Economic Analysis of Medicare System in Australia: A Report

This report provides an economic analysis of Australia's Medicare system, focusing on its benefits and long-term sustainability. It begins with an introduction to Medicare, Australia's publicly funded healthcare system, and its principle of universal access. The report evaluates the advantages of Medicare, including the Medical Benefits Scheme and Pharmaceutical Benefits Scheme, which provide subsidized medical treatments and free hospital access. It also addresses the limitations of Medicare, such as the lack of coverage for certain services and the issue of out-of-pocket expenses. The analysis then examines the sustainability of Medicare, highlighting the rising healthcare costs due to demographic changes, such as an aging population and the increasing prevalence of chronic diseases. The report discusses the impact of these factors on government expenditure and the need for reforms to ensure the long-term viability of the Medicare system, concluding with a call for prudent measures to protect the publicly funded healthcare scheme.

Running head: ECONOMIC ANALYSIS FOR BUSINESS
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1ECONOMIC ANALYSIS FOR BUSINESS
Introduction
Australia possesses an institutionally settled publicly funded healthcare system known as
Medicare that is guided by the principle of ‘universal accesses’. The system aims to enable all
Australian residents a subsidized medical treatment from different healthcare professionals such
as Doctors, medical specialists and others related to this field. This allows Australians to have
access to free treatment in public hospitals (Macri, 2016). The health care system in Australia
has a relatively complex structure. Funding and other responsibilities related to healthcare are
shared between territory, state and federal government. The essay evaluates benefit of Medicare
system to all Australian and examines sustainability of the Medicare system in view of rising
cost of healthcare.
Benefit of Medicare to Australians
Medicare in Australia aims to provide a wide range of health care service to people at
free of costs. The Medicare supports health care system in two main ways. The first is through
Medical Benefits Scheme. This benefits Australians in the following ways
 Covered cost for medical service offered outside the hospital including cost of general
practitioner and different special service
 Some selected diagnostic and pathology service
 Dental care for children but only in limited circumstances
 Eye checks
 Allied health services in limited cases
 Medical service to the private patients in public and private hospitals (this excludes cost
of accommodation, medicines and theatre fees).

2ECONOMIC ANALYSIS FOR BUSINESS
Under Medicare, the benefits offered to Patients generally covered 85 percent of the fess for
the listed services in Medicare Benefits Scheme (theconversation.com, 2014). Another channel
through which Medicare support national health care system is Pharmaceutical Benefits Scheme.
All Australians are covered under the universal, tax-financed, national health insurance
scheme Medicare offering rebates against the total medical fees. . All Australians are eligible for
having free treatment in public hospitals. About 80 percent of General Practitioners’ fees are no
out of pocket expense as government directly bear the cost. The problem however is that doctors
can charge any amount that they want having no upper limit on fees (Duckett, 2017). The out of
pocket expense that is not covered under Medicare thus remain a significant problem. Many
people delay in visiting doctors because of high out of pocket expense.
Figure 1: Australians who delayed or did not visit doctors because of high cost
(Source: Duckett, 2017)
Despite its attempts to cover all Australians under universal health care system, faced
with the funding disputes between state and commonwealth government, Medicare has failed to
deliver timely service to people. Patients often have to wait for a long time for emergency care
and elective surgery. Medicare also does not cover many important medical services, which
include dental, ambulance service, and some allied health services. This is the reason why
despite having access to Medicare nearly half of the Australians have private insurance
(nib.com.au, 2019). The overlapping state of Medicare and private health insurance leads to

3ECONOMIC ANALYSIS FOR BUSINESS
inefficiencies and distortions in the Australian health care system. For private health insurance,
the biggest users are people belonging to 60 to 70 years old and woman in the age group 20s and
30s having a higher claim of maternity care.
Sustainability of Medicare
Australia is believed to have a good health system. Australia has a life expectancy of 81.5
years that is highest in the world. Government expenditure on health care service as a percentage
of GDP in contrast is the lower than the other comparable countries. Despite a better health
condition of average Australians, the country is now facing some major health issues posing
challenges to the sustainability of Medicare.
The health care spending in Australia is increasing. The first factor responsible for
growing cost pressure is demographic changes in Australia. The baby boomers in Australia are
now ageing. This increases the number of people aged 85 years and above. It is estimate that
number of people above 85 years old will increase from 0.4 million to 1.8 million by 2050
(aph.gov.au., 2019). This is due to the increasing prevalence of chronic diseases such as diabetes.
Therefore, maintaining a good heath standard has become increasingly expensive posing
significant burden on government budget.

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Figure 1: Effect of rising cost of Medicare
An increase in cost of Medicare increases burden on government expenditure. The
increasing cost shift the supply curve of Medicare service to the left to S1S1. The equilibrium in
the market then shifts from E to E1. This lowers the equilibrium availability of medical service to
Q1 along with an increasing price of the service to P1.
Out of pocket expenses for health care are growing with much of the spending is
occurring at non-subsidized health care such as counter medicines or areas having limited
subsidies like dental services and services provided to the private patients (McCall, 2016). The
real issue that health care system in Australia is facing is the increasing cost burden of treating
age driven and life-style related chronic diseases.
The health cost curve in Australia is being bent because of the fact that sufferers of many
chronic diseases are unable to receive low cost care that could stabilize their condition.
Therefore, 10 percent of the yearly hospital admission are regarded as potentially preventable

5ECONOMIC ANALYSIS FOR BUSINESS
(Sammut, 2016). Estimates show that 5 to 10 percent of all the patients suffering from chronic
diseases absorb half of the total cost of health services. The obvious implication of rising cost
burden is an unsustainable health care system. Government is aware of the increasing challenges
of health care system and makes changes to make the Medicare system sustainable. In place of
$7 Medicare co-payment measure, government has introduced new packages to maintain a
sustainable health care system to improve quality of health care service (health.gov.au, 2019).
Government needs to take prudent measures in order to protect Medicare. Unless such changes,
the publicly funded health care system will not survive.
Conclusion
Medicare is a government funded health care scheme in Australia. The scheme aims to
give health coverage to all Australians with minimal or free of cost. Despite giving wide
coverage to Australians to support standard heath condition, almost half of the Australian
purchase private health insurance. This is due to the limited coverage of Medicare in some areas
and delay in public health care service. The average health condition in Australia though is better
than many other nation, the growing cost burden mainly due to ageing population and prevalence
of chronic diseases possess challenges to the sustainability of Medicare system. Reforms should
be taken to ensure long-term sustainability of the scheme.

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References
aph.gov.au. (2019). Sustainable funding of health care: challenges ahead – Parliament of
Australia. Retrieved from
Duckett, S. (2017). Australia’s health system is enviable, but there's room for improvement.
Retrieved from https://theconversation.com/australias-health-system-is-enviable-but-
theres-room-for-improvement-81332
health.gov.au. (2019). Department of Health - A Strong and Sustainable Medicare. Retrieved
from http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-
yr2014-dutton111.htm
Macri, J. (2016). Australia's health system: some issues and challenges. Journal of Health &
Medical Economics, 2(2).
McCall, C. (2016). Concerns raised over future of Medicare in Australia. The
Lancet, 388(10042), 323.
nib.com.au. (2019). Medicare and Australian health cover | nib health funds. Retrieved from
https://www.nib.com.au/health-information/healthcare-in-australia/medicare
Sammut, J. (2016). Medicare’s ‘best friends’ are no friends of GPs and sustainable healthcare.
Retrieved from https://www.afr.com/business/health/hospitals-and-gps/medicares-best-
friends-are-no-friends-of-gps-and-sustainable-healthcare-20160830-gr4988
theconversation.com. (2014). Explainer: what is Medicare and how does it work?. Retrieved
from https://theconversation.com/explainer-what-is-medicare-and-how-does-it-work-
22523