The GP copayment would appear to be one of the most unpopular of the 2014 Budget proposals, amongst both the public and those working in health

In this post, Professor Anthony Scott, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, proposes a potential fix. The real question, however, is whether it is worth fixing.

Professor Scott writes:

Much has been written about the impact of the proposed copayment. It is deeply unpopular and will make the health system less efficient and equitable. In particular, its impact will be felt hardest for people on low incomes and highest need for health care. The government has passed onto GPs a poison chalice of deciding how to respond to the $5 reduction in the Medicare rebate. The government has suggested (though cannot mandate) that GPs maintain their income by raising prices by at $7.

This will be easier for GPs who practice in areas similar to where Joe Hockey lives.  If $7 can buy Joe Hockey two lattes, then you will go and see your GP just as often. Indeed there is already some evidence that GPs in more affluent areas are able to charge higher prices. The richer you are, the less you will be affected by the extra $7.

What can GPs do?

The sting in the tail is that GPs in poorer areas are unlikely to be able to raise prices very much without causing a further fall in demand.  People on low incomes are more sensitive to higher prices, where $7 is a much tougher choice such as a meal for the kids.

The poison chalice handed to GPs is that whatever GPs do in poorer areas will leave patients worse off and increase costs to Medicare. If GPs do nothing patients face a price hike of $5 because of the lower rebate. This will reduce demand and GP incomes.

The first issue already identified is that people will visit the ED rather than their GP. The national price for the least costly ED visit for illness of the eyes, ears, nose and throat is $210, almost 6 times the costs of a bulk-billed GP visit. This will increase costs to both States and the Commonwealth since hospital costs are shared, and so will reduce the expected $750m savings.

If GPs in poorer areas feel they cannot raise prices to compensate for lower revenue, they have several difficult alternative decisions to make.  GPs can reduce costs to maintain profits.  Small practices may be forced to sell up or merge to form larger practices.

There will be fewer practices around and this will reduce competition making it easier for these larger practices to increase their prices. Fewer practices also mean that patients would need to travel further, and this could lead to further reductions in demand.

Next, GPs can provide longer consultations or more care to existing patients that will maintain earnings through more follow up visits (eg by recommending more tests or prescriptions or scheduling more additional health checks).  These additional activities are likely to be of low value: they will have little effect on patient’s health and will increase the costs to Medicare and PBS, further reducing the size of the $750 million budgeted savings.

The knock-on effects of the policy are considerable and mean that the estimated savings would be much lower than $750m.

A solution? The ‘latte’ means test.

If the government wishes to blindly pursue the copayment, it could make some compromises to get Senate support.  The only way to stop the copayment harming people and increasing costs is to properly means test the copayment.

Yes, the Joe Hockeys of this country can afford to pay extra, and so GPs with more affluent patients should comfortably be able charge more without seeing a major reduction in demand and in their incomes. Neither patients nor GPs will be greatly affected, and the government will save some money.

How could means testing work? The reduced rebate of $5 would only apply to patients who visit GPs in more affluent postcodes. Tax office data on the average taxable income of postcodes could be used to identify postcodes with average individual earnings of greater than, say $100,000. GPs in these postcodes could then increase their prices to compensate, without a substantial reduction in demand.

By having different Medicare rebates in different areas, this would have the additional benefit of encouraging GPs to locate in poorer postcodes, if these postcodes now attract a $5 ‘additional’ Medicare rebate.

The Joe Hockey’s of this world would then need to forgo a couple of lattes to visit their GP. Those who live in less affluent areas would not be affected at all by the copayment. Of course, the government will not save as much as $750m, but then neither will the current policy, which ignores the cost increases from ED and to Medicare and the PBS.

This begs the question, is all of this tinkering really worth it to help save face and a little money, when other policies to make easy savings without harming people are being ignored?

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