School of Public Health

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School of Public Health Preventive
Medicine Professor Just Stoelwinder Chair of
Health Services Management

• Reforming health system governance
• AHHA-AIHPS 2009 Congress
• Hobart 9th October 2009

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Agenda

• The reason for reform of governance
• Is Medicare sustainable?
• Is the governance of Medicare sustainable?
• Are the NHHRC governance proposals enough to make
  Medicare sustainable?
• How could Medicare Select work?

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Challenge 1

• Is Medicare financially sustainable over the next
  20 years?

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Health expenditure as a share of GDP, 2006
Source http//www.oecd.org/dataoecd/46/38/3897953
6.pdf
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Australia Health expenditure by component,
1997-98 to 2007-08 (constant m)
Source Table 4.2 Australian Institute of Health
and Welfare 2009. Health expenditure Australia
200708. Health and welfare expenditure series
no. 37. Cat. no. HWE 46. Canberra AIHW.
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Year on year percentage increase in expenditure
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The future expenditure
SourceEasing the pressureThe Intergenerational
Report and Private Health Insurance. 2004.
Econtech Pty Ltd with Harper and Associates and
Philip Hagan. Melbourne Medibank Private Limited
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The future source of funds
SourceEasing the pressureThe Intergenerational
Report and Private Health Insurance. 2004.
Econtech Pty Ltd with Harper and Associates and
Philip Hagan. Melbourne Medibank Private Limited
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Is Medicare sustainable over the next 20 years?

• Is Medicare financially sustainable?
• Is the political/bureaucratic governance of
  Medicare as a tax-funded system sustainable?

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The governance problems

• Moral hazard
• Inefficient, inappropriate, discretionary care
• Public expectations
• Problematic outcomes
• Burden of safety and quality
• Ration through waiting
• Complexity fragmentation
• Lack of standardization
• Provider power
• Politicization of decision making

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The politicization of decision making

• Unsustainable/volatile tax spending due to the
  politics of carving up the budget.
• Stakeholders have to defend share actually aim
  to enhance it.
• Individuals have no direct stake want the
  health system outcome (access), but dont see the
  impact on cost
• Politicians feel the political pressure from
  stakeholder groups, but dont have any direct
  countervailing pressure.
• Operations managed through bureaucracy

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The public hospital problem
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The public hospital problem the last Federal
election
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Labor Opposition acts on the public hospital
problem 24 August 2007
The Daily Telegraph
The Australian
The Adelaide Advertiser
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The political marketplaceAMA Public Hospital
Report Card 2008
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The States make their claim
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COAG outcome
7.3 annual inflation (on an increased base) in
health payments to the States for public
hospitals 2.55b in initiatives for the next 5
years
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NHHRC Final Report Achieving One health
system

• COAG agree Healthy Australia Accord
• Progressive takeover of funding responsibilities
  for public hospitals (40 increasing over time as
  Commonwealth builds purchasing capacity) (Option
  A)
• Medicare Select competing public and private
  health plans (tax funded) (Partial Option C)
  subject to research and development

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The Prime Ministers response

• leave each of these three options on the table
  for the next six months or so, as we engage in a
  detailed, direct consultation with the health
  sector and with communities around the nation
• Special COAG meeting in late 2009 to seek States
  views
• COAG meeting in early 2010 at which the
  Commonwealth will put its reform plan.
• If agreement not reached the Commonwealth will
  proceed to seek a mandate from the Australian
  people for the proper reform of our health system
  for the future

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A Premiers response
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A Health Ministers response
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Rudd vs the States preemptive positioning
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The problems with the NHHRCs transition proposal

• Risk of hospital cost inflation
• 40 Commonwealth component uncapped
• States under access pressure face 60 cent in the
  dollar investment decisions
• Problem gets worse as Commonwealth moves up to
  100 funding
• Risk of bureaucratic control response
• End up with discredited Option B
• A pathway to Medicare Select? Perhaps in
  developing a HBS.

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Medicare Select NHHRC proposal

• Commonwealth sole funder tax sourced.
• Medicare entitlements delivered through health
  and hospital plans
• All start as members of Government plan
• Option to join another plan that delivers
  universal service obligation
• Funds move with member according to risk
  equalization formula.
• Plans contract with public and private providers

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Medicare Select the main problem

• If fully tax-funded consequences
• Spend on health care not transparent
• Stakeholder budget game will drive decision
  making
• Rationing/restrictions on access does not engage
  consumers
• Lack of price competition to drive plan
  competition and purchasing

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Re-look at the key elements of the Netherlands
model

• Insurance design
• Direct consumer engagement in funding and choice
  of package design

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Designing Medicare Select key features

• Basic package (Universal service entitlement)
• Mandatory participation
• Open enrollment
• Community rated
• Risk-equalization

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Ex-ante risk equalization

• Age gender (5 year groups to 90) 38 groups
• Chronic disease
• Pharmacy-based cost groups (FKGs) 190 groups
• Diagnosis-based cost groups (DKGs) 130 groups

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Risk equalization age gender (2009)
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Risk equalization FKGs (2009)
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Risk equalization DKGs (2009)
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Ex-ante risk equalization

• Age gender (5 year groups to 90) 38 groups
• Chronic disease
• Pharmacy-based cost groups (FKGs) 190 groups
• Diagnosis-based cost groups (DKGs) 130 groups
• Regional clusters 10 groups
• Socio-economic
• Source of income age 21 groups
• Residence type and average income 12 groups

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Ex-post risk sharing

• Correction number of insured with central
  fund
• Correction total costs with central fund
• Outlier risk sharing (HKV pool) with central
  fund
• 90 of claims above 20,000
• Generic risk sharing between funds
• 30 difference between actual variable claims
  and ex-ante budget
• Proportional risk sharing between funds
• After all above adjustments 35 difference
  between actual and ex-ante estimate
• Safety net with central fund
• After all the above 90 of claims /- 17.50
  per member

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Designing Medicare Select

• Funding
• 7 Medicare levy hypothecated (50 current
  government contribution) (Income tax offset)
  (transparent, linked to economic growth)
• Tax funding for children and below threshold
  incomes
• Distributed to chosen health plans through risk
  equalization formula
• Significant direct contribution by above income
  threshold consumers income tax offset
  (transparent, drive price competition and choice)

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Medicare Select Tax changes by income quintiles
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plus ça change, plus c'est la même chose
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plus ça change, plus c'est la même chose
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Conclusion Accidental logics

• Major policy initiatives altering the fundamental
  institutional mix and structural balance in
  health careare episodic and rare. (They) have
  required an extraordinary mobilization of
  political authority and will and have depended
  upon factors largely external to (health).
• Carolyn Hughes Tuohy Accidental logics The
  dynamics of change in the health care arena in
  the United States, Britain, and Canada. New York
  Oxford, 1999, p 11.

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More information

• Stoelwinder J. Medicare Choice? Insights from
  Netherlands health insurance reforms. 2008.
• http//www.achr.com.au/pdfs/MedicareChoice.pdf
• Stoelwinder J and Paolucci F. Sustaining Medicare
  through consumer choice of health funds lessons
  from the Netherlands. MJA 2009 191 3032.
• Stoelwinder J. Final report of the National
  Health and Hospitals
• Reform Commission will we get the health care
  governance reform we need? MJA 2009 191 12