Medicare HECS (v2)

The level of debate regarding health care reform in Australia is really rather pedestrian. We should be opening up the health sector to more private involvement and more personal responsibility. We need more price signals on both the supply and the demand side of the equation. However it seems the best we can manage in price signals is a modest tax rebate from the Liberals if you buy private insurance, and a higher medicare levy by the ALP if you don’t. Neither of these is the sort of market price signal we need. We need price signals that link consumers to suppliers.

Currently the medicare levy raises about 1/6 th of the amount that the government actually spends on health. If the Medicare levy was meant to raise the revenue needed to pay for Medicare it would need to be about 9%. So if we increased in from 1.5% (there abouts) to 9% and cut income taxes by 7.5% we would still pay the same in taxes (the levy is a tax) but we would have a lot more transparency informing the debate.

Each quarter we ought to get mailed a statement from the Medicare office outlining how much expenditure we incurred using our Medicare card. Again this would not change the benefit we receive but it would improve transparency and better inform the debate.

If the Medicare statement suggested above was actually an invoice and we were required to repay the expenses we incurred using our medicare card this would allow us to cut taxes by about 9% (inclusive of the current 1.5% Medicare levy or else just the 9% levy suggested above). Given the dead weight cost of taxation this would be real boost to the economy.

However there is a social policy concern with this approach that cuts to the heart of why Australians overwhelmingly like Medicare. The cost may deter poorer people from getting treatment. Fair enough. We can fix this concern by allowing people who can’t or don’t pay the invoice to automatically roll the debt from their Medicare invoice onto their HECS debt. In short Medicare would become an income contingent loan from the government. The Medicare card would become an alternate payment system much like VISA or Mastercard but issued by the government and with an income contingent repayment plan. Social concern fixed because nobody is denied essential health care on the basis of affordability. HECS could be renamed to the “Health and Education Contribution Scheme” and still abbreviated as HECS.

Okay some people don’t want to burden their future self with such a debt. That is up to them. They can take out private insurance instead or pay as they go using cash. People will vary in their preference but nobody will miss out on medical service due to an incapacity to pay. And insurance could be bought unencumbered by the current prescriptive government rules about inclusions and excess thresholds. Consumer demand and insurance company innovation coupled via the market would allow a process of discovery to determine what health services get paid for by insurance and what get’s paid for via cash. Whether insurance has a small excess or a large excess. Whether we mostly all have the same scheme or if we want a lot of variety.

Having reformed the demand side of the equation we should seek to reform the supply side by privatising hospitals. We already have private GPs, private specialists, private medical centres and private pathology services. In fact most routine encounters with the medical sector is already through a private provider. We even have numerous private hospitals. It isn’t a sector that benefits from either government ownership or government operation so we should extricate the government from it and allow hospitals to focus on treating patients and allow governments to instead focus on making better laws.

Others have suggested that health care should be provided by governments issueing vouchers which people then use to pay for private insurance. My view is that this approach will lead to governments being prescriptive about what insurance policies must include. About what excess they must provide. They will tend to exclude the option to self insure for some medical expenses. In short I don’t think a voucher scheme would drive the same dynamic process of innovation.

15 thoughts on “Medicare HECS (v2)

  1. …or the first $3000 for medical insurance and other medical expenses per year is simply written off if you cannot become liable to pay HECS within that year. That would be seamless. I suppose something similar could be imposed for educational expenses to have a voucher system there as well.

    The problem with HECS is that the repayment system isn’t synchronised with welfare/tax in other ways and goes from being wildly overly generous to brutal at a low scale.

    The other problem is that royalties/GST/LVT are far more efficient than an income tax system and are compatible with a basic income replacing a NIT. So HECS may in the future have to be issued as a separate tax bill.

  2. “Having reformed the demand side of the equation we should seek to reform the supply side by privatising hospitals. We already have private GPs, private specialists, private medical centres and private pathology services. In fact most routine encounters with the medical sector is already through a private provider. We even have numerous private hospitals. It isn’t a sector that benefits from either government ownership or government operation so we should extricate the government from it and allow hospitals to focus on treating patients and allow governments to instead focus on making better laws.”

    We should also:

    Deregulate foreign competition from competing in the health insurance sector. It is a sheltered industry right now.

    Get rid of the PBS, which actually costs money more than it seems – the level of price discrimination the Government exhibits is counterbalanced by subsidies back to those same firms who get low retail prices. Fund the patient, not the suppliers.

    The TGA should get rid of strict rules on medical trials. Terminal patients should be able to take trial treatments more easily.

    Privatise emergency centres on a community owned, non for profit, trust structure basis if there are concerns about it’s existence etc.

  3. A couple of things. Education is front loaded, medicine is back loaded. What will result is the payment of medical expenses incurred at a young age, whereas expenses later on will eventually fall back on the system.

    Not a bad thing per se but something to be aware of.

  4. Terje,

    Have you got in mind some integration of the problems and policies we are working through? That seems to be the hardest part – in isolation they are good. We need an idea like the NIT but which covers all bases.

  5. Terje – given how HECS as it stands is absorbed back into the state if not paid at death, what benefit does insurance provide?

    Even so, I think that would be a really beautiful midpoint solution. Personal responsibility with a state fall back.

    Any thoughts on how that model could fit with the 30/30 tax plan rather than the current system?

  6. The 30/30 plan is a negative income tax – NIT.

    Alas, inflation has kind of made it dated. It ought to be a little more radical as well.

  7. Working this through in a ramble here. Starting from a basis plan of no taxation on income or capital, with a full land value tax in place. How do you then fund education and health. Is providing a base level of health and education services a viable option under that arrangement. I’m not sure. I like the idea above. Does that fit in? What do you base the nominal ‘9%’ on if there is no income tax? If part of the premise of an LVT is that a portion of the LVT is redistributed representing an individual portion of the bounty provided by nature, can this be tapped to recover educational and health costs? If we assume for the basis of discussion that the 30/30 amount of $9000 is somewhat near where this works out, that should go a long way to recovering costs for childhood education and health.

    It seems like a workable idea though it needs discussion and further thought.

    Leaves the industry open to private competition if they think they can provide a better service.

  8. My own idea is that in this, the age of the internet and the School of the Air, education should be something that people do for themselves. Perhaps governments could provide a place for testing skills, and could issue certificates of competency- but otherwise not do anything! (Maybe governments could provide a library, with lots of internet connections?)

  9. I’m trying to resolve for myself two cases for each issue. One is an ‘ideal’ situation, the other a reasonable step on the path from here to there. Society wouldn’t handle a sudden change well. So.. while the case for the ideal has to be made to exert a ‘pull’, there also needs to be a ‘first step’.

    Then again, some things need to happen all at once. The change from income to LV taxation is one of those. Some times things need to be done in a ‘new way’, as part way solutions don’t make sense. LVT as one in a mix doesn’t make sense to people – it becomes just another tax.

    Education is a little steps program, where the new is birthed to compete and takeover from the old.

  10. Nuke,

    You’d think these days with GPS, on board radars and the like, academic economists would stop pointing out lighthouses as a public good – even though Coase showed they never really were!

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