Are rising costs creating a two-tier healthcare system?

Senior economist Matt Grudnoff reveals who the healthcare burden is hurting the most.

Is healthcare a two-tiered system?

Healthcare has been a key driver of price increases this year, which makes it timely to look closely at the effect on our retirement tribes.

It is generally true that low-income households spend a larger proportion of their income on necessities compared with high-income households. When considering how you will spend your money, it’s likely that the priorities will be the basic living essentials. A high-income household that can easily meet the basic needs will have money left over to buy non-essential goods.

When we look at our tribes, we can see this happening with a basic such as food. Cash-Strapped Couples (those on full or part Age Pensions who rent) spend 21 per cent of their income on food. Constrained Couples (those on full or part Age Pension who own their home) spend 20 per cent and Affluent Couples (homeowners with private income) 16 per cent. The proportion of income spent falls as the household income rises. It is important to remember that we’re talking about the proportion of income not dollar amounts. Affluent Couples spend more dollars on food than Cash-Strapped Couples, but Cash-Strapped Couples have lower incomes and so spend a larger proportion of their incomes on food.

This same pattern applies in Cash-Strapped households, which spend a bigger proportion of their income compared with constrained and affluent households on two essential categories: housing and domestic fuel and power.

The reverse happens when we look at a category such as recreational spending. For non-essential goods, the proportion of spending rises as income rises. Affluent Couples spend the most on recreation – 20 per cent. Compare this with Constrained Couples (12 per cent) and Cash-Strapped Couples (nine per cent).

The principle that low-income households spend a larger proportion of their income on essential goods breaks down when it comes to healthcare. Healthcare can easily be regarded as a necessity, but among our retired tribes, Cash-Strapped Couples and Singles spend the least, just five per cent. Affluent Couples spend 10 per cent while Constrained Couples spend the most, 12 per cent.

This means that lower-income households view healthcare as a non-essential category that they can cut back on because their budgets won’t stretch that far.

This is concerning for several reasons. Skimping on healthcare is likely to reduce quality of life and, potentially, lifespan. It can also increase the total cost to the health system. If people avoid going to a specialist or other health professional early, then small easily treatable problems can turn into large expensive problems.

One strange aspect of spending patterns on healthcare sees those on very low incomes spending very little on healthcare, as we’ve explained, while those on moderate incomes (Constrained Couples) spend the largest proportion of their incomes – larger even than high-income earners (Affluent Couples and Singles).

This is partly explained by the fact that most retirees can access bulk-billed GP visits and avoid out-of-pocket costs.

And it is also due to the way government healthcare funding has evolved. In recent decades, Australia has reduced its emphasis on direct government spending on specialised healthcare and has increased indirect funding of that area by subsidising private health insurance. Effectively, the Government has substituted spending on Medicare for subsidies for private health insurance.

Even with the subsidies, private health insurance is expensive and the Cash-Strapped tribes simply cannot afford it.

Constrained tribes can afford it, but it comes at considerable cost to their budgets. This is, in large part, why they spend the largest proportion of their budgets on health care. The Affluent tribes also buy private health insurance but given they have larger incomes it represents a smaller proportion of their income.

The costs of healthcare have risen substantially in recent decades – as much as power. In the past 30 years, healthcare has risen to be 3.7 times higher compared with the Consumer Price Index (CPI), which has doubled.

For many, quality healthcare is considered essential, but the reality is that it is increasingly fracturing into a two-tier system.

It might be time for the Government to consider if it is getting a big enough benefit from this strategy or if the $6.4 billion it will spend on subsidies to private health insurers next year might be better put directly into the healthcare system.

While the Cash-Strapped households would be better off if private health insurance subsidies were instead put into Medicare, the Constrained tribes might also benefit if they could access high-quality services without having to buy private health insurance.

With the cost of private health insurance continuing to rise more rapidly than the CPI, it is obviously becoming a growing burden on middle-income retired households.

Do you see healthcare becoming a two-tier system? Or has it reached that point already?

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    COMMENTS

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    tisme
    22nd Jul 2018
    10:32am
    it is a two tier system, those who can afford private ( whether with an insurance company or not ) and those who have to wait on public lists. eg dental I have been waiting 4 years for a check up , I needed a tooth filled due to pain , they did that and noticed other fillings that needed doing. they checked and yes I am still on the waiting list
    MICK
    14th Aug 2018
    11:00am
    Correct but unlike other countries we do have Medicare. People do however need to bear some costs out of their own pockets as the health system is paid for by 'somebody' at the end of the day.
    Dentists? We pay our own.

    The issue about the health system is not unlike other areas of life. The rich can afford their costs as well as expensive medical insurance whilst the rest of us cannot. One of my main gripes in this argument is that there are a lot of Australians soaking up the health dollar as a result of bad life choices and whilst I feel sorry for what these folk have inflicted on themselves they should be at the end of the queue, not at the beginning.

    In the end welcome to life. Just imagine how people in the third world must feel.
    patti
    22nd Jul 2018
    10:36am
    Has been a two tier system for years. I was forced to opt out of private health care when I could no longer afford the premiums, not to mention the gap fees. It is becoming worse, and the waiting times for public health services are ridiculous. I waited 12 months just to get an appointment with a foot specialist. Health care is a right, not a privilege.
    Cowboy Jim
    22nd Jul 2018
    2:11pm
    Two Tier system is here. Wife and I pay just under $5000 per year together and have done for many years. Long ago when young we kept an account just for medical stuff and tried to put in $500 a year after it became voluntary to be a member of a health insurance (we were in Vic at the time). It grew to quite a sum, looked at it as a sort of self insurance. Then the assets test was brought in and our accountant told us: Wrong way to go because all the money in that fund will be counted when you get old. So we bought health insurance again.
    Perhaps the Govt should allow people to have a fund like that again without asset test. No access allowed but for hospital procedures and after the account holder dies the Govt could use the funds for Medicare. It would cut out the middle man and we have our mind at rest.
    sunnyOz
    14th Aug 2018
    12:08pm
    Totally agree Cowboy Jim.. I too had a designated savings account for health insurance and Pet Insurance. But this would become a liability under the asset test. I am now on the (single person) Aged Pension, and really struggling to pay my Health Insurance. And re-assessing it more so now after hearing about my neighbor.
    Also single, with health insurance, she has just had a hip replacement. She tried very hard to find full costs before hand, and tried to get quotes. Then ring health fund for estimate of cover, but they need exact item numbers, which quotes don't give. Out of pocket costs so far nearly $9,500. Plus being single, doesn't have anyone to chauffeur her around to doctors, physio, etc. so needs to rely on taxi's (have limited access to aged care transport providers).
    Yet other neighbor has had triple bypass, cochlear implant, knee replacement, pacemaker and lower leg amputation. No private health insurance, all within last 12 months, no wait longer than 7.5 months, and not a cent extra to pay.
    Just WHO is the stupid bunny?
    GeorgeM
    22nd Jul 2018
    11:52pm
    We have a Broken Pensions system - if we had Universal Pension, we would not even need the above analysis by tribes (could be different ones for those who don't qualify based on say Age and Residence).

    We also have a Broken Private Health Insurance system, in fact a DUD system. Any Private INSURANCE should pay for all Gaps as that is the RISK they are supposed to cover. The Govt needs to change rules to force them to cover all Gaps, and also offers Standard Products which can be compared easily to have real competition.

    I disagree with the article's suggestion to scrap the Private Health Insurance system, as it is needed for those who don't want to rely only on Govt provided care (some may die or suffer needlessly waiting in queues).
    Rae
    14th Aug 2018
    2:07pm
    You are so right George. The whole Country is a shambles now thanks to crazy neo-liberal ideology and it will get worse I'm afraid.

    If the money spent on subsidising health insurance companies had been spent building the health system to cope with the millions of immigrants we would not have huge queues in the first place.
    *Loloften*
    27th Jul 2018
    4:13pm
    It reached that system for age/disablity pensioners yrs ago.....remembering that we now AP's only had a 2% of wages added to Super funds which increased very slowly thereaft, no where near the 9+% for our children now for which I'm very grateful. However the prices, especially of housing, grew much faster for our children so we helped them, knowing how important it was for them to get into the housing mkt asap, never for a second thinking the interest rates on our savings would be the lowest in Aus history for so very long, especially after we paid up to 18% on our mortgages (ironically they begin with "mort" -prefix to death!!). Sad fact is the more money one has the more interest the bank gives.....Australia is stuffed financially, Pollies & banks cowering to the rich
    KB
    1st Aug 2018
    11:58am
    Cannot afford health insurance but have to take it on as I have health needs .Needed glasses so it was good not to have pay for 2 pairs, tisme you could just pay extras so to cover dental.Do not always have to pay for both hospital and extras I was on a bad cover and swapped companies for a health cover that covered an issue that was not covered by the former company. Health insurances can be a rort and you do not always get what you pay for. I now am 6.00 per fortnight better off by changing cover and companies, People who cannot afford health insurance should be able to access health care.If you are paying health insurance always as good idea to check what you are paying for,-
    KSS
    14th Aug 2018
    12:56pm
    As long as people expect to be treated with the latest interventions, newer drugs, and be kept alive at any cost (from premmie neo-nates to unviable elderly) then health costs will continue to increase. It has little to do with pharma greed and everything to do with unrealistic expectations that everything can be fixed and someone else should pay!
    Toddy
    14th Aug 2018
    3:43pm
    People take out health insurance to ensure that they can access medical care when needed. However, it does leave you hundreds to thousands of dollars out of pocket...even if you shop around! When a Doctor charges $1000 for a 15 minute procedure and your refund is $400 , one has to wonder why you are being gauged? Top hospital cover,plus using a doctor recommended by the health fund.......Heaven forbid having a baby in the private sector....start saving to have the additional $5000 + available and continue paying your $400 per month towards the health insurer. Something is very wrong!
    *Loloften*
    31st Aug 2018
    11:47pm
    Hmm - 30+% on food. including my big boy soo very protetive Border Collie & his Treats when minds home when baby-siting youngest grandkids & minding car when shopping (under-over when sunny/hot). My srill Private Health Insurance is soo expensive, seriously thinking of ditching it.
    anonysubscribe
    17th Oct 2018
    10:21pm
    the housing costs for renting are unrealistic beyond a 1 room flat in some unwanted suburb maybe in sydney or melbourne.


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