How to make allied healthcare more affordable - Grattan Institute

Australia’s universal Medicare system is designed to make healthcare affordable for all, no matter how wealthy or poor. But low bulk-billing rates and a rigid referral system have made allied healthcare, such as psychologists and physiotherapists, an exception.

Australians needing allied heathcare are faced with massive bills, and many miss out on care because of cost.

In 2019-20, Australians spent about $1.6 billion out of their own pockets on allied healthcare. Governments should reform the system to ensure quality allied healthcare is available for all.

Chronic treatment plans are expensive and insufficient

Nearly half of Australians have a chronic physical and/or mental health condition. But they can only get subsidised allied healthcare outside of hospital if a doctor refers them through a mental health or chronic disease treatment plan.

Even when they are on a treatment plan, these subsidised services can still be very expensive. This is because bulk-billing rates are too low, and co-payments can be too high.

Last year, only 56 percent of allied health services were bulk billed, and patients paid on average $55 out-of-pocket per appointment. By comparison, almost 90 percent of GP appointments were bulk billed, and the average co-payment was $40.

Psychology services subsidised by mental health plans are particularly expensive. In 2019, yearly costs for patients who paid out-of-pocket were $220 on average, and 10 percent paid $650 on average.

With such high prices, it is no surprise that about 17 percent of Australian adults needing to see a psychologist said they missed the service because they couldn’t afford it. Among people with chronic conditions, those with mental health conditions have the highest rate of skipping care because of cost.

And the treatment plans do not always provide people with enough services. Regardless of what chronic condition a person has, allied health visits are capped at five a year under a chronic disease plan and 20 a year under a mental health plan.

Yet some chronic conditions, such as osteoarthritis, require more than five appointments per year for allied health treatment to be effective. And the cap of five still applies even if someone has more than one chronic condition.

If patients exceed this cap or do not have a referral, Medicare contributes nothing. In 2019-20, patients spent about $1.3 billion on these non-subsidised services.

Government should fund allied healthcare differently

The Federal Government should scrap the existing Medicare items for allied health. Instead, it should redirect funding through local Primary Health Networks to contract providers prepared to perform services with no (or very low) out-of-pocket fees for referred patients.

The Pharmaceutical Benefits Scheme operates in a similar way, with the government essentially acting as a single buyer of services to negotiate lower prices.

There is a risk that providers might opt out of this process, but that is unlikely.

Firstly, because the Medicare-subsidised services represent about one third of allied health professionals’ income, so there is a strong incentive for them to stay involved.

And secondly because there is a booming supply of allied health professionals to drive competition – in 2019 physiotherapy and occupational therapy reported about four and five times as many new registrants as there were retirements or deaths in those professions. Higher payments may be required for allied health providers in rural areas, where there is currently an undersupply.

The Primary Health Networks should also collect information on patient results. This would allow flexibility in the number of services patients could get – so those who need more than five sessions per year would no longer be left unsupported.

In our new Grattan Institute report, Not so universal: How to reduce out-of-pocket healthcare payments, we estimate that this approach could be cost neutral to governments and save Australians between $90 million to $120 million in out-of-pocket payments per year.

Healthcare should not be a luxury. These reforms would ensure that Australians with some of the highest healthcare needs get better support – and it would mean fewer Australians skip needed care because of cost.

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Danielle Wood – CEO