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Thursday, 7 May 1987
Page: 2491


Senator COATES —I ask the Minister for Finance whether he has examined the proposal for cutting public sector health outlays by a net $7 billion as contained in the National Priorities Project book Spending and Taxing. Can the Minister tell the Senate what the implications of this proposal, if implemented, would be?


Senator WALSH —I have looked at the health chapter of the book. It proposes, from gross spending cuts of $8.9 billion-Commonwealth and State government-to pay back $1.9 billion as medical rebates to taxpayers on low incomes. That equates more or less with the present Medicare cover for holders of a pensioner or beneficiary health card. This would leave gross savings of $7 billion-not all on the Commonwealth Budget by any means-out of total gross savings of $12 billion proposed in the book. For the rest of the people the book proposes that something like an open market should operate, but with this very big stopper-that there should be private insurance in a free insurance market; that is, no community rating, allowing cover for 100 per cent of expenditure incurred. That would be extended to pharmaceuticals. There would also be a freeing up of the availability of pharmaceuticals, including abolition of the present pharmaceutical agreement under the Health Act. So people could go to a pharmacist and buy drugs, including presumably drugs of addiction, just as they go to a supermarket to buy a packet of Weeties or a cake of soap, and get from their insurer a 100 per cent rebate for that activity.

The theory of the free market in health in economic terms would actually work and would probably lead to reductions in health outlays in total provided insurance was banned. In other words, those who became chronically ill, unless they were rich, under this proposal would die in the gutter. The ideologues who wrote the book are not willing to pursue their social Darwinism that far. They advocate a free market and claim all the efficiency benefits that can be associated with a free market and then cancel the free market by allowing not only private insurance but private insurance for 100 per cent of the expenditure incurred, while abandoning all controls on the supply of the service. In other words, if the Australian Capital Territory doctors union decided that doctors would double their fees, anybody who had 100 per cent private health insurance would still have no deterrent from a personal viewpoint to going along to the doctor more often than he had before because the insurance company would pay the bill and the incremental cost to the insurance fund would not be noticed by the individual. That is referred to as `moral hazard' by the people who study this phenomenon.


Senator Michael Baume —That is exactly the problem with bulk billing.


Senator WALSH —Senator Baume knows a great deal about moral hazard; it is something he has faced very often, and usually he succumbs to it.


Senator Walters —What do you think bulk billing is?


Senator WALSH —Bulk billing is something, providing the doctor charges the schedule fee, which leaves no cost to the disadvantaged. This is exactly what the Opposition proposed and exactly what the Centre of Policy Studies group proposes. What is also proposed, Senator Walters--


Senator Michael Baume —It is equally as bad, is it?


Senator WALSH —No, there are some controls on bulk billing. Senator Baume and the Centre of Policy Studies would abandon all the controls while handing out blank cheques. In terms of economic theory, the proposal is fatally flawed because it not only allows private insurance but it would have no problems with a 100 per cent rebate of any costs incurred for medical services or for pharmaceuticals. In other words, this proposal is even worse than what the Opposition is putting up. It is not only flawed in economic theory but also it has been tested empirically in the United States. The Centre of Policy Studies proposal is considerably worse than the United States system, but movement towards a free market with fee for service and private insurance has been tested in the United States. Eleven per cent of gross domestic product in the United States is spent on health services-compared with 7.5 per cent in Australia-for a health service delivery outcome which is certainly no better.

There are a couple of other points of fact I wish to make. Firstly, the book assumes that the current rate of utilisation under Medicare is above the long term trend. That is an error of fact. Secondly, it also says that an allowance of $700 per taxpayer should be given to people who are on incomes deemed to be too low to pay full premiums for private insurance. This allowance would be clawed back from those on annual incomes of between $10,000 and $24,000. That makes no allowance for the fact that cover would also be required for a dependent spouse, if there were one, and dependent children. So on top of the error of fact we have an error of arithmetic. In closing, if this proposal were applied it would be even more catastrophic than the system which operates in the United States. If it applied here it would increase total spending on health by $9 billion and the United States system is basically what is advocated by the Opposition.