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QUESTION

What does theory of Australian and international experience tell us about the appropriate structure of the provision of health care services and the appropriate means for financing those services?

1. INTRODUCTION

1.1 What is a Good Health Care System?
Good health care system is the health care system that includes all people without any discrimination. It also needs to be equitable and efficient in financing and making provision for that. The primary objective of health care policy should improve people’s health. Health derives from many sources, including, overall living standards, which include the level of income and its distribution, individual choice, general external environment, availability of health, etc. Policy health maker should look at all of the aspects mentioned above, not just at health care narrowly defined. However, the problem arises when it comes to measure efficient and equitable. Measurement of efficient and equitable used in the less developed countries might be different compared to the one used in the developed country. However, international and Australia experiences tell us that good financing does not always lead to good provision in the health care system.

1.2. Health Care is Different from Other Goods
Simple normal demand of good can be easily constructed by a budget constraint. However, demand for health care is different from normal demand, even though they may be both adequately provided by private sector and financed privately.
From economic perspective, we can say that health itself is not tradeable in the sense that it cannot, strictly, be bought or sold in the market. It can be no more than a characteristic of health care, but in this case is not exchangeable. This is an important explanation that relates to central in economics . Therefore health only have value in use and not in exchange.
Consumers cannot communicate preferences in certain situation, for example in the emergency situation, consumer cannot choose which room that they like. Should they have the room they want, consumer sometimes unable to pay the cost, and at the end cannot choose the preferences. In some circumstances, people cannot avoid getting the diseases from others (externalities). Should this happen, then they have to go to doctor and cost them money to get the medicine
The apparently simple relationship of wanting health and demanding health care becomes more complex, largely because of problem lack of information. Translating a want for health into this consumption of treatment involves inter alia a demand for information about various aspects of existing health status, effectiveness, etc. it follows that the demand for health cares involves uncertainty which makes the informal characteristics, not just the treatment characteristic.
The uncertainty generated by ignorance about health care status, availability and effectiveness of treatment makes decision making about the consumption of treatment difficult. It may include a demand to avoid having to make difficult decisions and bear the responsibility of such decision making.
Health care is often divided into two categories, they are preventive and curative. Taking aspirin for a headache is purely curative type of treatment whilst a purely preventive is something like a vaccine. One person who has heart disease and keep playing bouncy jumping will likely to kill himself in the short period of time. On the other hand, that person can take some medication to prevent it. Therefore, health of an individual can be increased or reduced and likely will depend on individual characteristic.

2. THE THEORETICAL ARGUMENTS

2.1. Equity Theoretical Argument
Equity can be divided into two categories, horizontal, that are equal treatment of equals and vertical, which is unequal treatment of unequals . It suggests that health care should be independent to age, gender, etc., but should relate to the illness. As already stated earlier, the benefit of health care should be maximised to the less fortune people. For example, if cost of going to the hospital is very expensive, then only rich people can go there. Should this happen, then it will create discrimination and theory of equalisation does not exist. Equalisation of health is occur when society enjoys same level of health. However, this seems to be unrealistic, since government itself is limited. Therefore, the best that government do is to reduce the gap, especially in the health care services.

2.2. Efficiency Theoretical Argument
It is also suggested that health care system should be as efficient as possible. Efficiency is important in social welfare and a balanced view is needed. This is because if in one extreme, nothing were spent on health, some people would die unnecessarily of minor illness. On the other extreme, if the government spend all the income on health care, there will be no food and the whole nation would die as a result of starvation.
The theory of efficiency can be divided into two categories, which are allocative efficiency and technical efficiency. Allocative efficiency, which sometimes referred as external efficiency, can be accomplished by allocating the health care resources according to people?astes and preferences. Thus this will then be reflected in people?pending pattern. However, in most cases when one person is better off, the other person will suffer (worse off). Government, in deed, is attractive to make the policy as such so that nobody is worse off when making some one better off.
Technical efficiency is concern about minimising costs and maximising output. If the firm can minimise their cost and pure competition exist, then customer will get the good they want at the fair price level and match their preferences.

3. TYPES OF PROVISION

Financing health care services can be done through government and non-government institution. Further, the non-government institution and be divided into profit and non-profit seeking. Many countries have developed their objectives regarding health care services, however, they find that it is very hard and difficult to achieve that. Some available method and financing options will be discussed below.

3.1. Public Provision
Public provision is dominant in the United Kingdom. The government developed the National Health services to provide primary care, dentistry, optometry, etc., for free. It attempts to satisfy the equity criteria by providing comprehensive coverage according to people’s clinical need regardless their ability to pay . The aim of this health services are clearly biased towards satisfying equity criteria, but there is evidence to suggest that the system is experiencing difficulty in achieving these goals. Equity is not a serious problem for the UK as it is in US, however, the UK system has been criticised for its rationing and queuing problems or over utilises usage and standards of health care in the hospitals . To over come above problems, the UK government introduces private health care program and co payment in some health services.

3.2. Private Provision
3.2.1. Private for Profit Motive
In Australia, the private provider of health service reaches thirteen and half million dollars or 32.3 per cent of total health services expenditure. The private hospitals can generate revenue about 0.7 per cent of gross national product. The private sector has grown in its contribution in providing health care services for the past seven years. In the next ten years, the for profit hospital sector by 55 per cent compared to a 28 per cent expansion of non profit acute facilities .
The US experience also tells us that the same pattern of increasing private contribution has also grown in health care services. They were thought to benefit from economies of scale, strong management structures, efficient planning and control systems, tight controls on the use of personnel and quick responses to the wishes of patients for attractive accommodation, good food, etc. However, many studies have challenged the view that this type of hospital is more cost efficient than non-profit hospitals. In addition, concerns have been expressed about corporate takeovers and mergers actually increasing the cost of care .
However, US systems facing some problems like asymmetric information and principal agent and social optimal objectives. The motive for profits leads to producers to find out what people want and competition forces them to produce it as efficiently as possible to maximise the profit. However, the Australian and international experience shown that profit maximising firms do not always achieves efficiency and equity . In addition, some US studies has shown that private for profit health service costs four to eight per cent more that public provider .
There are numbers of small investors entering into joint ventures with medical specialists in ambulatory care centres, imaging clinics and home care agencies. Similar joint professional companies have been established in Australia to purchase and operate very expensive diagnostic and therapeutic equipment. Australia is threatened by the very same proliferation of commercial values as has occurred in US. In US, it claimed that one third of all medical expenditure was incurred for services supplied by the large vertically and horizontally integrated corporations . The concern underlying these analysis’ that ethical medical practice may be compromised by the unfettered exploitation of opportunities to generate profit, particularly by doctors referring patients to facilities or for procedures and investigations from which the referring practitioners obtain financial rewards. If this happen, then it will cost more for the users of health service. In deed, the one who will disadvantage at the most is the less fortune people and only rich people will be able to use the health service. The issue of financial incentives in for profit enterprises should be separated from considerations of the general market environment in which there has been long concern about profit motivated overserving in conventional medical practice.
The assumption that buyer can bargain is not always true, for example when the supplier acting as an agent brings about the level of consumption different from that which would otherwise have occurred if fully informed customer had been able to choose freely. This problem may exist because of asymmetry information, where the buyers know less than the sellers do about health information. In addition, when consumer want to evaluate any alternative and get more information, the heavy reliance on health expert and searching cost will also incur to that consumer and can be used by the expert to get advantage.

3.2.2. Private not for Profit Motive
Private not for profit providers are available in most developed and less developed countries. Their existence is certainly helps to reduce the government burden in serving the health service to the community. Their purpose is to give assistance in health service and maintaining sufficient quantity and quality service. Private not for profit institution is usually being helped by the government through tax exemption, in order to help them providing the necessarily services to the community. It is the fact that not all not profit organisations gain benefit from the tax exempt and even when they do get the tax exempt, they are expected to behave in a community oriented fashion. Several international and Australian studies have question whether not profit enterprises do . However, some problem might also exist with this type of service provider that is the profit gained by the institution is being used in the bad manner. For example, when the board use the profit to buy inefficient expenses, like luxury sofas in the office, buy expensive computer that might be very useful, etc.

4. FINANCING HEALTH SYSTEM

There are some possible ways to finance the health system. It can be done through direct pocket payments, private health benefits, social insurance benefit and government general revenue. All of those will be discussed below.

4.1. Direct Out of Pocket Payment
Direct out of pocket payments are payments you made for health services that have been provided to you using your own money. This type of payment is the second largest source of private health care in South Africa, which is up to 23 per cent of the total and up to 50 per cent in Turkey . This type of financing fulfils the criteria of efficiency but not the equity criteria. It is fulfill the efficiency criteria because only people that need health service get the service.
Since the each person has to pay for the health service, then it will reduce over utilisation of that service. However, not every people will be able to afford that, hence this system is not equitable in both horizontal and vertical. Since the cost of heath care is expensive, then only rich people can use that (not achieve the horizontal equity criteria) and rich people will feel cheap to pay the doctor, as proportion of their income (not achieved vertical equity).

4.2. Private Health Insurance Benefit
This private health insurance will at least eliminate some problem with direct pocket. One of the advantages of this system over direct pocket is to give more access to many people to use health care services. For example to have surgery in Australia, it might cost $30,000, but with private insurance it might only cost $5,000. The other advantage of this type of financing is redistributing health cost from high user to low user. The problem that Australian and international facing in this type are adverse selection, moral hazard and uninsured people.
Adverse selection is a situation where a selection process results in a pool of individuals with economically undesirable characteristics. To over come this problem, the insurance company can impose the premium, excess payment, precontractual testing, etc.
Moral hazard exists when the contract induces the party that is insulated from loss to take a hidden action that harms the other party. For example, when you put your car into insurance, you might put less caution to lock your car door as you think you will have nothing to loose. When this exist, then the moral hazard will exist. Tell reduce such short coming, the financing through social insurance might be used.
Evidence tells that both Australia and US society has reduced the usage of the private cover. For example the Australian people who has private insurance in 1983 was 64 per cent but in 1995, it reduced to 38% . To attract people to join the private health insurance, the Australian government giving 30% rebate to Australian that joins before mid year 2000.

4.3. Social Insurance Benefit
The US government is currently using this type of financing. The benefit gained by the worker is correlate with there working lifetime contribution. These programs require payments in the current time period to ensure satisfactory welfare in the future. Although this type of financing fulfills the criteria of equity, but US government still experience problem with cost.
As stated before, this method eliminate the problem faced by the private insurance, that is moral hazard and adverse selection through provision and administrative controls. The universal nature of social insurance programs implies improvement in access to health care. US studies indicate an increased utilisation of health care services by low income household directly after social insurance implementation .
However, the problem with this financing is that it will reduce the current income for the employee and leisure time, as they have to contribute some of their money in the future. Some of the employee might leave the labour market because of that reason. Should that happen, than the government will have less money and tend to increase the employee contribution to get the desired level of savings. In other word, the fewer workers available, the higher the contribution required by the government, hence might force some worker to reduce the work time.

4.4. Government General Revenue
Australian experience suggests that the only way that the health financing is efficient and equitable is through progressive tax (that is you pay more tax and medicare levy as you earn more). This system heavily depends on tax income to finance health care. The medicare suggests that Australia have successfully making equal contribution through out its people and reduce the gap in private insurance. The efficiency of general revenue system is often hindered by political mismanagement and excess burden associated with tax collection. The Australian seems to have avoided these problems by undertaken it at the very low administrative cost .

5. PROVISION AND FINANCING ?WHICH IS THE BEST?

It seems that both private and government health service has grown significantly during the last seven years or so. It indicates that many western countries have prepared the be independent of government support. However, at current time, it is too early to say that private market can stand by themselves without government support. This is because private market health coverage is still insufficient to serve the Australian community. The involvement of government in financing and, to a lesser extent providing health care is not in question in Australia.
For example, it believes that the health care system should permit genuinely fair competition, but that the present mixed public and private arrangements are distorted by the virtual absence of any incentive for healthy and financially secure people to take private insurance. They would pay twice, through their taxes to support the public scheme and their private cover. Subsidies that make insured person feel that they are loosing too much of the benefit they should derive from their taxes has been withdrawn. As a substitute, rebate of 30 per cent that Australian government has introduced perhaps will attract people to join private health insurance.
Based on above example, the light government intervention is need, especially in financing and making provision for the general health service to the community and to make fairer cost any people that join the private health care. This fairer cost might be done through subsidy of 30 per cent rebate for instance.
Each type of financing system has disadvantage, however, combination, for example the Australian system and US system might be the best solution. Whatever mix decided, the chances of achieving an efficiently integrated system would be immeasurably improved by removing the irrational divisions of responsibility between Commonwealth and state governments.

6. CONCLUSION

Although the desirable health care system should be deliver as efficient and equitable as possible, the facts have proven that it is not an easy task. It takes a long time to achieved that by many countries in the world. The least that government can do is to reduce the gap between the health users.
The lesson to be learned from the American system is that universal publicly funded national health insurance is so much more efficient and equitable than voluntary private insurance that it will endure, having now survived for seven years or so in Australia. The principal problem to be faced by Medicare stems from broad economic factors, including Commonwealth budget deficit, high interest rates and balance of payments problems. Middle and high-income earners respond to these conditions by becoming more conservative, favouring lower taxes and supporting lower public expenditures including outlays on health insurance. Nonetheless, Australian must pay health care in Australia by taxes, premiums or even out of pocket. The total does not become more or less affordable by appearing in one set of budgets rather than being dispersed through several sets of accounts. But this dispersion certainly makes the total amount bigger without any increase in productivity. Therefore, the main aim of the government to provide the health system, which is equitable and efficient, is achieved in the period of time.