The $5 GP co-payment may be "dead, buried and cremated" but the Medicare rebate freeze remains, and will ultimately have a much bigger impact on patients than the other move would have, writes Stephen Duckett.

On December 9, 2014, then health minister Peter Dutton announced a new co-payment rebate policy to replace the $7 GP co-payment announced in the 2014 budget.

The new policy was planned to save the Commonwealth $3 billion a year, about the same amount as the budget policy. It had three distinct elements of roughly equal value in terms of savings to the Commonwealth:

1. A narrowing in the definition of the rebate for the most common general practitioner consultation item, which reduced the rebate to GPs for many consultations by $20; 2. A $5 reduction in the rebate paid to GPs for each consultation, leaving them to decide whether they passed it on to patients - in other words, a $5 co-payment by stealth; and, 3. An extension of the freeze in indexing all Medicare items (not only GP items) until July 2018.

The first of these strategies survived just over a month. New Health Minister Sussan Ley announced its demise on January 15. This week she delivered the coup de grace to the second element, the $5 co-payment. Prime Minister Tony Abbott described it as "dead, buried and cremated".

Yet Minister Ley says she is still consulting: "doing nothing" is not an option and she is looking for further savings. We therefore don't yet know whether some form of overt co-payment will arise, zombie-like, and stalk the corridors of Parliament House to be implemented in another guise.

The third element of the three-pronged attack, the rebate freeze, is still alive and kicking - and over time this freeze will have a much bigger impact on general practitioner revenue than the $5 rebate.

That's because the $5 rebate reduction did not apply to all patients: pensioners, kids under 16 and certain other concession card holders were exempt. Rebates for these groups would continue as before. Factoring in the average proportion of patients without a concession, the expected impact of the $5 reduction in the rebate was to reduce average GP revenue by about 3.8 per cent.

In contrast to the $5 co-payment policy, the freeze applies to all patients, with no exemptions for pensioners, health care card holders or kids under 16.

As well, the size of the impact on GPs will be bigger. The freeze continues for the next three-and-a-half years. Assuming that inflation runs at about 2 per cent a year (that is at the low end of recent experience and of Reserve Bank forecasts), the combined impact of the rebate freeze up to July 2018 will reduce the real value of a consultation item by an average of 6.8 per cent.

It is unlikely that general practitioners would absorb a reduction of that magnitude. GPs would have two options to restore their revenue base - charge those who already pay out-of-pocket more, or start billing patients who are currently bulk billed and charge a co-payment for that group as well. Some GPs will do both.

Many practices currently bulk bill all their patients, so moving away from bulk-billing is a big step involving additional red tape. They would need to introduce processes for receipting fees and perhaps handling cash. Extra reception and book-keeping staff may be needed. As well as revenue going down, their costs would go up. Together this suggests that the impact on patients will be significantly more than GPs simply recouping the 6.8 per cent revenue reduction.

Just because the freeze has a slow impact (2 per cent a year on our assumptions), it doesn't mean GPs won't notice its impact and act to make up the difference. Inflation bites on a daily basis, not just in three-and-a-half years' time. GPs will review their charging practices every few months. Their employees will be looking for pay rises, their suppliers will be jacking up their prices. GPs will do the same and their fees will go up too.

The likely outcome of the rebate freeze will be more patients paying out of pocket. Once again, a co-payment policy by stealth.

Stephen Duckett is the director of the Health Program at Grattan Institute.