Budget 2017: Medicare levy rise inequitable
The 2017 Federal Budget included a number of important measures in the area of health. The Conversation asked two experts from our Centre for Health Economics Research and Evaluation (CHERE) to comment on the announced rise in the Medicare levy and measures affecting aged care.
The Budget announcement is for the Medicare levy to increase from 2% to 2.5% of taxable income from July 1, 2019, with the extra half a percentage point directed towards the National Disability Insurance Scheme.
Medicare: Professor of Health Economics Elizabeth Savage
The budget has increased the Medicare levy (from 2.0% to 2.5%). It also has removed of the 2% budget repair levy, which benefits individuals with taxable incomes above A$180,000.
In 2014-15, only 3% of taxpayers had taxable incomes above $180,000. By contrast, the Medicare levy increase affects almost all taxpayers. This is a tax increase designed to generate revenue to fund the NDIS. The Medicare levy is essentially a flat tax, except for those at the lowest end of the distribution of taxable income.
Revenue could have been raised more equitably by increasing marginal income tax rates for higher earners (including making the budget repair levy permanent) or lowering upper tax thresholds.
What’s missing from the budget?
The 30% subsidy for private health insurance was introduced in 1999, and cost the budget A$2.1 billion in 2000-01. This cost has grown steadily and was estimated in the 2016-17 budget to be about A$7 billion for 2017-18. Despite high population coverage, consumers question whether private health insurance provides value for money.
There is abundant evidence the subsidy is an ineffective and costly policy, but it seems the politics keep reform of the subsidy in the too-hard basket.
From the budget speech and budget papers, it is not clear that there is any reform of the pricing of prostheses for private hospital patients. The Prostheses Listing Authority, the government regulator, sets minimum benefits for prostheses for private hospital inpatients.
The levels set are far higher than both prices in comparable overseas countries and those paid by public sector hospitals in Australia. Private hospitals are major beneficiaries when the regulated minimum benefits exceed the negotiated prices paid to suppliers.
Private health insurance premium increases are being driven by hospital benefits, of which 14.4% are for prostheses. In 2015, insurers paid out almost A$2 billion in hospital benefits for prostheses.
The previous health minister, Sussan Ley, raised prostheses reform as a priority, noting that insurers pay $26,000 more for a specific pacemaker for a private patient than a public patient ($43,000 compared with $17,000). It appears from early documentation that this problem has not been prioritised in this budget.
Aged care: Michael Woods, Professor of Health Economics, University of Technology Sydney
The government has held the line on restraining growth in funding to residential aged care providers in this budget by implementing its pre-announced indexation freeze for the year, and a partial freeze in 2018-19.
The freeze was in response to concerns some providers were wrongly over-claiming payments under the Aged Care Funding Instrument (ACFI). The instrument determines the level of funding the government pays to providers to care for their residents.
The government has stopped publishing its annual target number of ACFI audits, so any proposed changes in compliance activity are now unknown.
The long-awaited consolidation of the Home Care Packages (which aim to help ageing Australians remain at home for as long as they need) and entry-level support through the Commonwealth Home Support Program has been put off for another two years, until at least 2020-21. This will be disappointing to consumers as a more seamless set of support services will improve their ability to remain in the community.
A welcome initiative is the additional A$8.3 million for more home-based palliative care services, although this extra support is budgeted to end in 2019-20.
Overall, the biggest unanswered issue facing the government in aged care is the need to develop an evidence-based and sustainable funding regime for residential care. To date we have seen short-term budget fixes and the commissioning of opaque rushed research reports.
The health minister needs to step back and establish a proper policy review process that undertakes sound research and consults widely. The review needs to establish a set of core funding principles and model options that address the varying incentives of residents, providers and taxpayers. It needs to adopt the one that transparently empowers consumers, provides market competition and results in long-term sustainability and certainty.
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