This section provides a background of the discussion on PHI through a brief
evaluation of funding for the universal health care system – Medicare. It is essential
to understand how Medicare and PHI co-existed and the historical developments
behind them.
The national health insurance of Australia – Medicare – was first introduced by the
Labour government in 1984, under Prime Minister Bob Hawke. This is a tax-funded
scheme aimed at providing universal and affordable public healthcare to the people
of Australia. People also have the option to access healthcare through a private
healthcare arrangement that exists in parallel to Medicare. In fact, prior to the
introduction of Medicare, the vast majority of the population held some sort of cover
through either a PHI fund or self-funded medical cover. The financing of Medicare
occurs mainly through the federal government’s tax revenue, that is, the Medicare
levy – based on the taxable income of an individual (Connelly & Doessel, 2000). In
general, Medicare covers the cost of patients being treated as a public patient in a
public or a private hospital (in which sometimes there are arrangements made with
governments to care for public patients). In addition, it allows private patients to be
Pharmaceutical Benefits Scheme (PBS), as well as the cost of limited dental care
(eligible healthcare cardholders etc).
When a patient is admitted to a public hospital, they may generally choose to be
admitted either as a public patient – funded by Medicare – or as a private patient –
PHI-funded or self-funded. Public patients are entitled to free treatment and services
that are essential to the treatment (e.g. meal, accommodation and medication).
Private patients in a public hospital are charged a fee; this cost is lower than the fee
charged at a private hospital and is normally met by another funding body, e.g. a PHI
fund. If a patient chooses to be admitted to a private hospital they are generally
charged a higher rate than they would be at a public hospital. This cost, in most
instances, is wholly or partly (depending on coverage) covered by the PHI fund that
the patient is enrolled in. In the case of private patients who are eligible for Medicare
(generally Australian Citizens, Permanent Residents and Humanitarian-Visa holders),
the doctor’s fee generally attracts Medicare benefits (Department of Health and Aged
Care, 2000). For private patients, Medicare benefits payable for the services
provided is at 75% of the MBS fee. The remaining 25% is usually covered by the
health fund for private patients.
Health services that are provided to patients by a private doctor either inside or
outside a hospital are wholly or partially reimbursed by Medicare. There are also
types of health services that are not covered by Medicare, e.g. dental care to
patients not holding a healthcare card, non-rebatable MRI scans, plastic surgeries,
workers’ compensation claims, and motor accident insurance claims, etc.
Prescription medications are covered under a separate scheme (the PBS). In
general, the PBS subsidises about 75% of all prescription drugs dispensed in
Since the establishment of Medicare first in 1984, there have been many changes to
the scheme. The Medicare agreement in the early 2000s went through some
dramatic changes; many of the changes are still affecting the delivery of Medicare
services today, for example the changes of Medicare levy payment and the changes
of eligibility of covered treatment types etc.
Rapid increases in healthcare expenditure over recent decades is a national
budgetary issue that is commonly faced by developed countries (Australian Institute
of Health and Welfare, 2005). In addition to the increases in expenditure, consumer
expectation of quality and timely provision of healthcare also continues to increase.
The health expenditure data from the Australian Institute of Health and Welfare
(2012) highlights the increasing healthcare costs. According t
billion (or $5,952 per person), up in real terms (after adjustment for inflation) from
$82.9 billion in 2001–02 and $132.6 billion in 2010–11. This means that health
expenditure as a proportion of Gross Domestic Product (GDP) stands at 9.5% for
2011–12, up from 8.4% in 2001–02. The current OECD (Organisation for Economic
Co-operation and Development country average health expenditure to GDP ratio is
9.0%.
At the same time, Australians’ OOP spending on healthcare grew, in real terms, to
6.2% in 2003–04 – up from 5.0% the previous year. Real growth in expenditure by
individuals between 1993-94 and 2003-04 was 5.4% per year, 0.8 percentage points
above the real growth in healthcare expenditure of 4.6% per year over the period
(Duckett, 2005b).
a report released by Australian Institute of Health and Welfare (2008) in 2006-07 PHI
funded 7.8% of total recurrent healthcare expenditure. In a recent report released by
the Private Health Insurance Administration Council (PHIAC), 44.5% of the
Australian population hold private hospital cover (PHIAC, 2010).
PHI in Australia has some distinctive features:
• It provides coverage for services (either partially or wholly) uncovered by Medicare such as ancillary covers like: dental, alternative therapy and optical
care.
• PHI provides double coverage (either partially or wholly) for the costs of health services already covered by Medicare such as hospital accommodation
and prostheses costs.
• PHI is prohibited to provide cover for outpatient based services for the fee difference between the doctor’s fee and MBS bulk bill rate (85% of schedule
fee).
When admitted to a public hospital, public patients are assigned a doctor (can be a
senior or junior doctor depending on clinical priority or whether the doctor is
available). For insured people, PHI provides additional benefits to public entitlements
such as increased choice of doctors and hospitals, shorter waiting times and
perceived better quality at private hospitals (Paolucci et al., 2008). Private patients in
these circumstances are given the choice of choosing their own doctor.