This is necessary with government expenditure on Medicare more than doubling from about A$8 billion to A$20 billion over the past decade, despite the proportion of Medicare spending covered by the Medicare levy falling backwards from about 67% to 54% over that same period. – Health Minister Sussan Ley, press conference, March 3, 2015.

Concern over a growing Medicare bill has underpinned policy proposals such as the GP co-payment, so it is important to have an accurate picture of the true levels of government health spending.

What does the data say?

Has Medicare spending more than doubled in the last decade?

A spokesman for the health minister told The Conversation that budget papers showed that Medicare spending overall is expected to be “about $20.3 billion in 2014-15”, a figure that checks out with the expenditure estimates in Statement 6, Table 8.1 in Budget Paper 1.

Until 2008-09, budget papers did not reveal expenditure on the line item “Medicare”. To keep the estimates for the Private Health Insurance Rebate confidential, Medicare and the Private Health Insurance Rebate (and some other expenses) were bundled in one item, “Medical Services and Benefits”.

According to the minister’s spokesman, Medicare expenditure in 2003-4 was A$8,599,952,315 (a surprising level of precision!). He said this figure was available on the Department of Health and Human Services website, though did not provide a link.

I had been surprised by the Minister’s initial statement of “about A$8 billion”, but that low figure results in part from the minister having used a rounded down figure: it would have been more conventional to have rounded that figure up to “about A$9 billion”.

But assuming that expenditure on Medicare comprised the same percentage (71%) of “Medical Services and Benefits” expenditure in 2003-04 as it did in the years 2007-08 to 2014-15, when it was revealed, my estimate for 2003-04 was that it would have been about A$9 billion. In other words, the minister’s statement of expenditure does not seem to be out of line.

Ley’s figures for Medicare spending, therefore, are broadly correct when she says that Medicare spending more than doubled from about A$8 billion to about A$20 billion in the last decade, although it would have been more conventional to have rounded the figure up to “about A$9 billion”. It would also have been more conventional to have used a deflator, such as the GDP deflator, to bring the figures to constant prices. Rounding down the base figure, and failing to adjust for inflation, tends to overstate the impression strongly rising in expenditure.

Using the minister’s 2003-04 Medicare expenditure statement (A$8.6 billion), the 2013-14 estimate ($19.3 billion) from Statement 6, Table 8.1 in Budget Paper 1, and deflators from Table 4 of 2013-14 National Accounts, an accurate presentation would be to say: in 2014 prices, Medicare outlays have risen from about A$11.9 billion to A$19.3 billion over the decade to 2013-14. (We do not yet have deflators for 2014-15). Even that figure does not account for the rise in population over that period.

Has the proportion of Medicare covered by the levy fallen from 67% to 54%?

The minister’s spokesman said the Australian Bureau of Statistics’ Taxation Statistics show that the Medicare levy plus the Medicare levy surcharge in 2003-4 came to just over A$5 billion. So as a percentage of the total Medicare expenditure that year (about A$8.6 billion), the Medicare levy and surcharge is about 67%.

You can see here that the 2013-14 budget estimated that Medicare levy would raise about $10.4 billion that year. As a percentage of total Medicare spending that year of $19 billion, it’s close to 54%.

So the health minister is broadly correct when she says that the proportion of Medicare covered by the levy has fallen backwards from 67% to 54% in the last decade.

What Medicare and its levy were designed for

Linking the Medicare levy to the cost of Medicare is questionable in policy terms. The Medicare levy was never meant to cover the entire cost of Medicare.

When the Hawke Government re-introduced universal health insurance in 1984, the levy was based on the incremental cost of providing universal publicly-funded health insurance under Medicare. The levy was a once-off political expedient 30 years ago. It is past its use-by date and ideally should be built into tax tables.

Nevertheless, the levy’s share of total Commonwealth health expenditure has held up fairly well at about 17% of the Commonwealth’s health care expenditure.

It should be noted that the word “Medicare” has a specific definition in budget papers to refer to benefits funded under the Medicare Benefits Schedule. That schedule does not cover government expenditure on pharmaceuticals, dental care, or state government expenditure in public hospitals (although it does cover medical expenditures in private hospitals). But politicians use the term “Medicare” loosely, sometimes referring to the whole government health funding system, and sometimes focusing only on GP services as in the recent arguments over co-payments.

In a recent interview on RN Breakfast, when the health minister made the same claim about the falling contribution of the Medicare levy, Ley suggested strongly that she sees free Medicare services (that is, bulk billed) services as a distributive welfare measure for those of limited means, rather a universal tax-funded insurance scheme.

It would not be surprising if the next move by the government will be an attempt to allow private health insurers to cover the “gap” between the dwindling schedule fee and what doctors charge, thus moving away even further from a universal tax-funded health insurance system.

If the government wishes to redefine Medicare as a distributive welfare scheme, rather than as a universal tax-funded insurance scheme, then it should engage with the public in an open debate, rather than changing it by stealth. And it should acknowledge that private health insurance is an expensive way to fund health care.

If the Minister is concerned about a funding shortfall, the obvious question she should be putting to the electorate is “why not increase the levy?”.

Verdict

The health minister’s numbers are broadly correct, but they are framed in a way that overstates the impression of rising health care expenditure. And linking the Medicare Levy to the cost of Medicare is misleading, because the levy was never meant to cover the full cost of Medicare.

Review

I agree with this analysis. It’s also important to note that the Medicare levy is not hypothecated to or earmarked for health: it is just another income tax. The most recent increase in the levy was not even linked to health care – it was designed to fund the National Disability Insurance Scheme trials.

The failure to use deflated figures and to ignore population growth in the Minister’s statements helps to obscure the real issues. It makes the cost escalation more dramatic, but equally exposes the minister to the type of analysis undertaken here that shows the figures are correct but misleading.

Health costs are increasing on a real, per capita adjusted basis. We should use adjusted figures in public debate so we can have an informed discussion about whether this is a problem (do the benefits outweigh the costs?) and, if so, what we should do about it. – Stephen Duckett

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