Contents 
| Contents |
4.1 Structure and administration of health services in Australia | 4.2 Health services funding and expenditure | 4.3 Private health insurance | References | Footnotes
The health care system in Australia is pluralistic, complex and loosely organised. A distinguishing feature is the extent to which responsibilities are split between different levels of government. The system involves Commonwealth, State and local governments, which increasingly are influencing the structure of health services, although most medical and dental care and some other professional services are provided by private practitioners.
Although the relative responsibilities have changed greatly since Federation in 1901, State and Territory governments retain the major responsibility for the public provision of health services, including public and psychiatric hospital systems, and for public health. The health responsibilities of local governments vary from State to State, but are mainly in environmental control and in a range of personal preventive and home care services.
A Commonwealth Department of Health was not established until 1921, and for many years its main responsibility was quarantine. The Commonwealth Government also exercised responsibility for the health needs of veterans. An amendment of the Constitution in 1946 gave the Commonwealth powers to make laws about pharmaceutical, sickness and hospital benefits, and medical and dental services. These powers, and the provision of specific-purpose grants to States under Section 96 of the Constitution, have enabled the Commonwealth to expand its role in the health system. The Commonwealth now operates universal benefits schemes for private medical services (Medicare, see Box 5.4, page 169) and for pharmaceuticals (see Box 5.5, page 181).
More recently, governments have been taking an increasing interest in promoting health, and additional resources have been provided for the measurement of health, the evaluation of health services, the promotion of wellbeing and the prevention of illness and disability. Important recent programs in the last category are directed towards health promotion, the control of alcohol and drug use, and dental health, and against AIDS.
Commonwealth, State and Territory health authorities
The structures of the various Commonwealth, State and Territory health authorities have undergone frequent change, involving internal reorganisation, the transfer of functions to and from other departments, or the amalgamation of entire departments. Peripheral health units have had to make rapid adjustments to these changes in central agencies.
The speed of these changes is illustrated by the changes at the Commonwealth level. In 1993 the former Department of Health, Housing and Community Services had local government added to its responsibilities, so that it became the Department of Health, Housing, Local Government and Community Services. In 1994, responsibility for housing and for local government passed to a new department, leaving the former retitled as the Department of Human Services and Health (DHSH). Until 1995, specific assistance for Aboriginal health was provided through the Aboriginal and Torres Strait Islander Commission; since then, this has been provided by the DHSH. Following the change in government in March 1996, the DHSH became the Department of Health and Family Services (DHFS).
State and Territory health administrations also have been reorganised or renamed many times, usually as departments or commissions. Some jurisdictions have combined health and community services functions, whereas others have kept them separate. The momentum has been towards the creation of central agencies with varying degrees of delegation of responsibility to regional or area authorities. The principal functions of State and Territory health authorities include:
The central authorities at State level are concerned mainly with the determination of policy, budgeting and financial control, planning, standards of performance and their measurement, program and budget reviews, industrial and personnel matters, and major capital works.
Other Commonwealth Government agencies
Most health programs in the public sector are administered by health authorities, but other government departments and agencies have important roles. The armed services provide for the health care of serving personnel. The Commonwealth Department of Veterans' Affairs arranges medical care for ex-service personnel and some others; it no longer manages any repatriation hospitals.
Worksafe Australia is responsible for occupational health policy and standards development, and State and Territory agencies (in many States and Territories not the health authorities) administer occupational health legislation.
Environmental health and hygiene
Health surveyors, usually employed by local governments, undertake surveillance of environmental hygiene and sanitation practices to ensure compliance with State and Territory public health law. Statutory water supply authorities are responsible for the quality of piped water and in some areas for sewage disposal and drainage. Another set of authorities is responsible for monitoring and regulating air quality. Central agencies have been established in most States to control the disposal of wastes, and these agencies administer the disposal sites in metropolitan areas, leaving local government to be responsible for the collection and transport of waste material.
Institutional health services
Public acute hospitals in most States are administered by hospital boards constituted as corporate entities. Some are administered by religious or charitable bodies. Where area health boards have been established, as in New South Wales, public health services including hospitals are managed by executive personnel responsible to the area or district board.
The role and scale of public psychiatric hospitals have declined significantly. Some are now administered by boards similar to those for public general hospitals, but most continue to be run as State institutions. Psychiatric admission and treatment centres have been established in selected public hospitals. Increasingly, patients live in the community, sometimes in dedicated small-scale accommodation with support services provided through community mental services.
Private hospitals may be run by proprietors operating for profit, or as not-for-profit enterprises, usually by religious or charitable organisations.
Nursing homes provide accommodation and long-term nursing care for chronically ill, disabled or demented patients who need full-time care. The Commonwealth incurs most of the financial burden of running nursing homes; residents contribute 22% of total expenditure. Hostels provide a supportive environment for many unable to continue to live in the community. Recently, community care packages have been introduced as an alternative to nursing home accommodation.
To ensure that only those who are highly dependent are placed in residential care, aged care assessment teams have been established nationally. Based on their assessments, a large proportion of people are cared for outside institutions and, where necessary, others are referred to appropriate services.
Community health services
In 1985, the Home and Community Care program was established to support services for frail aged and younger disabled people who are not in residential care. The aim of the program is to enhance opportunities and to avoid inappropriate admission to institutions.
Medical care outside hospitals is based on general practitioners, mainly in private practice, who constitute the principal gateway to specialised services.
Community mental health services and community services for older people expanded quite rapidly after the early 1970s and are provided through a variety of government and non-government agencies. The services have grown in a relatively uncoordinated manner, and interaction with private clinical services has been variable.
Measures have been taken to ensure that people with disabilities are able to gain access to services in all parts of the various systems of health care, and special services and facilities have been provided. Emphasis is given to facilitating access to services that enable participation in integrated community activities.
In addition, State and local government health authorities are active in the fields of health promotion and disease prevention. Advisory services are provided at infant health centres, antenatal clinics and community health centres. Immunisation clinics are offered.
Information, coordination and research
Government agencies routinely collect and analyse data produced in the course of managing their programs. Selected information of this kind is transmitted to the Australian Institute of Health and Welfare, where it is incorporated into national data sets and used to prepare reports on the health of Australians and on their health services. The Australian Bureau of Statistics conducts large-scale population surveys of health and health services every five years, and many of its other surveys provide health data.
The Australian Health Ministers' Advisory Council (AHMAC) is a committee of the heads of the Commonwealth, State and Territory health authorities and the Commonwealth Department of Veterans' Affairs. AHMAC advises the Australian Health Ministers' Conference (AHMC) on resource matters and financial issues. AHMC also considers recommendations from the National Health and Medical Research Council (NHMRC). Specific national bodies have been established to coordinate information and advice on major problems such as drug and alcohol use, and AIDS.
The NHMRC was established in 1936, but was created as a separate statutory body in 1993. It is responsible for the coordination of public health policy at the national level. Its principal concerns today are with medical research, professional aspects of health care, public health, public health research and development, and health ethics. Some States provide substantial infrastructure support for medical research institutes established in association with their universities and teaching hospitals.
Health promotion and disease prevention
The promotion of health and the prevention of disease have been receiving increasing emphasis in recent years. Specifically designed preventive services include infant health centres, school medical and dental services, the fluoridation of water supplies, immunisation programs, anti-smoking campaigns, the national AIDS program and the National Campaign Against Drug Abuse. State and Territory health authorities have branches concerned with health education services and health promotion.
There is increasing government awareness, as described in Section 1.1, that the health of the nation depends not on its health services alone, but on levels of nutrition, education, employment, income and housing, general standards of hygiene, environmental safety and the availability of cultural and recreational amenities. These social factors, in turn, are influenced by the market, and by financing and regulatory arrangements at different levels of government, and are outside the immediate responsibility of health departments. Australian governments have begun to show a commitment to ensuring that all areas of public policy recognise impacts on health.
Statistics of total health expenditure presented relate mainly to expenditure on health services for people who are sick. What is often referred to as 'health expenditure' would be more correctly referred to as 'health services expenditure'.
Expenditure by non-health sectors which has an impact on health is significant. For example, the building of safer roads and of swimming pool fences, and the removal of lead from petrol have led to significant improvements in health, but expenditure on them is not classified as health expenditure, according to international definitions.
| Box 4.1: Health services expenditure
statistics Health services expenditure statistics show the volume and proportion of economic resources allocated to the production and consumption of health services. Expenditure statistics illustrate total health resource use-at a point in time, as well as over time. They also can be used to show the cost of components of health services and the sources from which they are funded. The most interesting questions about health expenditure relate to its growth over time and to its share of the total economic resources. For short-term comparisons, real (adjusted for inflation) health expenditure per person may be the most useful summary measure, but over longer periods and in international comparisons, there are difficulties with the choice and calculation of inflators and deflators (statistical techniques used to adjust dollar expenditures to estimate real amounts). For long-term and international comparisons, the best summary indicator is health expenditure as a proportion of gross domestic product (GDP). However, over short periods, this can fluctuate due to irregularities in the growth of GDP. Even over longer periods, international comparisons of health resources may be distorted by widely differing rates of GDP growth. Also, use of health services and GDP are influenced by the age structures of the countries being compared. For planning and budgetary purposes, the sources of expenditure and the components of expenditure allocated to different services are of particular interest. The classification of services is undertaken in accordance with WHO conventions (Abel-Smith 1969) which, although clear in theory, are difficult to apply consistently in practice. These difficulties are particularly problematical when making international comparisons. The main division of funding source is between the public and private sectors. This distinction is blurred (in some countries more than in others) by non-government organisations that perform quasi-government functions, and by the accounting procedures for health expenditures for which tax deductions can be claimed. In Australia, the relative contributions of Commonwealth and State governments are of considerable policy interest, but public accounting conventions do not always reflect the underlying reality. These considerations show why the interpretation of health expenditure statistics needs to take account of the health financing arrangements of each country. |
In fact, much expenditure in our society has a health-promoting or illness-preventing dimension. For example, our food expenditure choices are affected by health considerations and our sport and leisure activities often promote health.
In addition, the household sector devotes a significant portion of its activities to the provision of health services and to health promotion and illness prevention. The health expenditure statistics recorded here do not include the substantial contribution of the household sector in this area. That contribution is referred to again in Section 5.5, page 181.
Health services expenditure in Australia
In 1993-94, health expenditure by Australian governments and the private sector was $36,663 million, an average of $2,066 per person. Health expenditure represented 8.6% of gross domestic product (GDP) in 1993-94, a fall of 0.1 percentage points from the previous year (Tables S44 and S45, page 257).
Of the $36,663 million expended on health, governments provided $24,684 million, the Commonwealth government providing $16,539 million and State and local governments $8,145 million. The private sector provided $11,979 million.
From 1975-76 to 1993-94, real health expenditure increased by 85% from $17,679 million to $32,765 million (in average 1989-90 prices), an average annual increase of 3.5% (see Table S48, page 260). Population growth was 27% (1.4% per year), and real per person health expenditure increased 47% from $1,266 to $1,864. This is an average annual increase of 2.1%.
Part of the increase in real health expenditure per person is due to the ageing of the population, and part reflects greater use of health services by people of all ages. An 11% increase from 1975-76 to 1993-94, or almost one-quarter of the 47%, can be attributed to the increasing proportion of older people in the population.
Figure 4.1 shows that health expenditure grows at a relatively steady rate and is much less dependent on the business cycle than are other sectors of the economy. Manufacturing, construction, and wholesale and retail trade, for example, show marked fluctuations which are not seen in the health industry.
In 1992-93, health expenditure grew in real terms by 3.9% and in 1993-94 by 4.0%. The growth rates of 1992-93 and 1993-94 were below the average of 4.1% for the previous eight years.
Health expenditure as a proportion of GDP varied from 7.4% to 8.6% from 1975-76 to 1991-92. It was stable until 1989-90 at about 7.7% of GDP. In 1990-91 the proportion increased to 8.3% and then in 1991-92 to 8.6%. It rose slightly to 8.7% in 1992-93 but then fell back to 8.6% in 1993-94. The increases in the health expenditure GDP proportion can be attributed largely to the recession in 1990-91 and 1991-92. Health expenditure growth was not unusually high in this period but the decline in real GDP in these two years led to an increase in the proportion. It has, however, stayed at the higher proportion as GDP growth recovered.
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Health services expenditure internationally
As noted in Box 4.1, health expenditures of nations are best compared as a percentage of GDP. This measure gives an indication of resources used in health relative to the country's ability to provide them. The change in the share of GDP expended on health depends on the growth in GDP as well as on the growth in health expenditure. In the mid 1980s, most OECD countries showed a levelling off in health expenditure as a percentage of GDP. The exception has been the United States (Figure 4.2).
From 1989 to 1993 there was an increase from 8.2% to 9.0% in the average percentage of GDP spent on health services in the OECD countries shown in Figure 4.2. Most of this increase was due to a slowdown in economic activity, and did not indicate an unusually high increase in health expenditure (OECD 1993a, 1993b).
Most OECD countries have kept health expenditure as a percentage of GDP relatively stable while experiencing improvements in population health. It is not known what health expenditure as a percentage of GDP is necessary to maintain population health, and the relationship between health expenditure and health itself is not clear-cut.
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Funding of health services expenditure in Australia
Since 1984-85, the proportion of total expenditure funded by governments has fallen from 72% to 67%, with the private sector proportion rising from 28% to 33%. From 1984-85 to 1989-90 the Commonwealth funding of health expenditure fell from 46.1% to 42.2% and private sector funding rose correspondingly. In this period, the State government share was essentially constant; there was an apparent slight increase in the State government share between 1988-89 and 1989-90 due to the Australian Capital Territory being included as a State from 1989-90 (Table 4.1).
The fall in the Commonwealth share was due to a number of factors including:
From 1989-90 to 1993-94 the private share of health expenditure changed from 31.5% to 32.7%. The Commonwealth government share increased from 42.2% to 45.1% and the State and local government share decreased correspondingly from 26.3% to 22.2% (Table 4.1).
There are a number of reasons for these changes. First, the Commonwealth has responsibility for funding areas which have grown at a higher rate than the rest of health expenditure in the last ten years, in particular medical services and pharmaceuticals. Expenditure on these is open-ended in the sense that decisions on how much is spent on medical services and pharmaceuticals are not made directly by government, but by doctors and patients. The government has some ability to control expenditure by changing the benefits paid, but it is limited. It is noteworthy that expenditure relating to nursing homes, where the Commonwealth controls both the number of beds as well as the subsidy, has grown at 2.6% per year in real terms in the last ten years. This is substantially below the 4.1% overall growth of health expenditure.
Table 4.1: Public and private sector expenditure as a proportion of total health expenditure,( 1) 1982-83 to 1993-94 (current prices) (per cent)
| Government | ||||||
| Year | Commonwealth | State and local( 2 ) | Total | Private sector | Total | |
| 1982-83( 3 | 38.4 | 26.9 | 65.3 | 34.7 | 100.0 | |
| 1983-84(c) | 38.3 | 26.5 | 64.7 | 35.3 | 100.0 | |
| 1984-85 | 46.1 | 25.8 | 71.9 | 28.1 | 100.0 | |
| 1985-86 | 45.8 | 25.9 | 71.7 | 28.3 | 100.0 | |
| 1986-87 | 44.3 | 26.4 | 70.8 | 29.2 | 100.0 | |
| 1987-88 | 44.0 | 26.0 | 70.1 | 29.9 | 100.0 | |
| 1988-89 | 42.6 | 26.0 | 68.6 | 31.4 | 100.0 | |
| 1989-90 | 42.2 | 26.3 | 68.5 | 31.5 | 100.0 | |
| 1990-91 | 42.3 | 25.8 | 68.1 | 31.9 | 100.0 | |
| 1991-92 | 42.7 | 25.0 | 67.8 | 32.2 | 100.0 | |
| 1992-93 | 43.6 | 24.3 | 67.8 | 32.2 | 100.0 | |
| 1993-94 | 45.1 | 22.2 | 67.3 | 32.7 | 100.0 |
Second, the State governments have responsibility for funding areas like public acute hospitals, where in the last ten years expenditure has grown little, or areas such as public psychiatric hospitals where expenditure has fallen. From 1984-85 to 1993-94 expenditure on public acute hospitals grew at 2.3% per year in real terms, and expenditure on public psychiatric hospitals fell by 7.3% per year. The latter relates to a reduction in numbers of psychiatric hospital beds (see Section 5.2) and treatment of patients in the community, so that the decrease in State expenditure on public psychiatric hospitals was partly offset by an increase in State expenditure on community mental health.
Third, there was a real decrease of State funding of health expenditure. As shown in Table 4.2, growth in total health expenditure by State and local governments combined slowed significantly from 1989-90, compared with the growth rates experienced in previous years. From 1989-90 to 1993-94, total State and local government health expenditure fell at an average annual growth rate of -0.6% in real terms, compared with a growth rate of 5.5% for the period 1984-85 to 1989-90.
Table 4.2: Total health expenditure (1989-90 prices)( 4) and annual growth rates by source of funds, 1982-83 to 1993-94
| Government | |||||||||||
| Commonwealth | State and local( 5 ) | Private sector | Total | ||||||||
| Year | Amount ($m) | Growth rate (%) | Amount ($m) | Growth rate (%) | Amount ($m) | Growth rate (%) | Amount ($m) | Growth rate (%) | |||
| 1982-83 | 7,909 | 5,467 | 7,297 | 20,673 | |||||||
| 1983-84 | 8,385 | 6.0 | 5,692 | 4.1 | 7,882 | 8.0 | 21,960 | 6.2 | |||
| 1984-85 | 10,468 | 24.8 | 5,797 | 1.8 | 6,597 | -16.3 | 22,862 | 4.1 | |||
| 1985-86 | 11,072 | 5.8 | 6,147 | 6.0 | 6,960 | 5.5 | 24,180 | 5.8 | |||
| 1986-87 | 11,305 | 2.1 | 6,557 | 6.7 | 7,478 | 7.4 | 25,341 | 4.8 | |||
| 1987-88 | 11,593 | 2.5 | 6,788 | 3.5 | 7,906 | 5.7 | 26,287 | 3.7 | |||
| 1988-89 | 11,859 | 2.3 | 7,160 | 5.5 | 8,700 | 10.0 | 27,719 | 5.4 | |||
| 1989-90 | 12,177 | 2.7 | 7,570 | 5.7 | 9,047 | 4.0 | 28,795 | 3.9 | |||
| 1990-91 | 12,417 | 2.0 | 7,677 | 1.4 | 9,342 | 3.3 | 29,435 | 2.2 | |||
| 1991-92 | 12,939 | 4.2 | 7,689 | 0.2 | 9,688 | 3.7 | 30,316 | 3.0 | |||
| 1992-93 | 13,739 | 6.2 | 7,726 | 0.5 | 10,024 | 3.5 | 31,489 | 3.9 | |||
| 1993-94 | 14,782 | 7.6 | 7,381 | -4.5 | 10,602 | 5.8 | 32,765 | 4.0 |
Figure 4.3 shows recurrent expenditure for 1993-94 according to the source of that expenditure: Commonwealth, State and local government, or private. Recurrent health expenditure was $34,185 million, 93% of the total $36,663 million. The expenditure on acute hospitals was $12,202 million, made up of $9,869 million on public acute hospitals and $2,333 million on private hospitals. Between 1984-85 and 1993-94, the proportion of recurrent expenditure devoted to acute hospitals declined from 40.0% to 35.7%.
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In 1993-94, nursing home care was responsible for $2,647 million (7.7%) of the $34,185 million of recurrent health expenditure, medical services for $6,884 million (20.1%), pharmaceuticals $4,042 million (11.9%) and dental services $1,831 million (5.4%). A total of $1,244 million (3.6%) was spent on other health professional services, such as physiotherapy, chiropractic and podiatry (see Table S49, page 261).
Health services expenditure by States and Territories
Statistics of health expenditure by State and Territory governments are available from a variety of central agency sources, including the ABS public finance database, health authority annual reports, Budget papers, and the Commonwealth Grants Commission (CGC). Unfortunately, these bodies have adopted different practices for defining and measuring health expenditure, resulting in differences in statistics.
The National Health Information Agreement (see Section 6.1) will lead to the development and use of a standard set of definitions on agreed expenditure areas and production of a uniform health expenditure data set.
There is also a lack of detailed information. For example, the CGC database, one of the better databases on health expenditure for recent years, includes Commonwealth grants to States and Territories, and reports recurrent expenditure, but excludes capital expenditure and capital consumption (depreciation).
Gross State and Territory government recurrent health expenditure (that is, including Commonwealth health grants and revenue from patients) in constant 1989-90 prices increased by 4.8% from $11.32 billion in 1990-91 to $11.86 billion in 1994-95 (CGC 1996). Health expenditure as a proportion of total net State government expenditure recorded by the CGC fell from 29.2% in 1990-91 to 27.7% in 1994-95.
Total State government recurrent health expenditure per person shows a 0.3% increase in real terms from $659 per person in 1990-91 to $661 in 1994-95, but there were considerable differences across States. The Australian Capital Territory experienced the largest decline in real recurrent health expenditure per person over the period, falling by 11.5%, from $805 per person in 1990-91 to $712 per person in 1994-95. Victoria, Western Australia and Tasmania also decreased their per person recurrent health expenditure during the period, with falls in real terms of 9.9%, 2.8% and 7.8% respectively. New South Wales, Queensland, South Australia and the Northern Territory increased real health expenditure per person, with gains over the period of 7.3%, 6.9%, 2.7% and 15.5% respectively (Table 4.3).
Despite these major changes the relative order of State government real recurrent expenditure per person did not change greatly over the period. The Northern Territory government had the highest expenditure per person, reflecting the greater health needs of Aboriginal people and the higher cost of delivering health services in isolated areas. The Queensland government had the lowest level of expenditure. If all States had moved to the Queensland per person level of health expenditure in 1994-95, expenditure would have been reduced by $1,820 million (in current prices) in that year.
Dispersion about the national average decreased significantly during the period. In 1990-91, Queensland was 19% below the national average, but in 1994-95 it was only 14% below. The Australian Capital Territory spent 22% above the national average in 1990-91 but only 8% above the national average in 1994-95.
Table 4.3: State and Territory government acute hospital and total health expenditure per person, 1990-91 to 1994-95 (1989-90 prices) ($ per capita)
| State/Territory | 1990-91 | 1991-92 | 1992-93 | 1993-94 | 1994-95 | Change 1990-91 to 1994-95 (%) |
| Acute hospital services | ||||||
| NSW | 506 | 498 | 488 | 488 | 541 | 7.0 |
| Vic | 500 | 510 | 467 | 450 | 438 | -12.4 |
| Qld | 434 | 477 | 465 | 455 | 468 | 7.8 |
| WA | 515 | 541 | 526 | 534 | 536 | 4.0 |
| SA | 540 | 549 | 544 | 532 | 538 | -0.4 |
| Tas | 525 | 545 | 534 | 516 | 502 | -4.4 |
| ACT | 665 | 607 | 614 | 547 | 581 | -12.7 |
| NT | 793 | 806 | 823 | 848 | 843 | 6.3 |
| Australia | 502 | 512 | 494 | 486 | 504 | 0.4 |
| Total health services | ||||||
| NSW | 633 | 633 | 625 | 627 | 679 | 7.3 |
| Vic | 695 | 702 | 676 | 641 | 626 | -9.9 |
| Qld | 534 | 578 | 567 | 554 | 571 | 6.9 |
| WA | 739 | 732 | 721 | 721 | 718 | -2.8 |
| SA | 710 | 718 | 724 | 713 | 729 | 2.7 |
| Tas | 713 | 736 | 707 | 668 | 657 | -7.8 |
| ACT | 805 | 765 | 758 | 688 | 712 | -11.5 |
| NT | 1,203 | 1,241 | 1,320 | 1,334 | 1,390 | 15.5 |
| Australia | 659 | 669 | 656 | 643 | 661 | 0.3 |
| Source: CGC 1996 | ||||||
| Box 4.2: Private health insurance
Since the introduction of Medicare in 1984, private health insurance funds have not provided coverage of medical practitioner services outside hospitals. Private insurance now pays benefits for services received by private patients in both private and public hospitals. It is available in two forms: basic and supplementary. The basic hospital table provides full coverage for standard facilities for private inpatients of recognised public hospitals, and partial coverage for private hospitals and day hospital facilities. It also provides coverage of the gap between Medicare benefits and schedule fees for services received by private patients in both private and public hospitals. The supplementary hospital tables provide additional hospital accommodation benefits to cover the higher charges of private hospitals and the extra charge for private rooms in public hospitals. The distinction between basic and supplementary hospital tables will cease from July 1997, when other changes also will be made. Since October 1995, individual private health funds and private hospitals have been able to make agreements so that a patient insured with the fund will be fully reimbursed for charges by the hospital. Individual private health funds and doctors have also been able to make agreements on fees charged to insured patients in hospital. Ancillary insurance covers all other health services, but accounts for only 22% of private health insurance benefits payments. Its coverage varies from fund to fund, but typically includes dental, chiropractic, physiotherapy, dietetic and other services rendered by health professionals other than medical practitioners, aids and appliances, especially spectacles, and ambulance services. |
Trends in private health insurance coverage
The proportion of the population holding private health insurance has fallen from 68% in 1982, to 50.0% in June 1984 and 34.3% in December 1995. The fall was rapid in anticipation of and after the introduction of Medicare in February 1984 (Figure 4.4).
The subsequent decline was slower, 0.8 percentage points per year from June 1984 to June 1989. It varied across States, with New South Wales, where there was an increase in coverage following a doctors' dispute in 1984, experiencing a net decline of only 1.8% to June 1989. The small decline of 4.1% in Queensland may reflect history; membership of health insurance funds in Queensland had been low before February 1984 because for decades the State provided public hospital services free to all. In contrast, Western Australia and South Australia experienced declines of 11.3% and 7.9% over this period.
After 1989, the Australian average decline increased to 1.7 percentage points per year. Again the decreases varied. Coverage fell 16.7 percentage points from 50.8% to 34.1% in Victoria. Queensland experienced a small net decrease of 0.6 percentage points over the same period.
Although there has been convergence of the proportions in each State with private health insurance, significant geographical differences within States remain. The availability of private hospitals may partly explain them, especially between the non-metropolitan areas, where coverage is lower, and the metropolitan areas, where it is higher.
Basic table membership has declined since Medicare was introduced. Some who had it transferred to supplementary table membership, which has shown three main phases since the introduction of Medicare (Table S51, page 263). From 1984 to 1987 the proportion of the Australian population with supplementary cover increased by 8.3 percentage points, from 30.0% to 38.3%. This was largely due to a 14.5 percentage points increase in New South Wales (from 24.2% to 38.7%).
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In the second phase, from 1987 to 1990, the national proportion with supplementary cover increased by 1.1%, an average increase of 0.4% a year. This was the net result of increases in New South Wales and Victoria, stability in Queensland and South Australia, and declines in Western Australia and Tasmania.
Lastly, from December 1990 to June 1995 there was a decline of 6.7 percentage points in national supplementary cover (from 39.4% to 32.7% of the population), again with variations from State to State.
The rapid increase in the price of health insurance over recent years may have contributed to the reduction in private hospital insurance membership. Of those who ceased private health insurance in the two years before the 1992 survey, 67% said they had done so because they could not afford it (ABS 1993).
Table 4.4: Private health insurance, proportion of contributor units( 6) with hospital insurance coverage, by age group, 1983 to 1992
| Age group of head of contributor unit (years) | 1983 | 1986 | 1988 | 1990 | 1992 |
|
54.6 | 29.3 | 30.0 | 29.5 | 29.3 |
|
70.4 | 46.5 | 43.0 | 40.1 | 35.8 |
|
75.6 | 55.5 | 53.8 | 52.7 | 46.7 |
|
71.4 | 56.4 | 56.5 | 55.6 | 52.2 |
|
45.3 | 42.0 | 43.4 | 45.1 | 45.5 |
|
36.0 | 31.5 | 34.9 | 36.8 | 36.4 |
|
62.1 | 44.2 | 43.6 | 43.1 | 40.5 |
Age is a prime determinant of demand for private health insurance. Declines in coverage among younger people continue, but coverage where the head of the contributor unit was aged 60 and over increased from 1986 (Table 4.4). Other data indicate that the proportion of those with hospital insurance who are 65 years and over has increased from 10.2% in June 1990 to 13.4% in June 1995 (Table 4.5). The elderly are comparatively heavy users of hospital services.
Table 4.5: Private health insurance, proportion of Australian population with hospital insurance coverage by age group, June 1990 to June 1995 (per cent)
| Age group | June 1990 | June 1991 | June 1992 | June 1993 | June 1994 | June 1995 |
|
44.9 | 43.9 | 40.9 | 39.3 | 36.8 | 34.3 |
|
40.8 | 42.2 | 41.5 | 41.0 | 40.0 | 39.2 |
| Proportion of HIF membership who are aged 65 and over | 10.2 | 10.9 | 11.6 | 12.1 | 12.7 | 13.4 |
| Source: Private Health Insurance Administration Council |
An industry in transition
The private health insurance funds' share of health expenditure fell from 20.1% in 1982-83 to 8.8% in 1984-85. In part this reflects the decrease in membership after the introduction of Medicare. In part it reflects that in 1982-83, before the introduction of Medicare, 32% of expenditure by private health insurance funds related to medical services. When Medicare was introduced in 1984, it took over this responsibility.
Table 4.6: Funding of total health expenditure from health insurance funds, 1982-83 to 1993-94 (current prices)
| Year | Health
insurance funds ($ million) |
Total health
expenditure ($ million) |
Proportion funded by
health insurance funds (Per cent) |
| 1982-83 | 2,666 | 13,239 | 20.1 |
| 1983-84 | 2,367 | 14,958 | 15.8 |
| 1984-85 | 1,456 | 16,546 | 8.8 |
| 1985-86 | 1,767 | 18,586 | 9.5 |
| 1986-87 | 2,178 | 21,115 | 10.3 |
| 1987-88 | 2,537 | 23.333 | 10.9 |
| 1988-89 | 2,783 | 26,127 | 10.7 |
| 1989-90 | 3,136 | 28,795 | 10.9 |
| 1990-91 | 3,491 | 31,223 | 11.2 |
| 1991-92 | 3,796 | 33,134 | 11.5 |
| 1992-93 | 3,979 | 34,899 | 11.4 |
| 1993-94 | 4,072 | 36,663 | 11.1 |
| Average annual growth, 1984-85 to 1993-94 |
12.1% | 9.2% | |
| Sources: Private Health Insurance Administration Council; AIHW | |||
Since 1984-85, as fund membership has decreased, the private health insurance funds' share of health expenditure has recovered by 2.3 percentage points, reaching a peak of 11.5% in 1991-92, then declining somewhat to 11.1% in 1993-94 (Table 4.6). This recovery requires some explanation.
The abolition of the private hospital subsidy by the Commonwealth Government from October 1986 led to an increase in health insurance contributions. The private hospital subsidy was 14% of private hospital revenue in 1985-86. Its abolition required funds to increase the benefits paid by 8%.
From 1 September 1985, private health insurance funds covered the 15% gap between the 85% Medicare benefit and the schedule fee for medical services for private patients in hospitals. From 1 August 1987 this increased to 25% because the Commonwealth reduced the benefit paid for in-hospital medical services to 75% of the schedule fee. The benefit paid by the health insurance funds for these in-hospital medical services was $208 million or 5.1% of health insurance fund expenditure in 1993-94.
Together, these two changes account for about half of the 2.4 percentage points increase in the health insurance fund share of total health expenditure from 1984-85 to 1993-94. The other half of the increase in that share was due to high growth in benefits paid for private hospital services (see below).
Funding of hospitals by health insurance funds
Since the introduction of Medicare, private health funds have contributed about 6% of public hospital expenditure (Table 4.7). This expenditure relates to private patients in public hospitals, and has grown at about 1.2% per year in real terms (Table 4.8).
Table 4.7: Proportion of areas of recurrent health expenditure funded from health insurance funds, 1982-83 to 1993-94 (per cent)
| Year | Public acute hospitals( 7 |
Private hospitals | Public & private hospitals | Medical services | Dental services | Other prof. services | Other( 8 | Total recurrent |
| 1982-83 | 16.4 | 71.1 | 23.9 | 40.3 | 33.1 | 16.3 | 7.9 | 21.4 |
| 1983-84 | 12.7 | 62.9 | 19.8 | 25.4 | 28.0 | 12.3 | 8.2 | 16.9 |
| 1984-85 | 5.6 | 61.4 | 13.4 | - | 32.0 | 14.4 | 6.2 | 9.5 |
| 1985-86 | 5.9 | 65.4 | 14.5 | 0.5 | 33.5 | 15.7 | 6.6 | 10.3 |
| 1986-87 | 6.3 | 72.3 | 16.0 | 1.1 | 34.6 | 15.9 | 6.8 | 11.2 |
| 1987-88 | 6.5 | 79.1 | 17.0 | 2.7 | 34.1 | 15.5 | 6.8 | 11.8 |
| 1988-89 | 6.1 | 79.4 | 16.5 | 3.1 | 33.3 | 13.1 | 6.7 | 11.5 |
| 1989-90 | 6.1 | 80.2 | 17.2 | 3.1 | 33.7 | 13.1 | 6.7 | 11.7 |
| 1990-91 | 6.0 | 79.7 | 18.1 | 3.2 | 32.3 | 12.9 | 6.6 | 11.9 |
| 1991-92 | 5.9 | 82.5 | 19.0 | 3.2 | 31.9 | 13.0 | 6.6 | 12.2 |
| 1992-93 | 5.7 | 81.6 | 19.3 | 3.2 | 31.3 | 12.8 | 6.6 | 12.1 |
| 1993-94 | 5.1 | 80.0 | 19.4 | 3.0 | 29.4 | 15.1 | 6.5 | 11.9 |
| Average 1984-85 to 1993-94 | 5.9 | 76.2 | 17.0 | 2.3 | 32.6 | 14.2 | 6.6 | 11.4 |
Private hospital expenditure grew at 6.4% a year in real terms from 1984-85 to 1993-94; this growth was much higher than the 4.1% a year growth for expenditure of the health system as a whole. As private hospitals received 80.0% of their expenditure in 1993-94 from health insurance funds, this too meant the funds needed to increase the benefits they paid.
The large increases in private hospital expenditure in recent years were undoubtedly due to increases in both costs and bed-days (see Box 5.2, page 151), but unfortunately it is not possible to separate the two effects. Bed-days in private hospitals for which a private insurance benefit was paid increased by 7% from 1989-90 to 1993-94. Over this period bed-days in public hospitals hardly changed (Table 5.9, page 152).
Table 4.8: Funding from health insurance funds of various areas of expenditure, 1982-83 to 1993-94 (current prices) ($ million)
| Year | Public acute hospitals( 9 ) |
Private hospitals | Medical services | Dental services | Other prof. services | Admin. | Other | Total recurrent |
| 1982-83 | 741 | 509 | 854 | 175 | 54 | 265 | 69 | 2,666 |
| 1983-84 | 621 | 505 | 614 | 174 | 53 | 241 | 157 | 2,367 |
| 1984-85 | 295 | 533 | - | 229 | 70 | 204 | 125 | 1,456 |
| 1985-86 | 344 | 634 | 17 | 294 | 90 | 233 | 156 | 1,767 |
| 1986-87 | 418 | 816 | 38 | 345 | 105 | 282 | 174 | 2,178 |
| 1987-88 | 474 | 962 | 104 | 378 | 118 | 314 | 186 | 2,537 |
| 1988-89 | 491 | 1,059 | 136 | 418 | 126 | 348 | 205 | 2,783 |
| 1989-90 | 528 | 1,235 | 151 | 463 | 141 | 390 | 227 | 3,136 |
| 1990-91 | 561 | 1,451 | 173 | 503 | 156 | 391 | 257 | 3,491 |
| 1991-92 | 565 | 1,635 | 190 | 528 | 168 | 439 | 271 | 3,796 |
| 1992-93 | 556 | 1,764 | 202 | 535 | 178 | 461 | 282 | 3,979 |
| 1993-94 | 498 | 1,864 | 208 | 538 | 188 | 483 | 295 | 4,078 |
| Average 1984-85 to 1993-94 | 6.2% | 14.9% | - | 10.0% | 11.6% | 10.0% | 9.6% | 12.1% |
Administration of health insurance funds
Administrative expenses for the health insurance funds decreased by 13% when Medicare was introduced but not by as much as the fall in benefits paid.
In 1984-85 administrative expenses were 14.0% of total health insurance fund health expenditure. This proportion fell to a low of 11.2% in 1990-91 and since then has increased to 11.8% in 1993-94. Since 1984-85, administrative expenses have increased by 137% compared with an increase in benefits paid by the funds in this period of 187%, and an increase in total Australian health expenditure of 122%.
Health insurance fund benefits paid by State
The hospital benefits paid per person insured varies from State to State. In 1994-95, New South Wales benefits paid were the lowest at 86% of the national average and South Australia benefits were highest at 120% of the national average (Table 4.9).
The benefit paid for public hospital services per person insured varied, with the largest benefit being paid in New South Wales and the lowest being paid in Tasmania.
The benefit paid for private hospital services per person insured was highest in South Australia and lowest in New South Wales.
Table 4.9: Hospital benefits paid per person insured (1989-90 prices), by State/Territory, 1984-85, 1989-90 and 1994-95
| Year | NSW( 10 ) | Vic | Qld(a) | WA | SA( 11 ) | Tas | National average |
| 1984-85 | |||||||
| Public hospitals | 61 | 46 | 41 | 50 | 28 | 25 | 49 |
| Private hospitals | 52 | 94 | 104 | 76 | 78 | 96 | 77 |
| Total hospital benefits | 113 | 140 | 144 | 125 | 106 | 122 | 125 |
| % of national average | 90.3 | 111.9 | 115.0 | 99.8 | 84.4 | 97.0 | |
| 1989-90 | |||||||
| Public hospitals | 90 | 64 | 49 | 50 | 46 | 39 | 68 |
| Private hospitals | 122 | 176 | 220 | 168 | 198 | 180 | 162 |
| Medical gap benefits | 20 | 19 | 23 | 17 | 20 | 18 | 20 |
| Total hospital benefits | 231 | 260 | 292 | 235 | 264 | 236 | 251 |
| % of national average | 92.4 | 103.7 | 116.4 | 94.0 | 105.5 | 94.4 | |
| 1994-95 | |||||||
| Public hospitals | 74 | 60 | 43 | 47 | 51 | 40 | 60 |
| Private hospitals | 214 | 322 | 312 | 268 | 352 | 319 | 277 |
| Medical gap benefits | 27 | 32 | 32 | 25 | 34 | 27 | 29 |
| Total hospital benefits | 315 | 414 | 386 | 339 | 438 | 386 | 366 |
| % of national average | 86.1 | 113.2 | 105.6 | 92.7 | 119.6 | 105.5 |
Ancillary benefits
Registered health benefits organisations offer ancillary benefits tables. These provide cover for approved items not otherwise covered either by Medicare or by the hospital tables that they offer.
In 1994-95 dental benefits accounted for 52% of all health benefits paid from the ancillary tables (Private Health Insurance Administration Council 1995).
From 1989-90 to 1994-95 benefits for ambulance services have shown the greatest increase. In real terms (after removing the effects of inflation) benefits for ambulance services per person insured grew at an annual rate of 9.4%, compared with a growth rate for all ancillary benefits of 2.6%. The other area of substantial growth in the ancillary tables was benefits paid for 'other professional services'. Benefits paid for these services per person insured grew by 7.3% per year between 1989-90 and 1994-95.
Overall, ancillary benefits paid per person insured increased from $125 in 1989-90 to $142 in 1994-95 (Table 4.10). Although substantial, the increase of 14% in ancillary benefits is not as large as the increase of 46% in total hospital benefits per person insured in this period.
Table 4.10: Ancillary health benefits paid per person insured (1989-90 prices), 1989-90 and 1994-95( 12 )
| NSW( 13 | Vic | Qld(b) | WA | SA( 14 | Tas | National average | |
| 1989-90 | |||||||
| Ambulance | 17 | 5 | 2 | 2 | 3 | - | 8 |
| Dental services | 81 | 58 | 61 | 64 | 81 | 40 | 70 |
| Other professional services | 20 | 18 | 20 | 17 | 39 | 14 | 21 |
| Other health services | 33 | 18 | 26 | 22 | 22 | 24 | 26 |
| Total ancillary benefits | 151 | 100 | 109 | 105 | 145 | 78 | 125 |
| % of national average | 121.0 | 80.0 | 87.3 | 84.1 | 116.1 | 62.8 | |
| 1994-95 | |||||||
| Ambulance | 23 | 6 | 7 | 12 | 4 | 1 | 13 |
| Dental services | 77 | 64 | 62 | 74 | 64 | 40 | 69 |
| Other professional services | 30 | 28 | 31 | 32 | 35 | 16 | 30 |
| Other health services | 37 | 24 | 32 | 20 | 23 | 31 | 30 |
| Total ancillary benefits | 166 | 121 | 133 | 138 | 126 | 88 | 142 |
| % of national average | 110.2 | 89.7 | 97.8 | 102.2 | 93.2 | 64.4 |
Reinsurance arrangements
Registered health benefits organisations are required to share liability for members who require long stays in hospital. The mechanism for sharing this liability is the Health Benefits Reinsurance Trust Fund, which, until 1989, was restricted to the benefits liability, from the basic hospital tables, for insured persons hospitalised for more than 35 days in a 12-month period.
In 1989, the arrangements were extended to cover benefits liability from supplementary tables and to include all hospital benefits liability (irrespective of the period of hospitalisation) for persons aged 65 and over. The Commonwealth provided a transitional subsidy to cushion the effects of the changes on the funds. It also removed its subsidy to the reinsurance pool.
In 1988-89, 92.6% of hospital benefits were paid from the ordinary account and only 7.4% from the reinsurance account (Table 4.11). With the 1989 changes, benefits paid from the reinsurance account increased to 27.2% in 1989-90. Since then they have increased to 34.2% in 1994-95. Of the benefits paid out of the reinsurance account, 88% were for people aged 65 years and over (Private Health Insurance Administration Council 1995). Thus 30% of hospital benefits paid by the health insurance funds are for persons 65 years and over, who make up only 13.4% of the membership (Table 4.5). The hospital benefits paid per member 65 years and over average 2.8 times the benefits paid per member under 65 years.
Table 4.11: Benefits paid by registered health benefits organisations from the ordinary and reinsurance accounts, 1988-89 to 1994-95
| 1988-89 | 1989-90 | 1990-91 | 1991-92 | 1992-93 | 1993-94 | 1994-95 | |
| Fund benefits paid ($) | |||||||
| Ordinary account | 2,926,659 | 1,991,012 | 2,194,970 | 2,330,778 | 2,388,172 | 2,407,757 | 2,397,129 |
|
233,954 | 743,863 | 896,406 | 1,014,796 | 1,116,558 | 1,174,247 | 1,247,042 |
| All accounts | 3,160,613 | 2,734,875 | 3,091,376 | 3,345,574 | 3,504,730 | 3,582,004 | 3,644,171 |
| Proportion (%) | |||||||
| Ordinary account | 92.6 | 72.8 | 71.0 | 69.7 | 68.1 | 67.2 | 65.8 |
|
7.4 | 27.2 | 29.0 | 30.3 | 31.9 | 32.8 | 34.2 |
| All accounts | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
| Source: Private Health Insurance Administration Council | |||||||