Australian Politics and Policy - Senior, 2019a

Australian Politics and Policy
pharmaceuticals. Therefore as a quid pro quo for patent protection governments
generally intervene to control prices pharmaceutical firms can charge.
Third, when transactions are covered by insurance – public insurance such as
Medicare or private health insurance through commercial or mutual bodies – there
are incentives for both users and providers for overuse. When a service is free or
heavily subsidised at the point of provision, the price signals which act as rationing
mechanisms in most markets are absent. Economists refer to this phenomenon by
the quaint term ‘moral hazard’.
Health economists argue about the extent of moral hazard in health care. Most
(butnotall)healthcareproceduresinvolvesomepainordiscomfort,whichtends
to rule out frivolous demand on the consumer side. And there is evidence that even
modest prices can deter people from using therapeutically necessary services. 12
An enduring debate among health economists has been about the appropriateness
of what is known as ‘fee-for-service’ health care. Fee-for-service care is a
familiar and established system of payment, particularly for outpatient services.
In Australia Medicare pays medical practitioners fixed fees for defined items of
service. A common such service is ‘Item 23’ on the Medicare benefits schedule – a
GP consultation of less than 20 minutes.
Some argue that fee-for-service encourages overservicing by practitioners and
overdependence on health care by patients, suggesting in their place that other
formsofpaymentshouldbeused,suchaswhatisknownas‘capitation’,wherea
medical practitioner or health clinic is paid according to the number of people
in their catchment area (adjusted for age and known risk factors). Unsurprisingly
critics of capitation argue that it can provide incentives for under-servicing.
Drivers of health care expenditure
Whichever measure is used – real expenditure per capita or expenditure as a
proportion of GDP – health care expenditure is rising in almost all countries.
During 2003 to 2016 real per-capita health care expenditure growth in OECD
countries averaged 2.4 per cent a year, a rate that would see a doubling every 30
years. 13 Australia’s growth in health care expenditure has been only a little lower. 14
Because governments directly fund a large proportion of health care, and try to
control the prices charged by regulated insurers and by those with market power,
rising health care expenditure is a significant political concern.
The main driver of expenditure growth is usage, rather than the cost per
service. So long as services are free or heavily subsidised at the point of delivery,
therewillbesomepressureforoveruse.
12 Corscadden et al. 2017.
13 OECD 2017.
14 AIHW 2018b.
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