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ZNR UUUUU ZZH
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FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 1498
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHDN/AMCONSUL SYDNEY 4565
RUEHBN/AMCONSUL MELBOURNE 6342
RUEHPT/AMCONSUL PERTH 4605
RUEHWL/AMEMBASSY WELLINGTON 5781
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS SECTION 01 OF 06 CANBERRA 000464 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB, OES, AND EAP/ANZ; STATE PLEASE PASS HHS 
 
TAGS: ECON PGOV SOCI AS
SUBJECT:  Australian Health Care - An Overview 
 
Summary 
------- 
 
¶1. (SBU) Australia's mixed public and private health care system 
achieves some of the best health outcomes in the OECD despite 
healthcare spending comprising less than 10% of GDP.  Australia is 
second in the OECD for life expectancy at birth and 16th in 
percentage of GDP spent on healthcare.  Australia's Medicare system 
provides universal access to those without private health insurance 
while using rebates and tax penalties to encourage as many people as 
possible to purchase private health insurance.  Most physicians are 
self-employed or work for private hospitals or clinics.  Private 
hospitals and insurance play a key role in the overall system, with 
44% of the population covered by private health insurance.  About 
two-thirds of total hospital beds are provided by the public system, 
with the balance provided by private hospitals.  With state 
governments responsible for delivering public health services but 
dependent on Commonwealth funding to cover costs, the public health 
system has been an issue in recent state elections.  The system is 
imperfect, with often lengthy delays for elective medical 
procedures, significant problems for aboriginal and rural health 
access, and rising costs.  The current system is largely popular 
with patients and practitioners, and generally delivers on the 
stated social goal of universal access and good outcomes at a 
comparatively low cost.  End summary. 
 
AUSTRALIAN MEDICAL SYSTEM - A BRIEF OUTLINE 
------------------------------------------- 
 
MEDICARE AND PHARMACEUTICAL DRUGS 
 
¶2. (U) The main pillar of Australia's health care system is the 
universal health insurance system funded by Australia's Federal 
government, first introduced in 1974 and modified several times 
since.  Now known as Medicare, this program provides guaranteed 
access at low costs to basic health care for all Australian 
residents.  Medicare subsidizes payments for services provided by 
doctors and other health professionals.  Though funded in large part 
by the Federal government, the system is run by Australia's eight 
state and territory governments, which fund and operate public 
hospitals that provide services that are covered by Medicare.  With 
the exception of some employed by public hospitals or state 
universities, doctors are not salaried employees on a government 
payroll.  They are either self-employed or members of a medical 
practice.  Medical providers are free to charge what they want for 
their services, although reimbursement from the Federal government 
is capped based on the Medicare Benefits Schedule (MBS). 
 
¶3. (U) According to analysis by the Congressional Research Service 
of 2006 OECD Health Data, Australian specialists earn an average 
US$247,000/year (PPP basis), 7.6 times better than per capita GDP 
and double the OECD average of US$113,000.  General practitioners 
(GPs) averaged US$91,000 (2.8 times per capita GDP, slightly above 
the OECD average US$83,000), and nurses US$48,000 (OECD average 
US$33,000).  In 2005-06, the Australian health sector employed 
753,000 people, 7% of the civilian work force. 
 
¶4. (U) Medicare provides no dental coverage (a debate is underway 
whether dental care should be covered); similarly, ambulance 
services are not part of the system and are paid for by the 
individual or their private insurance.  Low income people are 
Qindividual or their private insurance.  Low income people are 
eligible for some subsidies for these services, which falls outside 
of Medicare. 
 
 
¶5. (U) Fees for medical services provided by private practitioners 
are established by the federal Department of Health and Ageing, in 
conjunction with medical profession experts from both the public and 
private sectors.  These "schedule fees" serve as a floor for private 
physicians and hospitals, who may charge whatever they wish for 
their services.  For patients admitted to hospitals, the Medicare 
benefit (i.e., what the GOA will cover) is equal to 75% of the 
schedule fee; for nonhospital services, Medicare pays up to 100% of 
the schedule fee for consultations with General Practitioners (GP) 
and up to 85% for services from specialists.  The patient pays the 
difference ("gap") between the benefit paid and the schedule fee, to 
a maximum of A$65.20 (indexed annually), and pay any costs above the 
schedule fee.  In addition, all families have a cap of around 
A$365/year (US$274 based on 5/15/09 exchange rate of A$1.00 = 
US$.76) for "gap" payments for out of hospital services, after which 
they are reimbursed 100% of the schedule fee (but still not for 
anything above the schedule fee).  Some are eligible for other 
benefits for medical fees, and a 20% tax rebate on expenses over 
A$1500 (US$1125) can be claimed on medical expenditure in certain 
 
CANBERRA 00000464  002 OF 006 
 
 
categories including Medicare payable items. 
 
¶6. (SBU) Australia's health care system has evolved into its current 
form over the past 60 years.  The Pharmaceutical Benefits Scheme 
(PBS) is the oldest element of the system.  PBS was introduced in 
1948 to provide a limited range of "life-saving" medicines; it is 
now the price setter for all prescription medicines in Australia. 
Prescriptions are filled by pharmacies which purchase their drugs 
from providers at a wholesale price established by the PBS and 
charge customers a set price negotiated with the PBS, with a 
relatively low cost (co-payment) to the patient that is set by PBS. 
For 2005-06 the average patient cost per prescription was A$6.70 
(US$5, does not include non-PBS prescriptions; costs are cheaper for 
some categories of patient); PBS picked up A$32.10 per prescription. 
 As of December 2007, PBS covered 819 drug substances (generic 
drugs), available in 2749 forms and strengths (items) and marketed 
as 3481 products (brands).  PBS is very popular with the public and 
medical practitioners, although not with pharmaceutical companies, 
who complain about PBS's squeezing costs at their expense. 
 
PRIVATE SECTOR THRIVES 
 
¶7. (SBU) The private sector is a key component of the Australian 
medical system - not only do private hospitals, pharmacies, and 
health insurance funds exist, they are explicitly encouraged and 
subsidized by the Federal government.  As Angela Pratt, chief of 
staff to Health Minister Nicola Roxon, and others have told us, the 
competitive tension between public and private hospitals and 
providers is an important part of the system.  And the presence of 
the private sector reduces the burden on public hospitals. 
 
 
PRIVATE INSURANCE 
 
¶8. (U) The system deliberately encourages Australians to purchase 
private insurance if possible.  Private health insurance is readily 
available in Australia, but must meet certain conditions.  Since 
1983, insurers have been required to offer health insurance to all 
on a community-rated basis which prevents them from charging more 
(or refusing coverage) based on pre-existing conditions, age, or 
other factors.  Policies are available that exclude certain medical 
developments such as care related to pregnancies and childbirth, or 
certain medical conditions, making the policy cheaper and leaving 
the patient to rely on Medicare for those issues should they arise. 
Further, they are restricted by law to insuring only in-hospital 
procedures.  Insurance is bought by individuals directly.  Employers 
do not pay insurance premiums for employees - they have no direct 
role in funding health.  As a result, insurance is fully portable 
and is not linked to specific employment.  Individuals can also 
choose to purchase more expensive insurance policies that offer more 
extensive coverage.  Overall insurance costs are contained by the 
strong influence of the Medicare system's fee structure. 
 
¶9. (SBU) As Australian Health Insurance Association CEO Michael 
Armitage told embassy, while these restrictions have helped keep 
private insurance relatively cheap, it has limited their ability to 
innovate or expand into new areas.  Still, private insurers pay for 
an estimated 11% of medical costs in Australia, including about 55% 
of all operations.  Criticism that private health care has created 
additional demand rather than accommodating overflow from the public 
Qadditional demand rather than accommodating overflow from the public 
sector is unfair, according to Armitage, who pointed out that 
private insurers pay for many Medicare-covered procedures such as 
joint replacements and chemotherapy. 
 
¶10. (U) Private health insurance covers procedures done in private 
hospitals, or done in public hospitals by private physicians. 
Private hospitals, which include for-profit operations, offer a 
choice of provider, shorter waits for certain procedures, and 
generally better amenities for both patients and doctors when 
compared to the comparatively spartan public hospitals.  In any 
case, the public and private health systems are quite 
interdependent.  They often share the same workforce and facilities, 
and there is frequent coordination between public and private health 
providers in treating a patient. 
 
¶11. (U) The private sector is also subsidized by the government.  At 
one point in the 1990s, the share of Australians holding private 
insurance had dipped to near 30%.  In response, the GOA introduced a 
rebate, returning 30% of private insurance premiums to the purchaser 
- a A$3 billion (US$2.25 bn) per year subsidy for insurers.  With 
that carrot, the GOA wields two sticks; a medical levy surcharge of 
1% of income if an individual earns over A$70,000 (US$53,000) and 
does not carry private insurance, and a 2% surcharge on private 
health insurance premiums for every year past age 30 that a person 
 
CANBERRA 00000464  003 OF 006 
 
 
does not own private insurance, up to a maximum 60% surcharge.  (In 
the budget issued May 12, the GOA proposes to phase out the rebate 
for high income earners, and increase the medical levy surcharge for 
the same high income people to 1.5%.  Health Minister Nicola Roxon 
says GOA modeling shows this would have a negligible impact on the 
purchase of private health insurance.)  With these policies, 
insurance ownership has rebounded and around 44% of all Australians 
now own private hospital insurance.  Nearly half of the insured 
population has gross household incomes under A$70,000, which means 
that nearly 4.3 million holding private insurance earn less than the 
average income. 
 
¶12. (U) The government reaps benefits from subsidizing the private 
insurance sector.  Private insurance directly supports private 
hospitals and eases the burden on public hospitals.  It gives 
consumers greater choice, reduces government costs, and allows 
government spending to flow to those with the greatest need.  Costs 
of private insurance vary significantly depending on the level of 
coverage and the state of residence, making national comparisons 
difficult.  As an example, a basic policy for two adults plus 
dependents in New South Wales (Australia's most populous state) 
covering treatment in public hospitals only can be purchased for as 
little as A$808/year (US$606).  A policy for the same group (two 
adults plus dependents) with access to "top" private hospitals and 
"comprehensive" coverage would run A$4575/year (US$3440); both 
figures are actual costs to consumers after the 30% rebate from the 
government. 
 
¶13. (SBU) The hybrid public/healthcare system is broadly supported 
in Australia, although some argue that the A$3 billion/year 
subsidizing private health insurance should be directed instead at 
improving the public health system.  Anecdotally, most Australians 
believe that if you can afford insurance, you should buy it.  But as 
Francis Sullivan, Secretary General of the Australian Medical 
Association, described it in a conversation with embassy, most 
Australians are comfortable with less choice in exchange for 
guaranteed access to essential medical services. 
 
HOSPITALS 
 
¶14. (U) Hospitals account for more than one-third of recurrent 
health expenditure in Australia, and are the single biggest cost for 
the states' and territories' medical budgets; this also makes health 
care a big campaign issue in state elections.  Patients generally 
access public hospitals via a referral from a general practitioner 
(GP), or through emergency departments.  Public hospital emergency 
and outpatient services are free, as is inpatient treatment for 
public (Medicare) patients.  People admitted to a public hospital 
can choose to be treated there as either a public or private 
patient, or can choose to be admitted directly to a private 
hospital.  Private patients treated in a private hospital can choose 
their specialist, but charges apply for all of the hospital's 
services such as accommodation and surgical supplies.  Medicare 
subsidizes the fees charged by doctors in both public and private 
hospitals, and private health insurance contributes towards medical 
fees and hospital costs. 
 
¶15. (U) In 2005-06 Australia had 1302 hospitals and 80,828 beds.  Of 
those, 755 were public hospitals providing 54,601 beds.  Public 
Qthose, 755 were public hospitals providing 54,601 beds.  Public 
hospitals accounted for 16,993 patient days, private hospitals 7473. 
 
 
GENERAL PRACTITIONERS 
 
¶16. (U) General practitioners (GPs), whether private or public 
employees, play a key role in the Australian system.  They are 
usually the first point of contact for patients, and serve as the 
primary care provider.  Referrals to specialists and other health 
workers and for medical tests usually come through GPs.  The results 
of tests and visits to specialists are then passed back to the GP, 
who is responsible for coordinating the ongoing care for the 
patient.  The Australian Medical Association describes GPs as "a 
gatekeeper to health services," and stresses that GPs have the right 
to refuse a request from a patient for a referral the GP feels is 
inappropriate.  However, some patients do "self-refer" to 
specialists without going through a GP (in Australia, "general 
practitioner" is a specialty in its own right, with its own specific 
training).  "Self-referring" is discouraged, including by many 
specialists who will only see patients armed with a GP's referral 
letter.  This can be a serious impediment in urgent cases.  It is 
also penalized financially; a self-referring patient will get a 
lower benefit from the government for a given procedure. 
 
WHO PAYS FOR IT, AND HOW MUCH DOES IT COST? 
 
CANBERRA 00000464  004 OF 006 
 
 
------------------------------------------- 
 
¶17. (U) In FY 2005-06 Australia spent A$86.9 billion (US$65.2 bn), 
then about 9.0% of GDP, on health to cover a population that is 
currently 21 million.  Spending on health has crept up steadily. 
FY2005-06 spending itself was about 45% more per person than ten 
years earlier, and now this spending is an estimated 9.8% of GDP. 
Of the total spent on health care, the GOA expenditure was 43%, and 
states and territories paid 25% (this total of 68% compares with an 
OECD average of 73% of health spending being paid by public 
sources).  Private insurers covered another 7% (according to GOA 
figures that take into account the A$3 billion/year subsidy on 
health insurance premiums), and direct payments by individuals 
comprised 17%.  Federal money was spent mostly on medical services 
(A$12 billion), public hospital services (A$10 billion), and 
pharmaceuticals (A$6 billion).  States/territories (and some 
localities) spent A$22 billion in FY2005-06, of which A$12 billion 
was for hospital services.  Federal funding for healthcare is 
sourced in part by the Medicare levy of 1.5% of taxable income, 
which generated A$6.5 billion in FY2005-06.  General revenues cover 
the majority of federal funding for health.  (See table at end of 
cable for comparisons with OECD countries for health care 
spending.) 
 
¶18. (U) Over half of the 32% paid by non-government sources was from 
private individuals, including where patients paid for the entirety 
of a good or service, and instances where costs were split with 
private insurers or the GOA.  Of the A$28 billion of out-of-pocket 
costs, nearly A$8 billion was for dental care.  Medications were 
split between the GOA (A$6.1 billion) and customers (A$5.3 billion). 
 
 
¶19. (U) The private sector is leading the way on capital health 
expenditures.  In 2005-06 non-government spending on medical 
infrastructure (total A$5.2 billion) was nearly 60%; the states 
spent 37% and the GOA only 3.5%. 
 
HOW IS IT WORKING 
----------------- 
 
THE GOOD NEWS 
 
¶20. (U) For the share of GDP spent on health care, Australia does 
well in the OECD health data.  Australia's 9.0% (2005-06 GOA figure, 
now estimated 9.8%) of GDP spent on medical care and per capita 
spending were close to the OECD average.  According to OECD data, 
per capita health administration and insurance costs for Australians 
in 2004 was US$86 (PPP basis), compared to US$65 in the United 
States, US$238 in France, and the OECD average of US$104.  (The OECD 
does not compile data comparing costs for specific procedures across 
economies.) 
 
¶21. (U) Australia now has the second highest life expectancy (81.4 
years) among OECD members, behind only Japan.  Death rates among 
children and young people have dropped by over 50% over the past two 
decades - infant mortality was below OECD average.  Smoking rates in 
adults have dropped from 35% to 15%, in part due to public health 
campaigns stressing its health risks.  Death rates from conditions 
like cancer, heart disease, strokes, injury, and asthma are 
declining.  More people are surviving heart attacks, which are 
growing less common - although coronary heart disease remains 
Australia's top cause of death.  The number of people with 
disabilities is rising, reflecting in part improved survival rates 
from injuries or conditions that would have killed earlier 
Qfrom injuries or conditions that would have killed earlier 
generations.  (See table at end of cable for comparisons with OECD 
countries on life expectancy.) 
 
¶22. (U) Although a small country, Australia has a vigorous medical 
research sector.  A medical researcher at Australian National 
University told us that Australia, with under 1% of global 
population, accounts for 4% of medical research publications 
worldwide.  The Federal government gives grants of about A$1 billion 
per year, and the states and territories are competing to be centers 
of medical research, kicking in their own funds and incentives.  Two 
Australian medical researchers have won Nobel Prizes in recent 
years, and the new cervical cancer vaccine was developed in 
Australia.  However, as in other sectors, Australia lags in 
commercializing its medical discoveries.  They tend to be licensed 
to overseas corporations rather than developed locally, in part 
because of comparatively little venture capital and a small domestic 
market. 
 
THE BAD NEWS 
 
 
CANBERRA 00000464  005 OF 006 
 
 
¶23. (SBU) There are problems.  The worst is the abysmal situation of 
indigenous Australians - aborigines and Torres Straits Islanders. 
Life expectancy for them is some 17 years lower than other 
Australians, despite per capita medical spending that is 17% higher. 
 But this is a subset of the overall problems of indigenous 
Australians rather than one specific to the health care system, and 
is beyond the scope of this report. 
 
¶24. (U) Part of their problem is shared by many other Australians - 
the tyranny of distance.  Australia is the size of the continental 
United States, but has a population of 21 million.  A large majority 
of those 21 million live in or near a few metropolitan areas - 
Sydney, Melbourne, Brisbane, Adelaide, and Perth.  "Country" 
Australians find it very difficult to attract medical professionals 
- doctors, nurses, pharmacists, dentists, technicians - to their 
isolated towns and villages; the GOA has made more proposals to 
encourage medical professionals to practice in these areas in its 
May 12 budget.  For many Australians, a visit to the doctor means a 
drive of over a hundred miles - and visiting a specialist means 
flying to one of the big cities.  Even to give birth, now many rural 
women must fly to a distant city where there is a hospital with a 
birthing center.  Emergency medical services in the outback are 
often provided by the iconic Royal Flying Doctor Service or similar 
air ambulance services.  Even moderately large towns like 
Australia's capital city Canberra (population 350,000) have a hard 
time keeping higher-end specialists due to a small population base 
and lack of amenities at the hospitals (one health expert told us 
wryly that hospitals are competing to attract doctors not patients), 
and air ambulance flights to Sydney for treatment are common. 
 
¶25. (U) The size of Australia has defeated some efforts to introduce 
managed care.  There was a trial done in the 1990s to see whether it 
was possible through bundled care to improve outcomes at no 
additional cost for the 20% of the population that consume 80% of 
medical spending.  The conclusion is that it would be difficult to 
make it work in Australia because of the small size and geographic 
distribution of the population.  This also contributes to 
Australia's significant interest in telemedicine. 
 
¶26. (U) Australia is proud to be #2 in the global standings for life 
expectancy.  Unfortunately, by some measures they have surpassed the 
United States and Britain to take the #1 spot in the global obesity 
table - with obvious concerns for the impact on health.  Similarly, 
although smoking has dropped rapidly thanks in large part to public 
campaigns about the perils of tobacco, alcohol consumption remains 
high.  Generally, Australia has the same medical problems that come 
with prosperity as most other wealthy societies.  And like other 
Western countries, Australia has an aging population, so it faces 
challenges related to that and to chronic disease management. 
 
¶27. (U) The public health sector has an explicit trade-off. 
Everyone is guaranteed cheap and reasonably good treatment through 
the public system.  But it is very common to have to wait for 
consultations with a specialist or elective surgery in a public 
hospital.  For example, in 2005-06 the median wait for an elective 
coronary artery bypass graft in a public hospital was 20 days; for 
Qcoronary artery bypass graft in a public hospital was 20 days; for 
total knee replacement, nearly 180 days. 
 
¶28. (U) Several experts noted to us that as in other countries, 
Australia does not do well on prevention.  Medicare is designed 
around episodic treatments - fees for treating a patient, performing 
surgery, etc.  There is little incentive or funding available for 
preventative measures; this is the subject for a task force set up 
by the Rudd Government that is due to report back in mid-2009. 
 
¶29. (SBU) Comment:  Our government and private sector contacts all 
agreed that the current system for Australia, despite its 
imperfections and increasing costs, is working well.  Australians 
generally enjoy good health (which admittedly includes other factors 
beyond the medical system such as access to clean water), costs are 
not too high, and Medicare and the PBS are genuinely popular.  Even 
most physicians, who strongly opposed the imposition of a universal 
health program in 1974, now support the current system.  Nobody 
loses access to medical care when they become unemployed; nobody is 
refused insurance or even employment due to pre-existing medical 
conditions.  In addition to delivering good quality medical care to 
all Australians at reasonable costs, and allowing for private 
insurance and private hospitals for those able and willing to pay 
more, the current system also appeals to the Australian sense of 
fairness.  Those who can afford to pay more and get more.  But there 
is a basic level of medical care made available for all Australians, 
regardless of income, insurance, or employment status.  End comment. 
 
 
 
CANBERRA 00000464  006 OF 006 
 
 
HEALTH SPENDING (OECD, ranked by per capita income) 
 
Country          income per   health     per capita health 
                  capita      spending   care expenditure 
                 (US$, PPP)  share %GDP   US$ (OECD rank) 
                             (OECD rank) 
 
 ¶3. United States   43.8     15.3 (1)   8711 (1) 
 ¶6. Canada          36.8     10.0 (8)   3678 (5) 
¶10. AUSTRALIA       35.5      8.8 (16)  2999 (15) 
¶12. Sweden          34.9      9.2 (12)  3202 (13) 
¶14. United Kingdom  33.0      8.4 (18)  2760 (16) 
¶16. Germany         32.0     10.6 (4)   3371 (10) 
¶17. Japan           31.9      8.2 (21)  2474 (20) 
    All OECD        31.5      8.9       2824 
¶18. France          31.0     11.1 (3)   3449 (8) 
¶20. Italy           28.9      9.0 (15)  2514 (18) 
¶22. New Zealand     25.9      9.3 (10)  2448 (22) 
 
LIFE EXPECTANCY AT BIRTH (OECD ranking, ranked by life expectancy, 
2005) 
 
Country        life expectancy     infant mortality - 
               at birth (years)    deaths per 1000 live births 
                                       (OECD rank) 
¶1.  Japan           82.1                2.8  (4) 
¶2.  AUSTRALIA       81.4                5.0  (20) 
¶5.  Italy           80.9                4.7  (18) 
¶6.  Sweden          80.9                2.4  (2) 
¶7.  France          80.4                3.6  (9) 
¶8.  Canada          80.4                5.3  (23) 
¶11. New Zealand     79.6                5.1  (21) 
¶16. Germany         79.3                3.9  (12) 
¶19. United Kingdom  78.9                5.1  (21) 
¶24. United States   77.9                6.8  (27) 
 
CLUNE