Australia healthcare overview

Australia’s health system is underpinned by Medicare – a universal health insurance scheme.

The healthcare spend is funded by national taxes (43%), state and territory government taxes (28%), patient out-of-pocket payments (14%), private health insurance (8%) and accident compensation schemes (7%)[1].

Medicare is funded by the national government through taxation revenue known as Medicare Levy (currently at 2% of taxable income). Approximately 45%[2] of the population also has private health insurance (PHI) and the national government encourages residents to take PHI through additional levies and subsidies. Residents who do not have an appropriate level of PHI are charged an additional Medicare Levy Surcharge between 1-1.5% of taxable income, based on age and income. The national government also charges a Lifetime Health Cover loading if a resident takes PHI later in life, being an extra 2% on PHI premiums for each year above the age of 31. The higher premium is charged for a maximum of 10 years of continuous PHI coverage. As an additional incentive, residents with PHI are eligible for a Private Health Insurance Tax Rebate at the end of each financial year. This is based on age and income and varies between 8.2% – 32.8%[3].

Healthcare policy and Medicare are managed nationally through the Department of Health and Aged Care. The delivery of healthcare is mostly managed at two levels of government.

The national (Federal) government regulates the delivery of primary care, pharmaceuticals, therapeutic goods and aged care. The management of primary care is delegated to 31 primary health networks (PHN), who co-ordinate and commission primary health services within their region to meet the needs of their population.

The six state and two territory governments manage public hospitals, ambulance, public dental services, community health, inpatient mental health services and some aged care services. Each has their own healthcare system, regulations and policies. All manage public hospitals and community health services via some form of local hospital network (LHN).  Each LHN manages a single or cluster of public hospitals in a geographic area and is responsible for co-ordinating public hospital services and any associated community health services in that region.

The state/territory governments are responsible for registering and licensing private hospitals and the health workforce. Any new or modified services must be approved and audited by the state/territory health department prior to commissioning. The national government is responsible for management of pharmaceuticals.

The Australian Commission on Safety and Quality in Healthcare develops national safety and quality standards and clinical care standards for hospitals. Each state/territory government decides which standards are mandatory for implementation in their jurisdiction, which is tested via an accreditation process.

Healthcare funding in Australia

All residents have access to free healthcare in the public health system under Medicare. The national government sets the rates Medicare will pay for primary and specialist care under the Medical Benefits Scheme (MBS). If charged at the published MBS-rate, Medicare covers 100% of the cost of GP visits (referred to as "bulk-billing"), public hospital care, and 85% of outpatient specialist costs. If a GP or specialist charges a rate higher than the MBS, patients must cover the gap with out-of-pocket payments or private health insurance, depending on where the service is delivered.

Prescription medications are also subsidised to provide them at a discounted cost via the Pharmaceutical Benefits Scheme (PBS). Medicare does not cover costs for dental examinations or treatment, ambulance services, private allied health (e.g. outpatient physiotherapy, occupational therapy, speech pathology, podiatry services), or glasses or all home nursing (co-payment usually required).

All healthcare services provided in a public hospital are funded based on activity via diagnosis-related groups (DRG). Treatment in a public hospital is free for all residents, however patients are not able to choose their own specialist. Patients can choose to be treated in a private facility under their selected specialist.

Specialist services performed in a private hospital are funded for 85% of the Medicare-set rate, as long as the treatment is listed on the MBS. The remaining 15% of the specialist fee and the hospital costs (e.g. accommodation, theatres, nursing care and food) are paid by private health insurance and/or by the patient (co-payment, excess or self-funded). Private hospitals negotiate rates with private health funds to cover the hospital costs for privately insured patients. Each fund will negotiate rates and have their own requirements and performance indicators for reimbursement. 

Private hospitals may receive some funds from self-employed specialists (referred to as Visiting Medical Officers – VMOs) for use of consulting rooms and administrative services.  However, VMOs are paid separately by Medicare, the patient and/or private health fund and will also negotiate with private health funds separately for reimbursement.

For out-of-hospital services, funding will depend on the service provided.  Outpatient specialist consultations are funded by Medicare for 85% of the MBS rate. Mental health funding is shared between national and state/territory governments. When delivered as an inpatient service within a private hospital, the cost of the psychiatrist is funded by Medicare and the hospital costs must be covered by the patient and/or private health insurance.

Allied health delivered as an outpatient service maybe funded by Medicare, private health insurance or the patient to self-fund, depending on the service and if it is listed on the MBS

Prescription medicines are subsidised by the national government under the Pharmaceutical Benefits Scheme (PBS). The amount of subsidy depends on the medicine and most patients are required to make a co-payment for prescription medicines.  However, not all prescribed medications are on the PBS.

Healthcare providers

Specialists in Australia are typically either employed at public hospitals or are self-employed consultants. Doctors working in public hospitals are either paid a salary by the state/territory health department or a modified fee-for-service based on the MBS.

Some self-employed specialists will practice at a number of private hospitals and may also be contracted to deliver set hours at the public hospitals.

Specialists practicing in private hospitals (VMOs) must be accredited by each hospital’s Medical Advisory Committee to practise at that hospital.  VMO accreditation is reviewed every 3 years and requires the specialist to be registered with AHPRA (Australian Health Practitioner Regulation Agency), carry appropriate medical liability insurance and undertake regular peer reviews.

[1] AIHW 2019-20 (Health expenditure - Australian Institute of Health and Welfare (aihw.gov.au)) 

[2] APRA June 2022 Quarterly private health insurance statistics | APRA 

[3] ATO 2021-22 - Medicare and Private Health Insurance (Medicare and private health insurance | Australian Taxation Office (ato.gov.au))

Disclaimer

The information in the ‘Our markets’ section of the Ramsay Group’s website is based on information obtained from external sources and is current as at 16 February 2023. Ramsay has not independently verified the information presented in this section. The information is in summary form and is not necessarily complete.

Ramsay will not be liable for the correctness and/or accuracy of the information, and undertakes no obligation to update the information.  

The information is not investment or financial product advice and should not be relied upon in making investment decisions. Before making an investment decision, you should seek appropriate financial advice, which may take into account your particular investment needs, objectives and financial circumstances.