1301.0 - Year Book Australia, 2009–10  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 04/06/2010   
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Contents >> Health >> Health care delivery and financing


This section draws extensively on material provided by the Australian Government Department of Health and Ageing (November 2009).

National health care system

Australia's health care system is funded and administered by several levels of government (national, state/territory and local) and is supported by private health insurance arrangements. Australia’s national public health insurance scheme, Medicare, is funded and administered by the Australian Government and consists of three health care components: medical services (including visits to general practitioners (GPs) and other medical practitioners), prescription pharmaceuticals and hospital treatment as a public patient (the latter is jointly funded by the Australian and state/territory governments).

The Australian and state/territory governments fund and deliver a range of other health services including population health programs, community health services, health and medical research, Indigenous health, mental health, health workforce and health infrastructure.

The Australian Government is primarily responsible for health service funding, regulation of health products, services and workforce, and national health policy leadership. The states and territories are primarily responsible for the delivery and management of public health services (including public hospitals, community health and public dental care) and the regulation of health care providers and private health facilities. Local governments fund and deliver some health services such as environmental health programs.

This public system is supported by optional private health insurance (and injury compensation insurance) for hospital treatment as a private patient and for ancillary health services (such as physiotherapy and dental services) provided outside the hospital.

Most medical and allied health practitioners are employed in private practice. A small number of doctors and allied health professionals are salaried employees of the various tiers of government.

Role of the Australian Government

The Australian Government has national responsibility for the following major health funding mechanisms:

  • Medicare Benefits Schedule (MBS) component of Medicare: provides rebates to private patients for medical services provided by privately practising doctors, optometrists and other allied health practitioners
  • Pharmaceutical Benefits Scheme (PBS) component of Medicare: provides rebates to private patients for a wide range of prescription pharmaceuticals
  • National Healthcare Agreement. The Agreement includes the public hospital component of Medicare which provides grants to state and territory governments for the provision of free hospital treatment as a public patient (and also includes funding to state/territory governments for some population health programs)
  • National Partnership Agreements: grants to state/territory governments for Hospital and Health Workforce Reform (including public hospital emergency departments), Preventative Health, Closing the Gap in Indigenous Health Outcomes (joint funding by the Commonwealth, States and Territories), Health Infrastructure, and Health Services for a range of population health programs such as immunisation, cancer screening, drug abuse reduction and health promotion
  • rebates for private health insurance premiums subsidise access to a range of ancillary health services and treatment as a private patient in hospital
  • grants and payments to government and non-government health service providers for a range of health services (e.g. radiation oncology, pathology and primary care medical services) to improve service access for specific population groups, to influence the growth and distribution of health services, and to improve the quality of service and health outcomes
  • health services for war and defence service veterans are provided under a number of schemes administered through the Department of Veterans’ Affairs including the Local Medical Officer Scheme, the Repatriation Pharmaceutical Benefits Scheme, and the Repatriation Private Patients Scheme (for treatment as a private patient in hospital).


Medicare is Australia's universal, tax-financed, public health insurance scheme, covering medical, pharmaceutical and public hospital services. Introduced in 1984, Medicare’s objectives are to make health care accessible and affordable to all Australians, and to provide a high quality of care.

Medicare Benefits Schedule (MBS)

Medicare benefits provide financial assistance to people who incur medical expenses for selected professional services rendered by medical practitioners, participating optometrists, practice nurses, dentists and other allied health professionals. Medicare benefits are based on a schedule of fees.

Practitioners are not required to adhere to the Schedule fee, except for optometry, which is a participating scheme under which practitioners sign an undertaking to charge no more than the Schedule fee for the services they perform.

Where practitioners bulk bill Medicare Australia, they receive the Medicare rebate, and they cannot levy additional charges on the patient.

Medicare benefits do not cover services to public patients in public or private hospitals, services provided under Veterans' Affairs arrangements, some compensation cases, and some services provided under other publicly funded programs.

For private hospital treatment or ‘hospital substitute treatment’ covered by private health insurance, the Medicare benefit is 75% of the Schedule fee. Amounts paid in excess of the rebate may be claimed under private health insurance arrangements.

For non-hospital services, from 1 January 2005, the Medicare benefit was 100% of the Schedule fee for out-of-hospital non-referred (GP) attendances, including practice nurse items, and for all other out-of-hospital services, 85% of the Schedule fee or the Schedule fee less the maximum gap ($68.10 from 1 November 2008, indexed annually), depending on which is greater.

With effect from 1 February 2004, additional benefits were paid to GPs as an incentive for bulk billing. The $7.85 incentive applies to bulk-billed services provided by GPs to persons under 16 years of age or concession card holders, to persons in Tasmania or in specified rural and remote areas. With effect from 1 September 2004, the incentive applies to a number of other geographical areas. The $5.15 incentive applies to bulk-billed services provided by GPs to persons under 16 years of age or to concession card holders.

A number of 'safety net' arrangements apply for patient-billed services provided out-of-hospital. Under the original Medicare Safety Net, when gap payments (the difference between the MBS Schedule fee and the Medicare rebate) exceeded $383.90 for an individual or family in 2009, Medicare benefits increased to up to 100% of the Schedule fee for the remainder of the calendar year. Under the Extended Medicare Safety Net, for Commonwealth concession card holders and families who receive Family Tax Benefit Part A, once out-of-pocket costs (total fee charged less benefit paid) exceeded $555.70 in 2009, Medicare covered 80% of the out-of-pocket costs for the remainder of the year. For other singles and families, Medicare covered 80% of the out-of-pocket costs, once those costs exceeded $1,111.60 in 2009.

Medicare levy

When Medicare began in 1984, a levy was introduced as a supplement to other taxation revenue to enable the Australian Government to meet the additional costs of the universal national health care system, which were greater than the costs of the more restricted public health insurance systems that preceded it.

The Medicare levy is 1.5% of an individual’s taxable income (except where an individual is exempt or pays a reduced levy because of low income). Individuals and families on higher incomes who do not have an appropriate level of private hospital cover may also have to pay a Medicare levy surcharge, which is an additional 1% of taxable income. In 2007-08, taxation revenue from the Medicare Levy (including the Medicare Levy Surcharge) was $8.0 billion.

In 2008-09, Medicare Australia paid benefits of $14.3 billion, or $664.30 per person for 294 million items of services, 13.6 services per person (table 11.24).




Per person
Per person

7 829.5
8 115.5
8 600.0
9 922.9
10 976.3
11 735.6
13 006.5
14 321.9

(a) Increases in services over time reflect structural changes to the Medicare Benefits Schedule, changes in service provision (services previously provided by state and territory governments under grant arrangements now covered by Medicare), population growth, ageing, etc.
(b) Nominal.
(c) In current prices.
Source: Medicare Australia Data; Commonwealth Department of Health and Ageing.

Pharmaceutical Benefits Scheme (PBS)

The Australian Government provides Medicare-eligible people with affordable access to a wide range of necessary and cost-effective prescription medicines through the PBS. The following details relate to charges and 'safety net' levels applying at 1 January 2009.

Medicare-eligible patients who do not hold a Health Care Card, Pensioner Concession Card or Commonwealth Seniors Health Card, are required to pay up to the first $32.90 for each prescription item for medicines listed on the PBS. Concessional patients who hold a concession card must pay $5.30 per prescription item.

Under private health insurance, health insurers may offer policies that cover the above costs of the prescription items as part of an episode of hospital treatment or an episode of hospital substitute treatment.

Individuals and families are protected from large overall expenses for PBS-listed medicines by safety nets. For general patients (non-cardholders), once the eligible expenditure of a person and/or their immediate family exceeds $1,264.90 within a calendar year, the additional payments the patient has to make per item (co-payment) usually decreases from $32.90 to the concessional co-payment rate of $5.30.

For concessional and pensioner patients (cardholders), once their total eligible expenditure exceeds $318 within a calendar year, usually any further prescriptions are free for the remainder of that year.

Patients may pay more than the relevant co-payment in certain circumstances. A special patient contribution is payable for a pharmaceutical benefit where there is a disagreement between the manufacturer and the Government over the dispensed price for that benefit item. This extra charge is paid by all patients, together with their usual patient contribution.
  • In the case of brand premiums, the Government subsidises on the basis of the lowest priced drug, and any difference in price due to a brand premium must be met by the patient. The premium cannot be counted towards the patient's safety net. There is always one brand of a drug available on the PBS that does not have a brand premium.
  • Under the therapeutic group premium arrangements, the Government reimbursement to pharmacists is based on the lowest priced benefit items within identified therapeutic groups. Patients pay the difference for higher priced items. Exemptions on medical grounds are available.
  • For other special patient contributions, although some medicines in reference pricing groups deliver similar health outcomes, they may not be interchangeable for patients. Unlike products with brand and therapeutic group premiums, patients may not be able to avoid the additional costs by taking another medicine. Where the prescribing doctor believes that there is no clinically appropriate alternative, the Government will pay the special patient contribution on behalf of the patient for most of the drugs with these patient paid charges.

In the 2008-09 financial year, the PBS processed 181 million benefit prescriptions, representing a cost to the Australian Government of $6.9 billion (table 11.25). The number of PBS subsidised prescriptions per person in the 2008-09 financial year was 8.3, compared with 8.0 in 2007-08.


Government cost(b)
Script volume(c)
Average Government cost per script(c)
Subsidised prescriptions per capita(c)
Financial Year

5 104.5
5 459.1
5 587.1
5 742.2
6 237.5
6 916.9

(a) In current prices.
(b) PBS Government cost is reported on an accrual accounting basis. Categories included are expenditure for Section 85 drugs (Concessional and General), Emergency (Doctor's Bag) Drugs, Highly Specialised Drugs, Section 100 drugs and issue costs of Safety Net cards.
(c) All other information is sourced from the relevant Pharmaceutical Benefits Branch publications Expenditure and prescriptions twelve months to...' and is reported on a cash basis. The data only relate to concessional, General and Doctor's Bag categories.
Source: Medicare Australia Data; Commonwealth Department of Health and Ageing.
Note: Payments for IVF Centre Hormones, Human Growth Hormones, Aboriginal Health Services, and prescription medicines subsidised by the Government under the Repatriation Pharmaceutical Benefits Schemewhich is administered by the Department of Veterans' Affairs, are totally excluded.

Public hospitals

Australia’s public hospital system, which provides the majority of acute-care beds, provides free access to hospital care for public patients. It is jointly funded by the Australian Government and state/territory governments (and can also receive revenue from services to private patients). Public hospitals are run by state and territory governments. Australian Government funding to the states and territories for public hospitals is made through the National Healthcare Agreement between the Australian Government and the states and territories.

In 2006-07 there were 758 public hospitals nationally (table 11.26), compared with 761 in 2003-04. There was an average of 56,000 beds in public hospitals during 2006-07, representing 68% of all public and private hospital beds. The number of available beds ranged from 3.3 per 1,000 population in the Northern Territory to 4.7 per 1,000 population in Tasmania in 2006-07.



Bed supply
Facilities no.
1 315
Beds/chairs (annual average) no.
55 905
26 678.0
82 583
Total separations ’000
4 661
3 051
7 712
Same-day separations ’000
2 333
1 909
4 242
Total patient days ’000
17 439
7 669
25 108
Average length of stay days
Average length of stay excluding all same-day separations days
Staff(c) ’000
Non-admitted patient occasions of service ’000
46 141
1 734
47 875
Revenue(d) $m
2 325
7 539
9 864
Recurrent expenditure(e) $m
26 290
6 582
32 872

(a) Acute and psychiatric hospitals.
(b) Acute and psychiatric hospitals and free-standing day hospital facilities.
(c) Full-time equivalent.
(d) Current price. Refers to amounts as reported, unadjusted for inflation.
(e) Current price terms not adjusted for inflation.
Source: ABS Private Hospitals, Australia, 2006-07 (4390.0); Australian Institute of Health and Welfare, 'Australian Hospital Statistics 2006-07'.

The number of patient separations (discharges, deaths, and transfers) from public hospitals during 2006-07 was 4.7 million compared with 4.2 million in 2003-04.

The average length of hospital stay per patient in 2006-07 was 3.7 days compared with 3.8 days in 2005-06 and 4.1 days in 2001-02, reflecting a steady increase in same day patients up to 2006-07. If same-day patients are excluded, the 2006-07 average length of stay was 6.5 days compared with 6.6 days in 2005-06 and 6.9 days in 2001-02.

Role of the private health sector in Australia's health system

The private health sector (including both the for-profit and not-for-profit sectors) plays a significant role in delivering and funding health services in Australia. Most medical and allied health practitioners are in private practice (self-employed, in small practices or large corporate practices) and charge a fee for service. Private hospitals provide a third of all hospital beds, almost 40% of total hospital separations and over half of all surgical episodes requiring the use of an operating room. Most prescribed pharmaceuticals are dispensed by private sector pharmacies. Most high-level residential aged-care beds are provided in private aged-care facilities. Private health insurers provide rebates for ancillary health services (such as physiotherapy and dental services) and hospital treatment as a private patient. Injury compensation insurers providing workers’ compensation and third-party motor vehicle insurance also fund some health care. Individuals fund health care through out-of-pocket expenses, net of government and private health insurance rebates.

The private health sector funds around a third of all health care in Australia, with out-of-pocket expenditure the major component, funding 19% of total health expenditure.

Private hospitals

There were 557 private hospitals in operation in 2006-07, comprising 289 private and acute hospitals and 268 free-standing day hospital facilities. The number of acute and psychiatric hospitals has decreased since 2001-02 when 301 of these hospitals were in operation. In contrast, the number of day hospital facilities has grown steadily for several years, with 236 in operation in 2001-02.

For private acute and psychiatric hospitals during 2006-07, the average number of beds available was 26,678, 2% higher than the previous year. There was an increase in the average number of beds available in the capital cities by 410 beds, and a decrease in regional Australia by 96 beds. The average change in the number of beds or chairs available at free-standing day hospital facilities (used mainly for short post-operative recovery periods) increased by 6.5% in the 12 months up to 2006-07.

Private hospital separations in 2006-07 totalled more than 3 million, of which 79% were from private acute and psychiatric hospitals and 21% from free-standing day hospital facilities. Same-day separations accounted for 63% of all private hospital separations (compared with 50% of public hospital separations). This higher proportion of same-day separations contributed to the lower average length of stay in private hospitals (2.5 days) compared with public hospitals (3.7 days) (table 11.26).

The average number of full-time equivalent staff employed at all private hospitals was 46,718 of whom 60% were nursing staff. Recurrent expenditure for private acute and psychiatric hospitals during 2006-07 amounted to $6.6 billion (a 1.3% increase over the previous year). Some 52% of this amount was spent on salaries and wages (including on-costs). Revenue received during the year was $7.5 billion, of which 96% was received as payments from patients. Over the five years to 2006-07, the average annual increase in recurrent expenditure was 6.6%.

Private health insurance

At 30 June 2008, private health insurance was offered by 38 registered health insurers, giving a voluntary option to all Australians for private funding of their hospital and ancillary health treatment. It supplements the Medicare system, which provides a tax-financed public system that is available to all Australians. Private health insurance can cover part or all of hospital theatre and accommodation charges to private patients in either a public or private hospital, a portion of medical fees for services provided to private patients, allied health services, programs to manage and prevent chronic disease, some dental services, aids such as spectacles, and ambulance transport.

A risk equalisation model was introduced in 2007, which includes benefits paid by funds for persons aged 55 and over at an increasing rate, from 15% for 55 to 59 year olds and up to 82% for persons aged 85 and over. The introduction of a rebate for private health insurance premiums in 1999, and the Government's Lifetime Health Cover policy in 2000, saw private hospital cover increase, with population coverage rates rising from 31% in June 1999 to 43% in June 2000. At June 2008, over 9.5 million Australians had private hospital insurance cover (nearly 45% of the population). Private hospital and general treatment (GT) insurance coverage from 2000-2008 is shown in graph 11.27 (prior to 1 April, 2007, GT was known as ancillary cover).

11.27 PERSONS WITH PRIVATE HEALTH INSURANCE, Proportion of total population
Graph: 11.27 PERSONS WITH PRIVATE HEALTH INSURANCE, Proportion of ^total population

Health work force

In 2006 approximately 514,400 people were employed in health occupations in Australia, comprising 6% of the total number of employed people (table 11.28). The largest components of the health work force were nursing workers (206,900) and medical practitioners (52,800).

Females comprised 76% of the health work force. The high proportion of females in the health work force is due to their predominance in registered midwifery, registered nursing, enrolled nursing, as allied and other health workers and complementary therapists. Conversely, males were highly represented as pharmacists and represented 65% of medical practitioners.

Nearly 42% of the health work force were employed on a part-time basis, compared with 31% of all employed people in Australia. The higher proportion of part-time workers in the health sector is a reflection of the greater number of females in the health work force, who are more likely than males to work part time (table 11.28).


Part-time workers

Medical practitioners(a)
Medical imaging workers
Dental workers
Nursing workers
Allied health workers
Complementary therapists
Other health workers
Total employed in health occupations
Total employed in all occupations
8 766.2

(a) Includes generalist and specialist medical practioners.
Source: ABS data available on request, Census of Population and Housing 2006.

Household expenditure on health and medical care

The Household Expenditure Survey (HES) provides estimates of expenditure on medical care and health by households across Australia. Expenditure is net of any refunds and rebates received from Medicare, private health insurance companies and employers.

The National Health Survey 2004-05 asked individuals the amount of times and types of health services they had used in the previous 12 months and their level of private health insurance coverage.

According to the 2003-04 HES, households spent $46 per week, on average, on medical care and health expenses. This was approximately 5% of an average household's expenditure on goods and services each week.

The main items contributing to the household's overall medical care and health expenditure were accident and health insurance (averaging 39%), health practitioner's fees (31%), and medicines, pharmaceutical products and therapeutic appliances (25%). The remainder was mainly taken up by hospital and nursing home charges.

Health practitioner's fees averaged $14 a week and were mainly for dental treatments (40%) and specialist doctor's fees (30%), with fees for general practitioners accounting for 11% of health practitioner's fees, reflecting the higher level of government subsidisation of GP services.

Although expenditure on GP's fees was comparatively less than other types of doctor's fees, people were more likely to have seen a GP. In the 2004-05 NHS, of persons who reported that they had seen a health practitioner in the last two weeks, a fifth had seen a general practitioner (20%), while dentists, specialists and other health professionals accounted for 6%, 5% and 13% respectively.

In 2004-05, 24% of people aged 15 years and over with ancillary cover had consulted a dentist or other health professional in the previous two weeks, compared with 16% of those who did not have ancillary cover (after adjusting for age differences).

Total health expenditure

Health expenditure in Australia includes expenditure funded by the Australian, state and territory governments, by private health insurance and by individuals and households. Total expenditure on health in 2007-08 was $103.6 billion compared with expenditure of $94.9 billion the previous year, an increase of 9% in nominal terms (table 11.29). This represented an average rate of health expenditure in 2007-08 of almost $4,900 per person. After adjusting for changes in prices, health expenditure increased by 6.0% in 2007-08, compared with annual average growth in the decade to 2005-06 of 5.2%. In 2007-08, total health expenditure as a proportion of gross domestic product was 9.1%; in 2003-04, the proportion was 8.7% (table 11.29).

11.29 TOTAL HEALTH EXPENDITURE, 2003-04 to 2007-08

Nominal change(b)
Real growth(b)
Ratio to of health expenditiure to GDP (%)

73 509
84 657
81 060
89 634
86 685
92 191
94 938
97 720
103 563
103 563

(a) Constant price health expenditure for 2003-04 to 2007-08 is expressed in terms of 2007-08 prices.
(b) Nominal changes in expenditure from year to year refer to the change in current price estimates. Real growth is the growth in expenditure at constant prices.
Source: Australian Institute of Health and Welfare, 'Health Expenditure Australia 2007-08', AIHW HWE 46.

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