Free to choose in health

A Medicare co-payment is one way to share the cost of health and enhance the sustainability of the health system. Unfortunately, the politics of health seem destined to defeat the Abbott government's plan for a $7 out-of-pocket fee for GP and other medical services.

An alternative way to achieve health reform is by giving Australians greater choice in how health services are financed.

Those who wish should be allowed to opt-out of Medicare voluntarily in exchange for opening a Health Savings Account (HSA).

Those opting out would trade their Medicare entitlements for an annual Health Voucher (indexed) for deposit into an HSA that could be linked to an existing account-based superannuation scheme. The voucher would be worth average per person government spending on health – approximately $4,300 in 2011-12.

HSA funds would attract the same 15% concessional tax rate as superannuation during its accumulation phase. HSA account holders would draw upon such reserves to meet the cost of specified health expenses, including GP services and other non-hospital care, chronic and catastrophic health events, health insurance premiums, co-insurance and deductibles to cover hospital treatment costs. Upon retirement the health accumulation reserve would merge with the pension fund.

Integrating saving for health with saving for retirement would require adapting the superannuation system by modifying the 'sole purpose test' to permit existing accounts to carry reserves for current and future health expenses, and to facilitate their access before retirement.

This health model would emulate the way Singapore has developed a low-cost and cost-effective, savings-based health financing system. It would encourage saving for unforeseen high-cost health events rather than paying for high-frequency, low-severity contingencies. High-deductible insurance tables would offer the benefit of risk pooling for an account holder's exposure to outlier high-cost claims such as for hospital or day surgery treatment. A market for these new tables (separate from the existing community rated system) would quickly develop, probably offered through existing registered health insurers or other institutions operating HSAs on behalf of their holders.

To the extent that Australia has gone some way towards privatising the public pension system by shifting from Pay-As-You-Go taxpayer funding to Save-As-You-Go self-funding for retirement, there are good reasons on the grounds of sustainability and efficiency to emulate this transition for health services by diluting the monopoly of Medicare.

Finally, Medicare opt-outs would circumvent the politics of health.

Those who wish to remain with Medicare would be free to do so. And those who wanted a more efficient and cost-effective alternative to a taxpayer-funded, universal health system would be free to choose to self-finance their own health care.

David Gadiel is a senior fellow and Jeremy Sammut is a research fellow at The Centre for Independent Studies. Their report, Lessons from Singapore: Opt-Out Health Savings Accounts for Australia, was released on 28 July 2014.