1301.0 - Year Book Australia, 2008  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 07/02/2008   
   Page tools: Print Print Page  
Contents >> Health >> Health care delivery and financing


This section draws extensively on material provided by the Australian Government Department of Health and Ageing (July 2007).

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 (Commonwealth) 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 and high-level residential aged care.

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.

Figure 11.28 shows the major flows of funding between the government and private sectors, and the providers of health goods and services.

11.28 Health system at a glance (flow of funding)
Diagram: 11.28 Health system at a glance (flow of funding)

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
  • Australian Health Care Agreements component of Medicare - provides grants to state and territory governments for the provision of free hospital treatment as a public patient
  • Public Health Outcome Funding Agreements - provides broadbanded and specific purpose funding from the Australian Government to the states and territories for a range of public health programs
  • 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 is 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 ($61.50 from 1 November 2005 - indexed annually), which ever is greater.

With effect from 1 February 2004, additional benefits (from 1 November 2005 - $5.15 and $7.85) are 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 and with effect from 1 September 2004, 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 in other parts of Australia.A number of 'safety net' arrangements apply for patient-billed services provided out-of-hospital. Under the original Medicare Safety Net, when gap payments (fee charged less benefit paid and where fee charged is less than Schedule fee; or Schedule fee less benefit paid, where fee charged is at or above the Schedule fee) exceed $358.90 for an individual or family in 2007, Medicare benefits increase 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) exceed $519.50 in 2007, Medicare covers 80% of the out-of-pocket costs for the remainder of the year. For other singles and families, Medicare covers 80% of the out-of-pocket costs, once those costs have exceeded $1,039 in 2007.

In 2006-07, Medicare Australia paid benefits of $11,735.6 million (m) ($538.81 per person) for 257.9 million items of services (12.3 services per person) (table 11.29).


Per person
Per person

7 829.5
8 115.5
8 600.0
9 922.9
10 976.3
11 735.6

(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, 2007 unpublished.

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. The Australian Taxation Office estimated that the revenue raised from the Medicare levy (including the surcharge) in 2005-06 was $6.5b.

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 2007.

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 $29.50 for each prescription item for medicines listed on the PBS. Concessional patients who hold a concession card must pay $4.70 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.

11.30 Pharmaceutical Benefits Scheme, Subsidised prescriptions(a)

Government cost(b)
Script volume(c)
Average Government cost per script(c)
Average patient cost per script(c)(d)
Subsidised prescriptions per capita(c)

4 578.1
5 054.7
5 607.5
6 001.2
6 163.1

(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 12 months to...' and is reported on a cash basis. The data only relate to Concessional, General and Doctor's Bag categories.
(d) Average patient cost per script is based on patient co-payments. However, this does not include the cost of patient purchase of medicines that fall below the co-payment level or on private (non PBS) prescriptions.
Source: Medicare Australia Data; Commonwealth Department of Health and Ageing, Expenditure and prescriptions, Pharmaceutical Benefits Division, Canberra.
Note: Payments for IVF Centre Hormones, Human Growth Hormones, Aboriginal Health Services, and prescription medicines subsidised by the Government under the Repatriation Pharmaceutical Benefits Scheme which is administered by the Department of Veterans' Affairs, are totally excluded.

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 $1,059.00 within a calendar year, the additional payments the patient has to make per item (co-payment) decreases from $30.70 to the concessional co-payment rate of $4.90.

For concessional and pensioner patients (cardholders), once their total eligible expenditure exceeds $274.40 within a calendar year, any further prescriptions are free for the remainder of that year. All pensioners continue to have their pensions supplemented by a pharmaceutical allowance of $2.90 per week payable fortnightly, or $150.80 per year, to help defray their out-of-pocket pharmaceutical expenses. The allowance is not paid to other concessional beneficiaries.

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 2005-06 the PBS had 168.3 million benefit prescriptions, representing a cost to the Australian Government of $6,163.1m (table 11.30).

The number of PBS subsidised prescriptions per person in 2005-06 was 8.2, compared with 8.3 in 2004-05. The number of subsidised prescriptions decreased by 1.1% over the previous year, and the cost to Government of these prescriptions grew by 2.7% (in current dollars).

The rate of change in prescription numbers and their cost reflects the ongoing trend towards newer and more costly medicines.Public hospitals (Australian Health Care Agreements)

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 Australian Health Care Agreements with the states and territories.

In 2005-06, total Australian Government funding under the Australian Health Care Agreements was around $8.4b. Of this amount, over 99% was paid to the states and territories as Health Care Grants, while the residual was either allocated to national initiatives in areas of mental health, palliative care and casemix development, or paid to those states and territories which were eligible to receive financial assistance from the Pathways Home initiative.

Large urban public hospitals provide most of the more complex types of hospital care such as intensive care, major surgery and organ transplants for admitted patients, as well as accident/emergency and other care for non-admitted patients.

Many salaried specialist doctors in public hospitals are able to treat some private patients in hospital and usually contribute to the hospital a portion of the income earned from fees charged. Other doctors may contract with public hospitals to provide medical services.

In 2005-06 there were 755 public hospitals nationally, including 19 psychiatric hospitals, compared with 746 in 2001-02. There was an average of 54,601 beds in public hospitals during 2005-06 (table 11.31), representing 68% of all beds in the hospital sector (public and private hospitals combined). Public hospital beds have increased from 2.6 beds per 1,000 population in 2001-02 to 2.7 beds in 2005-06.

The number of patient separations (discharges, deaths, and transfers) from public hospitals during 2005-06 was 4.5 million compared with just under 4 million in 2001-02. Same-day separations accounted for 50% of total public hospital separations in 2005-06 compared with 48% in 2001-02.

Total days of hospitalisation for public health patients during 2005-06 amounted to 17 million, an increase of 5% since 2001-02. The average length of hospital stay per patient in 2005-06 was 3.8 days. For 2001-02 the corresponding figure was 4.1 days, reflecting a steady increase in same-day patients up to 2005-06. If same-day patients are excluded, the 2005-06 average length of stay was 6.6 days compared with 6.9 days in 2001-02.

Many public hospitals have their own pharmacies which provide free access to medicines for admitted Medicare eligible patients. The Australian Health Care Agreements provide for reforms to the pharmaceutical arrangements. Where a state or territory government enters into a reform agreement with the Australian Government, pharmaceuticals provided to non-admitted and same-day patients may be charged to the PBS. The reforms also provide for patients to receive up to one month's supply of pharmaceuticals on discharge from hospital, paid by the PBS rather than the hospital.
Role of the private health sector

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 547 private hospitals in operation in 2005-06, comprising 291 private and acute hospitals and 256 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 2005-06, the average number of beds available was 24,113, 1% lower than the previous year. This was mainly due to a decline in the average number of beds available in capital cities. Between 2001-02 and 2005-06, the average change in the number of beds available was a decrease of 0.7%. 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 over the same five-year period by 4.7% to 2,144, reflecting the continued growth in the number of free-standing day hospitals. There were 1.3 private hospital beds available per 1,000 population in 2005-06.

Private hospital separations in 2005-06 totalled more than 2.9 million, of which 80% were from private acute and psychiatric hospitals and 20% 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 (2.6 days) compared with public hospitals (3.8 days) (table 11.31).

The average number of full-time equivalent staff employed at all private hospitals was 50,001 of whom 66% were nursing staff. Total recurrent expenditure for private acute and psychiatric hospitals during 2005-06 amounted to $6,160m. Some 52% of this amount was spent on salaries and wages (including on-costs). Revenue received during the year was $6,591m, of which 96% was received as payments from, or in respect of, patients. Total recurrent expenditure for free-standing day hospital facilities during 2005-06 amounted to $338m, and revenue received during the year was $410m.


Bed supply
Facilities no.
1 302
Beds/chairs(c) no.
54 601
26 227
80 828
Total separations ’000
4 466
2 925
7 391
Same-day separations ’000
2 216
1 849
4 065
Total patient days ’000
16 993
7 473
24 466
Average length of stay days
Average length of stay excluding all same-day separations days
Average occupancy rate(d) %
Non-admitted patient occasions of service(d) ’000
44 749
1 724
46 529
Staff (full-time equivalent)(c) ’000
Revenue(e) $m
2 158
7 001
9 159
Recurrent expenditure(e) $m
(f)23 991
6 498
30 489

(a) Acute and psychiatric hospitals.
(b) Acute and psychiatric hospitals and free-standing day hospital facilities.
(c) Annual average.
(d) Excluding free-standing day hospital facilities.
(e) Current price. Refers to amounts as reported, unadjusted for inflation.
(f) Excluding depreciation.
Source: Private Hospitals, Australia (4390.0); Australian Institute of Health and Welfare, 'Australian Hospital Statistics 2005-06', Cat. No. HSE 50, AIHW, Canberra.

Private health insurance

At 30 June 2006, 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.

The Australian Government subsidises private health insurance premiums through a 30% rebate with higher rebates for older people (35% for people aged 65-69 years and 40% for people aged 70 years and over).

The introduction of Medicare in 1984 resulted in a steady decline in the proportion of the Australian population covered by private health insurance. The introduction of the Australian Government's 30% rebate for private health insurance premiums in 1999, and the Government's Lifetime Health Cover policy in 2000, saw private hospital cover increase strongly, with population coverage rates rising from 31% in June 1999 to 46% in September 2000. At June 2007, over nine million Australians had private hospital insurance cover (44% of the population). Private hospital and ancillary insurance coverage from 1995 to 2007 is shown in graph 11.32.
11.32 Persons with private health insurance, proportion of total population
Graph: 11.32 Persons with private health insurance, proportion of^total population

Health work force

In 2006-07 approximately 423,400 people were employed in health occupations in Australia, comprising 4% of the total number of employed people (table 11.33). The largest components of the health work force were registered nurses (169,800), generalist medical practitioners (37,000) and enrolled nurses (27,700).

Females comprised 74% of the health work force. The high proportion of females in the health work force is due to their predominance in registered midwifery (99%), registered nursing (92%), enrolled nursing (88%) and physiotherapy (67%). Conversely, males represented 79% of the ambulance officers and paramedics, 69% of specialist medical practitioners and 62% of generalist medical practitioners.

Over a third (37%) of the health work force were employed on a part-time basis, compared with 28% of all employed people in Australia. Of people employed part time in the health work force, 91% were female, a higher proportion than in the total part-time work force (71%). Males constituted 9% of those working part time in the health work force compared with 29% of those working part time in the total work force. 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.


Part-time workers

Health professionals(b)
Generalist medical practitioners
Specialist medical practitioners
Registered nurses
Registered midwives
Other health professionals(b)
Health associate professionals
Enrolled nurses
Ambulance officers and paramedics
Aboriginal and Torres Strait Islander health workers
Other health associate professionals
Total employed in health occupations(c)
Total employed in all occupations
10 302.4

(a) Annual average of quarterly data.
(b) Includes health service managers; excludes veterinarians.
(c) Includes health professionals, health service managers, health associate professionals.
Source: Labour Force, Australia, Detailed, Quarterly (6291.0.55.003).

Household expenditure on health and medical care

Average household expenditure on health and medical care increased steadily between 1984 and 2003-04. As a proportion of total household expenditure on goods and services, health and medical care increased from 3.9% in 1984 to 5.1% in 2003-04.

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 ABS has undertaken the HES at five-yearly intervals since 1984. Average expenditure in this survey is calculated across all households, not just those households that spent money on specific goods or services.

Household expenditure on accident and health insurance accounted for the largest percentage of total average household expenditure on health and medical care in each of the survey periods. However, this percentage was lower in 2003-04 than in 1993-94 (39% compared with 50%) reflecting a decrease in the hospital, medical and dental insurance share of total health expenditure (from 44% in 1993-94 to 34% in 2003-04), possibly as a result of the private health insurance rebate.

While the proportion of household health expenditure spent on health practitioners' fees has been similar in each survey since 1984, expenditures on individual items have varied. In particular, general practitioner doctors' fees were higher at 3.8% of total health expenditure in 1984 compared with 3.5% in 2003-04, while specialist doctors' fees were lower at 3.9% compared with 9.3% in 2003-04.

The proportion of total health expenditure spent on medicines, pharmaceutical products and therapeutic appliances increased from 20% in 1984 to 25% in 2003-04.

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 2005-06 was $86.9b compared with expenditure of $81.1b the previous year an increase of 7.1% (table 11.34). This represented an average rate of health expenditure in 2005-06 of almost $4,200 per person. After adjusting for changes in prices, health expenditure increased by 3.1% in 2005-06, compared with annual average growth in the decade to 2005-06 of 5.1%. In 2005-06 total health expenditure as a proportion of gross domestic product was 9.0%; in 1995-96 the proportion was 7.5%.

Annual change
Current prices(a)
Volume measures(b)
Current prices
Volume measures(b)
Total health
expenditure as
a proportion of GDP

63 448
70 802
68 932
74 334
73 945
77 036
81 125
81 125
86 879
83 601

(a) Comprises recurrent expenditure, capital expenditure/outlays and capital consumption.
(b) Reference year is 2004-05.
Source: Australian Institute of Health and Welfare, 'Health Expenditure Australia 2005-06', Cat. No. HWE 30, AIHW, Canberra.

Previous PageNext Page