• If you are citizen of an European Union member nation, you may not use this service unless you are at least 16 years old.

  • Stop wasting time looking for files and revisions. Connect your Gmail, DriveDropbox, and Slack accounts and in less than 2 minutes, Dokkio will automatically organize all your file attachments. Learn more and claim your free account.


Australia - Health Care System Structure and Organization

Page history last edited by Cain Farmer 10 years, 12 months ago


Organizational Structure of the Health Care System


The Australian Health System - overview


The Australian Health System consists of a mix of public and private sector health services and a range of funding and regulatory mechanisms.  Service providers include private medical practitioners, other health professionals, public and private hospitals, clinics and other government and non-government agencies.


Funding for services is provided by the Federal Government, State, Territory and Local governments, health insurers, individuals and a range of other sources.

Australia’s health system is financed through a combination of income tax, a specific income levy (the Medicare Levy) and private financing by individuals through private health insurance (PHI) premiums and out of pocket payments.  Almost 70% of the total health expenditure in Australia is funded by government, with the Federal Government contributing two-thirds and State, Territory and Local governments contributing the other third (Local governments providing only a small amount).


Federal Government funding of the health sector involves three major national subsidy schemes - Medicare, the Pharmaceutical Benefits Scheme (PBS) and the Private Health Insurance rebate.


Medicare and the PBS cover all Australians, subsidising payments for out-patient private medical services and prescription medicines.  Under Medicare, the Federal and State Governments also jointly fund public hospital services which are provided free of charge to Australians treated as public patients in a shared ward.


The Federal Government also provides subsidies to Australians who choose to take out private health insurance through a national rebate scheme.  The rebate is not means tested, so any Australian who has an appropriate level of private health insurance cover with a registered health fund is eligible for Government-funded reduction in the cost of their premiums.

The objective of the system is to deliver a balance of public and private health services to provide all Australians, regardless of their personal circumstances, with free or low-cost access to universal care.


Primary, Specialty and Hospital Care


National Primary Health Care Strategy

The Government is developing a strategy with advice from a specially commissioned external reference group and in consultation with State and Territory Governments for delivery in mid 2009. Its focus is tackling the health challenges of the 21st century and ensuring access to care.  Priorities include better rewarding prevention, promoting evidence-based management of chronic disease, supporting patient management of chronic conditions, supporting the role of GPs in health care, addressing the needs for access to other health professionals and encouraging greater focus on multidisciplinary care.  The strategy will also consider ways to reduce processing red tape and simplifying the Medicare Schedule.    




In-hospital services covered

On admission to public hospitals patients can choose to be treated as a public or a private patient.  Public patients are entitled to free medical and allied health care from doctors chosen by the hospital.  Private patients are entitled to choose their treating doctor.  The fees charged by the chosen treating doctor are funded partly by Medicare and the balance by the patient some or all of which may be covered by private health insurance.

  • Public patient:  Full coverage for all treatment, care and after-care in a public hospital by a treating doctor or specialist nominated by the hospital. 
  • Private patient:  75% of the Medicare Schedule fee** for services and procedures provided by your choice of treating doctor in a public or private hospital.   Outstanding costs for treatment, hospital accommodation, theatre fees and medicines will apply, but some or all of the balance may be covered by Private Health Insurance.


Out of hospital services covered

Medicare provides set benefits* for the following:

  • Consultation fees for doctors, including specialists
  • Tests and examinations by doctors needed to treat illnesses, including X-rays and pathology tests
  • Coverage for a limited number of other specified health care services provided outside of hospitals, such as eye tests performed by optometrists and some services from Mental Health professionals 
  • Most surgical and other therapeutic procedures performed by doctors
  • Limited surgical procedures performed by approved dentists


Services not covered by Medicare

Medicare does not cover the following services:

  • Private hospital costs, such as theatre fees or accommodation
  • General dentistry
  • Ambulance services
  • Home Nursing
  • The majority of allied health services such as physiotherapy, occupational therapy, speech therapy, eye therapy, specific acupuncture, chiropractic services, podiatry or psychology** or acupuncture
  • Glasses and contact lenses
  • Hearing and other medical aids.
  • Prostheses (for private hospital procedures)
  • Medicines (outside the subsidy covered by the PBS)
  • Medical and hospital costs incurred overseas
  • Medical costs for which someone else is responsible—ie: compensation insurers, employers, governments or government authorities
  • Medical services that are not clinically necessary or surgery solely for cosmetic purposes


** The schedule fees and benefits are set by the Government and doctors and providers may charge fees that are higher than the scheduled fees or benefits

* Doctors and providers may charge fees that are higher than the scheduled fees or benefits

** With the exception of specified items under enhanced primary care initiatives


Role of Private Sector



Private health insurers contributed $10.04 billion in claims in financial year 2007-08*.  In 2007/08, private hospitals treated 4 out of every 10 admitted hospital patients, representing nearly one third of all hospitalisation days, and performed 56% of all surgeries in Australia.**  Until the introduction of the Private Health Insurance Act 2007 (PHI Act), private health insurers were not permitted by law to provide benefits for any medical services provided outside of hospital, including visits to general practitioners.  Today, insurers are able to provide benefits for medical services provided as a substitute for hospital treatment or as part of a chronic disease management program.  Visits to general practitioners which are covered by Medicare can not be covered by insurers.


The Federal Government has, over the past decade, introduced three major policy initiatives designed to support growth of the privately insured population; the private health insurance rebate (PHI Rebate), Lifetime Health Cover (LHC) and the Medicare Levy Surcharge (MLS).    Together, these three initiatives have resulted in sustained growth in private health insurance since 2000, with over 48% of the Australian population now holding some level of private health insurance.


Pricing in Australia’s PHI industry is underpinned by the principle of Community Rating, which is designed to increase access for all Australians and to prohibit discrimination.  Under Community Rating, insurers are required to charge customers the same premiums irrespective of age, gender, health status or claims history.    The insurance risk is therefore borne across all customers in the sector.  This is very different to many private health insurance schemes globally, which tend to price on the basis of individual risk.


2.1)  Major Federal Government policy initiatives supporting PHI


PHI Rebate

Under the private health insurance rebate scheme, any Australian who holds a private health insurance product with a registered health fund is eligible for a 30% Government-funded reduction in the cost of their premiums.  The rebate amount increases for older people to 35% for people aged between 65 and 69 and to 40% for those aged 70 and over.  The rebate can be claimed by registering to receive a premium reduction from a private health insurer or by claiming the rebate directly from the Federal Government through Medicare Australia or as a refundable tax offset at the end of the income year.


Lifetime Health Cover (LHC)

The LHC initiative was introduced in July 2000 to encourage people to take out private health insurance at a younger age and to maintain it.    Most people who fail to take out private hospital cover before the start of the first financial year after their 31st birthday now have to pay a 2% loading on top of the base premium for every year they are over 30 at the time of first joining, with a maximum possible loading of 70%.  There are some exceptions.  This loading ceases to apply once a person has had hospital cover for a period of ten continuous years.


Medicare Levy Surcharge (MLS)

The MLS has been in place since 1 July 1997 and is designed to encourage higher income earners to take out private hospital cover.  This levy is an additional 1% surcharge of taxable income imposed on high income earners who are eligible for Medicare but who do not have an appropriate level of hospital insurance with a registered private health insurer.   In late 2008 the Federal Government increased the income thresholds for the Medicare Levy Surcharge for the first time since it was first introduced.  The thresholds are now at $70,000 per annum for singles and $140,000 per annum combined income for couples and families with one child (the threshold increases by $1,500 for each additional child).  The new thresholds apply to the 2008-09 financial year.


2.2)  Regulation of PHI


The PHI Act regulates private health insurers and their operations including registration, setting of premiums, benefit coverage, portability, capital and solvency requirements, reinsurance and governance.


The Federal Department of Health and Ageing administers the PHI Act and both the Department and the Private Health Insurance Administration Council (PHIAC) are authorised to make Rules to apply to private health insurers under the Act.


PHIAC is a Government statutory authority and the prudential regulator for the private health insurance industry.  It supervises compliance by private health insurers with the PHI Act in relation to the management and operation of health benefits funds and seeks to promote industry conduct in the best interests of insured members.


The Private Health Insurance Ombudsman (PHIO) is an independent Government agency that deals with inquiries and complaints about any aspect of private health insurance and provides and publishes independent information about private health insurance and the performance of health funds.

Private health insurers are also subject to regulatory frameworks and obligations imposed by a range of other legislation.


Premium Review Process

Private health insurers are required to apply to the Federal Minister for Health and Ageing to increase their premiums at least 60 days prior to the date that the change is to take effect.  Insurers who wish to change their premiums are required to submit an application in the approved form to the Department of Health and Ageing (DoHA), the application includes not only the new rate and amount of the increase for each product but also detailed information regarding the reasons for the increase.


Although insurers are free to make an application at any time this generally happens once a year.    Insurers usually increase their premiums on 1 April each year with applications are due to DoHA in mid December each year.  The Minister just announced that for the next premium review round applications will be due on 20 November 2009 which is around a month earlier than previous years.


Applications are reviewed by DoHA and PHIAC and may also be sent to the Government Actuary for consideration.  Advice in relation to the each application is then provided to the Minister who makes the decision whether to approve the increase sought.


The Minister must approve the increase sought unless the Minister is satisfied that the increase would be contrary to the public interest.


Community Rating

It is a condition of registration that an Australian health fund ensures its rules and actions are consistent with the Community Rating Principle and that it does not undertake any activities which promote improper discrimination between policyholders, insurers or consumers.  The Community Rating Principle aims to remove barriers to access for private health insurance by keeping it affordable, available and of value to everyone including the elderly and chronically ill.  It prevents discrimination of contributors on the basis of matters such as their health status, age (other than age at entry under Lifetime Health Cover), race, sex, sexuality or claims history.


A Risk Equalisation Scheme has been developed to support the Community Rating Principle and operates to average out the cost of hospital, hospital-substitute claims and some components of chronic disease management program benefits, for specified ages across the industry.  The risk equalisation model includes benefits for people aged 55 and over at an increasing rate, from 15% for 55 to 59 year old up to 82% for persons aged 85 and over.  It also includes a high cost claims pool, covering benefits paid for claims exceeding $50,000 after the aged based benefits in the general risk pool are taken into account. 


* Private Health Insurance Administration Council, Operations of the Registered Health Benefits Organisations Annual Report 2007-8

** Australian Institute of Health and Welfare (AIHW) 2008. Australian Hospital Statistics 2006-07.


Key Health Care System Reforms



3.1)  Broader Political Context

In November 2007, the Australian Labor Party (ALP) was elected to Federal Government for the first time since 1996.  Between 1996 and 2007, the former Liberal Government introduced a range of policy initiatives to increase participation in Private Health Insurance including a government-funded rebate for premiums, the Medicare Levy Surcharge and Lifetime Health Cover.  While the new Government has enacted changes to the MLS threshold levels as part of its first budget, it continues to publicly maintain a commitment to existing incentives, particularly the rebate, for the sector.


Immediately post election, the Prime Minister signaled his priorities as revolutionising education, acting on climate change, improving fairness and balance in the workplace, maintaining a strong economy and fixing hospitals.


Since that time the Government has announced a range of reviews and committees to determine forward directions in key policy areas.  The Australian Health sector is one of the areas they are reviewing.


3.2)  Stated priority areas for Health


The ALP has clearly signaled the following as its key priority areas for health:

  • Strong focus on wellness promotion and prevention/management of chronic disease.
  • Improve Medicare and the public hospital system—reforming Australia’s health system to improve its efficiency and fiscal sustainability (including a review of Commonwealth/State financial relations and tying grants to more transparent public reporting)
  • Address skills shortages in health to deliver a workforce to support the system
  • Improve Private Health Insurance and better integrate the private sector into the broader health system.
  • Integrate new technology into the provision of health care and better manage patient information.
  • Implementing a national drugs strategy to prevent the onset of use, intervene early and minimise the harm caused by legal and illegal drugs.


3.3)  Broader health sector reform and review activity in 2008/09


National Health and Hospitals Review

The NHHRC was established in February 2008 to review Australia’s health system and provide a long-term reform plan for the sector.  The commission’s scope was wide ranging, examining issues such as chronic disease, ageing population, rising health costs, inefficiencies and cost shifting between Federal and State Governments and the creation of a more productive relationship between the public and private sectors. The NHHRC released its interim report on 16 February 2008 and is due to submit its final report to the Federal Government in June 2009.  116 reform directions were put forward in the NHHRC’s interim report, some of which include:


  • Denticare

    The Commission has recommended the establishment of a Medicare type system for dental services.  The system would be funded by an increase in the Medicare Levy of 0.75%.  Australians would opt to use the public dental system or to enroll in a private insurance dental plan.

  • Governance Reform

    The Commission has put forward a number of options regarding long term governance reform for the health system.  One of the options is the introduction of a compulsory social insurance system, which would be a tax funded community insurance scheme under which there would be multiple competing health plans for people to choose from, which would be required to cover a mandatory set of services including hospital, medical, pharmaceutical, allied health and aged care.

  • Data collection

    The collection of public and private hospital episode data nationally.

  • Electronic Health record

    The development of a person-controlled electronic personal health record.


National Preventative Health Taskforce

This taskforce was established in April 2008 to develop strategies to tackle health challenges posed by tobacco, alcohol and obesity and develop a National Preventative Health Strategy by June 2009.


National Primary Health Care Strategy

The Government is developing a strategy with advice from a specially commissioned external reference group and in consultation with State and Territory Governments for delivery in mid 2009. Its focus is tackling the health challenges of the 21st century and ensuring access to care.  Priorities include better rewarding prevention, promoting evidence-based management of chronic disease, supporting patient management of chronic conditions, supporting the role of GPs in health care, addressing the needs for access to other health professionals and encouraging greater focus on multidisciplinary care.  The strategy will also consider ways to reduce processing red tape and simplifying the Medicare Schedule.


Public reporting and Federal/State funding arrangements

In December 2008, the Federal and State Governments announced the details of a new health care agreement, with funding under the new arrangement to commence from 1 July 2009. The arrangement will include a performance and assessment framework to support public reporting against milestones and measures.  It also includes a number of National Partnership payments including a Health Prevention National Partnership payment, with the Commonwealth providing funding of $448.1 million over four years, and $872.1 million over six years starting from 2009-10 aimed at improving the health of all Australians.


Comments (0)

You don't have permission to comment on this page.