent politician Rob Messenger and Ms Tony Hoffman this guy would have walked!

Above all, we MUST hold our politicians to account for their decisions. It is their decisions that can have catastrophic consequences and leave people severely injured through no fault of their own.

[bluebell]

13.

I rest my case your Honor..

http://www.couriermail.com.au/news/breaking-news/nsw-nurses-seek-cheaper-re-entry-courses/story-e6freonf-1226275059756

[TerjeP]

14.

Bluebell - the shortages you refer to are to be expected in a system with a non operational price signal. A properly functioning market would signal a shortage through rising prices. This is the messages that makes it plain to consumers and suppliers that there is a capacity issue. The reform I advocate is about restoring price signals.

[A Liberal]

15.

Just so you TerjeP, it's called HELP these days not HECS.

[A Liberal]

16.

Just so you know TerjeP, it's called HELP these days not HECS.

[Chris Ashton]

17.

So there are some details to be worked out. No kidding!

But I like where this is heading. Certainly some thinking outside of the box that we are preconditioned to is necessary in this whole debate.

[TerjeP]

18.

A Liberal - HELP and HECS are related but not the same.

http://www.ato.gov.au/individuals/content.aspx?doc=/content/8356.htm&pc=001/002/046/002/013&mnu=0&mfp=&st=&cy=

[PaulW]

19.

why not just let those who have full coverage via their private insurance not pay any medicare levy as we are not using any of the public system. Our choice, our money

[bluebell]

20.

Paul, the Medicare care levy is to cover your doctor's visits and ancillary services like blood tests, Xrays, ultrasounds and scans. It also covers eye testing, ect.

Your PHI mainly covers your hospital room and the use of their surgery facilities.

When the doctor operates on you in a private hospital his fees are mostly paid for by Medicare, with some supplementary payment being made by your PHI.

Medicare is universal for every one in that regard. However, if a person wants to be treated privately, with the doctor of his choice, then it is wise to take out PHI for that purpose.

[kelly liddle]

21.

Terje

I do like your ideas but it may be in part due to the current status quo which involves corporate welfare to insurance companies and a class war. I have been thinking about this a lot and the issue seems to be about emotions. As our healthcare is extremely good on a cost and outcome basis compared to the world why do people complain? I think it is due to emotions and expecting a surgeons to perform at an extremely high standard with no deaths due to mistakes. They are human and working in a very difficult job so an expectation of things being perfect is not realistic. People will accept in QLD 1 death per day from vehicle accidents/deliberate bad driving, so what is the difference and the difference is probably the ability to blame politicians. So this is a very major problem, although improvements are made to fix this problem which is not actually a problem at all. Nor do these improvements which usually involve more bureaucracy change the rate of non perfect outcomes and only make it more expensive outcomes which eventually leads to lower outcomes due to lack of money.

[TerjeP]

22.

PaulW - under the proposed system somebody paying their own way with private insurance would avoid the current 1.5% Medicare levy and also have a marginal tax rate 7.5% points lower.

[dante]

23.

Good concept, wrong demographics. HECS is incurred when you are relatively young with prospects of good future income. Health costs increase as you get older and your income is declining, often as a result of worsening health. And what about those that die and leave no assets? Would the family have to carry the debts? Would that be socially just?

Of course this touches a very important issue. We live in a society. This provides its benefits (e.g. a labour force needed by capital to produce goods) and has its obligations (e.g. assure a level of health that is independent of race, income, social status, circumstances, etc.). Once we understand this, we shall be in a position to understand that, in a society, those that can afford more should contribute more. There would be no need for taxes (and for that matter regulations, laws, etc.) if we each accepted our own responsibilities. But we don't because, in general, humans are selfish. Anyone with any degree of empathy would understand that a society that looks after its least able members is a far superior society than societies where the least able are left to beg. It's a disgrace visiting the USA, the richest country under the sun, and seeing people of age, including kids, begging. What society would see their leaders becoming more popular on the promise of reducing support for the least able?? It's shameful!!!

[Richo]

24.

Interesting concept but I would have concerns. The problem with the approach is that would lead to a huge blow out in our gross debt, putting our credit rating at risk. Although our net debt would remain about the same, the IOU health bills more not often will not be worth the paper they are written on. The Budget would also be deficit for at least the next 10 years.

As alluded to by other comments.

1. Most people encounter their significant health costs in the last 5 years of life.

2. Major operations are hugely expensive and under a HECS style set up are unlikely to ever be paid back in full.

If you want to reclaim the debt in full you would be introducing a "death duties" sort of set up, which was rightly abolished more than 20 years ago. Also if someone is poor, no guarantee debt would be recovered.

[bluebell]

25.

I am scheduled to have major surgery on 12th March down at the Wesley Hospital - I'll let you guys know right down to the last cent what it cost me. I'll also factor in what it cost to haul myself down there, and the cost of accommodation while I am not in the hospital. My first appointment with my surgeon is on 8th March. So my hubby will have to stay at the Wesley's patient accommodation at $110 per day (food not included) for about 9 days....that's if all goes well. We will receive a $30 per day accommodation rebate, but not for the first 4 days as we don't have a Commonwealth Seniors Card, and we also will receive a 10 cent per kilometer petrol allowance. I might add that the accommodation rebate has not been increased for 20 years!