If the Government takes a close look at the health component of the latest CPI figures, there are some clear lessons for policy, says Ian McAuley, a Centre for Policy Development Fellow and lecturer in Public Sector Finance at the University of Canberra. He writes:
“The movement in the CPI for the December quarter was 0.5 percent. Some media commentators picked up the fall in the health component, which dropped almost one percent in the quarter. If health had been excluded, the quarterly rise in the CPI would have been 0.6 percent.
This does not mean the Prime Minister’s initiatives to improve productivity in the sector have had a stunning early success.
The drop is due to an anomalous seasonality in health care costs, explained in the notes at the end of the CPI bulletin.
“The major contributor to the fall in health costs this quarter was pharmaceuticals (–5.3%). Dental services provided the main offset (+0.8%). The fall in the net price of pharmaceuticals was due to cyclical effects of the Pharmaceutical Benefits Scheme (PBS) safety net. The number of people accessing and receiving subsidised prescription pharmaceuticals (the PBS safety net) reaches a peak in December quarter. Over the twelve months to December quarter 2009, the health group rose 4.7% due to increases in hospital and medical services (+5.9%), dental services (+4.2%) and pharmaceuticals (+1.6%)”.
By the same mechanism, we can expect a significant jump in the health care component when, in April, the ABS reports on the current (March) quarter, as the safety nets for the PBS and the Medical Benefits Scheme (MBS) reset on January 1.
Over the last ten years, while the average annual movement in the CPI has been a modest 3.2 percent, the average movement in the health services group has been 5.5 percent.
Within that group pharmaceutical prices have risen at an annual rate of 2.1 percent, showing what governments can do for consumers when they use their powers. The average rise in the hospital and medical services group, however, has been 5.8 percent. This group effectively excludes public hospitals, because they are free, but it includes the MBS and private hospitals, both directly through consumer out-of-pocket payments, particularly when specialists charge above the Schedule Fee, and indirectly through private health insurance.
It is natural that the Commonwealth should be concerned with productivity in public hospitals; after all it pays almost half the cost of public hospitals.
But, with incipient signs of inflation appearing, the Government should be reviewing its permissive attitude to private health insurance, before it does to our health care costs what it has done in the USA.”