Does hybrid health care improve public health services? Lessons learned from Australia.

Bob Bell, MD, and Stefan Superina

Australia is a beautiful country to visit. The people are sophisticated and friendly; the cities are safe with wonderful sea-side settings and the variation in landscape from tropical resorts to the untracked outback is stunning.

If you believe the Fraser Institute and various commentators on the healthcare system in Canada, we should visit Australia not only for a holiday but also to learn how their health system functions. Australia’s “hybrid” model is commonly touted as an example for how Canada should increase funding to our health system, with private services off-loading demand on public care.

Supporters of this hybrid model suggest that access to our public system will improve if a large proportion of the population uses private insurance for admission to private treatment facilities. The suggestion is that this private system will “unload” our public system.

In reality, the Australian system serves as a good example of how two-tiered medicine results in better access for economically advantaged citizens and worsens access for citizens who cannot afford private care. Overall, capacity is improved as for-profit facilities develop to “cream the milk” by looking after profitable private-pay patients. However, competition for private-pay patients in public facilities will inevitably reduce access for public patients.

Australia’s system is incompatible with the Canada Health Act because medically necessary physician and hospital services would no longer be paid only by public funding. The Australian model is entirely compatible with the concept proposed by Dr. Brian Day in his current British Columbia litigation that paying privately for access to health care should be a constitutional right.

How Does Australia’s Hybrid Model Work?

To better understand the hybrid Australian model, let’s look at how citizens pay for and access health services in Australia.

Australia’s expenditures on health care are similar to Canada’s. According to Papanicolas et al, Australia spends 9.6% of GDP on health (Canada 10.3%). In Australia 6.3% of GDP on health expenditures comes from the public purse (Canada 7.4%) and the remainder from private sources.

The public healthcare system in Australia, also known as Medicare, is funded by a tax levy equivalent to 2% of taxable income. Low income exemptions or reductions are mandated but the Medicare levy is charged on the entire taxable income, not just that portion which exceeds the threshold.

The hybrid system was initiated in 1997 with the introduction of a further Medicare Levy Surcharge of up to 1.5% of taxable income for individuals with higher income who did not purchase private health insurance. As a further incentive to purchase insurance, the government offers a substantial tax rebate so that a portion of private insurance is financed by tax avoidance. In 2019, the total tax rebate provided to fund private health insurance is estimated to be over $6B.

Physician fees are described in a Medicare Benefits Schedule (MBS) and largely paid by the federal government. Medicare pays GPs 85% of the MBS fee and 85% of GP visits are settled without a further payment. In about 15% of GP services, further patient payment is required from insurance or out of pocket.

Specialists are compensated by Medicare for 85% of the established fee and generally bill the patient (or insurance coverage) a further 15% of the standard fee. There is no upper limit on fees charged and physician fees may vary in the same specialty by up to 400%.

Public hospitals are administered by the state governments and paid for by state and federal funding. About two-thirds of the hospital beds in Australia are public. All public hospital care is paid for by the government without patient charge unless the patient chooses to use private insurance in the public hospital.

About 45% of Australians purchase private insurance. The average insurance cost net of the tax rebate is about $2000 for a young individual. Private insurance for a family of four would average about $4000 per year for full hospital care (including obstetrics) and ancillary coverage. Mature couples would pay at least $5000 annually.

Tiering of private insurance (bronze, silver, gold) is currently underway in Australia and it is expected that costs for private insurance will continue to increase faster than inflation. Getting insurance for cataract or total joint surgery now will require the most expensive gold coverage.

Public hospitals in Australia provide full services including intensive care of severely ill patients. Private hospitals which provide about one-third of hospital beds are designed mainly to provide elective scheduled surgery and childbirth. Of 630 private hospitals, only 36 (in 2015) offered emergency room services. Trauma services are provided only in public hospitals.

The Impact of the Hybrid Model

The addition of Australian private insurance to Medicare has enabled the country to provide more hospital beds per 1000 population (3.8/1000 in Australia vs. 2.7 in Canada). There are more physicians per capita in Australia (3.5/1000 vs. Canada 2.6) and more nurses (11.5/1000 vs. 9.5). Both countries spend 3% of total health care costs on administration and governance.

Australia outperforms the Canadian system in the proportion of patients who can achieve urgent appointments with their GPs (67% vs. 43%), and in surveys of patients to determine who waits more than two months for a specialist appointment.

One of the theories advanced by supporters of importing the Australian two-tier system to Canada is that better access for public patients will be achieved by allowing private pay patients to access care in private hospitals. However, in addition to using private hospitals, increasing numbers of Australian privately insured patients are using their insurance in public hospitals.

The Impact of Private Insured Patients on Public Hospitals

The proportion of private patients in public hospitals has more than doubled over the past thirteen years and some public hospitals will admit up to 40% of patients under private insurance.

A growing trend is that privately insured older Australians are more likely to be admitted to public hospitals than to private hospitals. This may relate to older patients with chronic diseases requiring assessment and admission through emergency departments which are not generally provided in private hospitals.

Public hospitals are pleased to receive this additional revenue from insurance in addition to the global budgets and activity-based funding provided by the state.

And the differences in wait times for procedures between private pay and public patients in public hospitals is dramatic. Public patients waited more than twice as long for their surgery as private patients, as seen in figure below (all data mean waits from time of decision to treat to time of surgery).

Median waiting times for public and private patients admitted from public hospital waiting lists for elective surgery, by indicator procedure, public hospitals, 2015-16. Figure source: Australian Institute of Health and Welfare – Australia’s Hospitals 2015-16.

A longer wait for public patients might be acceptable if the extra revenue achieved with private pay patients improved public access. However, looking at wait times for four high volume services – cataract extraction, coronary bypass, hip replacement and knee replacement – average wait times for public patients in Australia are longer than in Canada.

The difference in Canadian and Australian public wait times for treatment is confirmed by the following figures.

Waiting times (in median days) from a specialists’s assessment to treatment for cataract and coronary bypass surgeries for Australia and Canada. Figure source: A review of the Australian healthcare system: A policy perspective.

Waiting time (in median days) from specialist’s assessment to treatment for hip and knee replacement surgeries for Australia and Canada. Figure source: A review of the Australian healthcare system: A policy perspective.

This data paints a picture of what would happen in Canada if private insurance for medically necessary hospital and physician services were permitted. A parallel system of private facilities would be created for elective surgery and public hospitals would be allowed to charge private insurance to add to their public revenues. This could actually happen quite quickly with private ambulatory surgery centres offering high volumes of private surgery without need for a major capital investment.

It is likely that hospital capacity would increase with an infusion of private funding and that private wait times would decrease dramatically. However, this improvement in access would also result in immediate two-tier wait times. Patients who cannot afford private pay would find themselves with much longer wait times to see specialists or to access surgery just as occurred in Australia.

A Question for Canadian Medicare

Canadian health care needs investment in hospital and community resources and needs to improve patient experience for specialist consultation and urgent FP access. The fundamental question facing Canadians today is whether we can muster the political will to achieve an improved system through public investment. Or, will we take the easier route to allow wealthier Canadians to achieve better care through private payment?

There are opportunities to save money in our current system. Canada pays more for pharmaceuticals than any country except the USA and there is abundant opportunity to lower drug costs. Improved access to specialists can be achieved through cost-effective technology like e-consult or by triage of specialist referrals through rapid access clinics. The use of trained nurses and health professionals to rapidly stratify consultations can dramatically improve time to referral and reduce unnecessary referrals to specialists.

Most Canadians feel that our Medicare system is sacrosanct, and that questioning Medicare is a dangerous “third rail” for politicians. However, we need to remember that Medicare is only 50 years old and that there are strong forces aligned against our universal access system.

Dr. Brian Day’s case in British Columbia has deep pocketed supporters who would benefit from introduction of private care in Canada. If we are going to preserve Canadian Medicare, we will need to find politically acceptable means of investing in publicly funded care while continuing to improve our system’s efficiency.

Australia’s hybrid system offers a cautionary tale of what will happen in Canada if we fail to make tough decisions. If wait times and patient experience do not improve, Canadian baby boomers will increase the demand for a hybrid healthcare system.

Image Credit: ©grigoriy – Can Stock Photo Inc.