Australian Politics and Policy - Senior, 2019a

Health policy
Figure 3 Health expenditure by source of funds, 2016–17. Source: data from AIHW 2018b,
table A3. Recurrent expenditure only, not including research, administration, public health
and funding from other sources comprising 3% of expenditure.
for another 10 per cent, and their own pockets for the remaining 20 per cent.
But this varies tremendously between programs. Public hospitals are essentially
free, funded through joint Commonwealth–state agreements. For pharmaceuticals,
patients must make a capped co-payment, with the co-payments varying according
to patients’ means. For dental services, most of the payment is from patients’
own funds, with some through subsidised private insurance and programs for
targeted groups. Private hospitals are funded mainly through private insurance, the
Commonwealth contribution a set of subsidies which make up about a third of the
net cost.
Such complexity inevitably leads to duplicated bureaucracies and high transaction
costs. It leads to gaming and perverse incentives when different government
agencies (sometimes in different tiers of government) try to meet their own
financial targets by shifting costs to different programs. For example, payments for
pharmaceuticals come out of state budgets for patients in state hospitals, but out of
the Commonwealth-funded PBS for others. And it probably leads to people seeking
some care from services that are free or low-cost at the point of delivery (either
through Medicare or private insurance), when other services with higher out-ofpocket
costs would be more efficient in terms of overall costs and benefits.
Further, a lack of system integration means that people do not receive the
timely attention. The Productivity Commission reported in 2015 an opportunity to
getfarmoreoutofourhealthsystemthroughbetteruseofmeasuresthatcome
into play before people become involved in expensive hospitalisation. 22 Effective
22 Productivity Commission 2015.
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