1 The Geneva Papers on Risk and Insurance Vol. 26 No. 1 (January 2001) 114±125 Ideas for the Funding of Healthcare in the Context of the Ageing of the Population by V. W. FitzGerald 1. Introduction This paper draws upon a paper entitled ``Refocusing and Reinvigorating Retirement Policy'', which I presented to the Conference of Major Superannuation Funds in Australia in It approaches the topic of health funding reform from a ``retirement policy'' perspective, noting that healthcare needs, like retirement income needs, are heavily concentrated in old age. In Australia, as in many other countries, the ageing of the population implies large future rises in health costs, a large proportion of which is publicly funded out of current taxes. This poses, inter alia, intergenerational equity issues, implying a signi cantly heavier tax burden on the next generation for the support of the present one. How can these rising future costs be met more equitably and ef ciently? Encompassing both income and health needs in old age in a single perspective also gives a fuller view of what makes up security in retirement for individual retirees. Security in retirement has a number of distinct and important elements. For example, the situations of two retirees with the same income will be very different if one is a home-owner and the other pays a market rental. So housing status is an important factor. Another very important factor to individuals is their health status, and how well they are covered for health costs, differences in which can imply very big differences in retirees' exposure to nancial risk, as well as in their quality of life. Those aspects are part of the motivation for exploring the question posed above, but the main focus is on the public policy dimension: how to ensure the nancial viability of the health system. In Australia, providing healthcare for the elderly in the future is now a considerably bigger issue for public policy, and a bigger challenge to future public budgets, than providing taxpayer-funded old age income support, through the age pension. The age pension is noncontributory, paid for out of contemporaneous general taxation, but is subject to a tight income and assets test. The full pension for a single person is about 25 per cent of average earnings. The key reason that the future cost of the age pension no longer poses a major challenge to public budgets is that Australia has a long tradition of funded occupational pensions, called ``superannuation'', in past decades covering about 40 per cent or so of the workforce, but now covering nearly every employee. Beginning in the mid-1980s superannuation was extended to virtually the whole workforce, on a de ned contribution model. Paper delivered at Australian International Health Institute Symposium Melbourne, 11±12 November 1999 on ``Reform, Redesign or Revolution: Health Agendas for the 21st Century''. Executive Director, The Allen Consulting Group Pty Ltd, Melbourne, Victoria, Australia. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK.
2 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION 115 Initially this proceeded via industry-wide wage negotiations, but in the early 1990s it was enforced by legislation. The minimum contribution under the Superannuation Guarantee legislation is increasing by 1 per cent of salaries every two years, until it reaches 9 per cent of salaries in The contribution is paid by employers. Many complying funds exist, but the collection mechanisms are both ubiquitous, extending into virtually every workplace, and ef cient. The total assets in the system at mid-2000 were A$447 billion, growing at almost 17 per cent per annum. This system is expected, through strong contribution ows and the compounding of returns (lightly taxed), to deliver substantial real additional saving, capital resources and investment income for retirement income support in the future. It has already signi cantly reduced expected future dependence on the age pension. The cost to the public budget of the age pension is now projected to rise by less than 1.5 per cent of GDPover the next few decades. Although the problems of future funding of health and retirement income needs have strong parallels, nothing like the superannuation system yet exists in Australia for meeting future health costs. Of course even without the major changes in the age composition of the population that lie ahead, the elderly are disproportionately dependent on the healthcare system and healthcare resources even now (relative to younger people). This suggests that there may be value in exploring the possible extension of the superannuation system to health funding for the medium term as well as the longer term. The ideas canvassed in this paper could also be extended to other forms of aged care (other than healthcare per se). It is important to note that this paper assumes that Australia's present mixed system of health funding will broadly continue (a matter about which there is political, as well as academic, debate). Under this mixed system, roughly 60 per cent of the population rely on the public hospital system for acute care and 40 per cent are privately insured for such care ± the latter tending to use private hospitals primarily, but relying on major public facilities in complex or catastrophic situations. Everyone is covered for routine medical care, generally with a co-payment or ``gap'' to pay for each medical service. The public ``Medicare'' system thus provides quality healthcare to all. It is funded from general taxes, mainly Commonwealth (Federal), plus an earmarked levy on incomes (the ``Medicare levy''). There is signi cant taxpayer support also for private health insurance, primarily through a recently introduced government rebate on premiums. Private health insurance is regulated in Australia to be ``community rated'' rather than risk-rated, although now on a lifetime basis. That is, premiums rise with age of entry and insurers may decline to cover pre-existing health conditions, but explicit discrimination is otherwise not allowed. A consequence of these arrangements is that costs of long-term care, an important component of rising future health costs, are spread across both the insured population and (predominantly) taxpayers. In Australia, as elsewhere, there are of course ongoing debates over the ``grand architecture'' of the health system, but this paper focuses on just one aspect: how to fund the projected large rise in costs driven by ageing. The mechanisms discussed are essentially independent of the precise proportion of the population covered by private health insurance, but the dominant motivation for the paper concerns the public (Medicare) system and, particularly, the viability of public budgetary support for it. Intergenerational equity (the balance of burdens as between contributions and taxes, present and future) is thus an important concern. Ef ciency considerations arise also, and bring into the picture the economics of saving and accumulation of capital for future needs. Although the paper is obviously set in the Australian institutional context, it is hoped that the ideas canvassed are of wider interest.
3 116 FITZGERALD 2. Drivers and future growth of health costs While the present and increasing future demands of the elderly for quality healthcare are a valid starting point for examining the robustness of health funding, it is important to acknowledge at the outset that there are important drivers of healthcare costs other than ageing. In a system in which providers dominate, price signals are almost non-existent and new technologies and treatments are rapidly adopted into community expectations, ageing has not, over the recent past, been a very important factor in increases in health costs in Australia. Those other drivers (including increased utilisation of services per capita) have dominated, so far. Moreover, analyses of the pure effect of ageing (on its own) over future decades seem to suggest that it may be a ``manageable'' factor for future Budgets. For example, a recent study in depth by the Australian Federal Department of Health and Aged Care concluded that Given the size of the Australian population as it is today, if its demographic composition were the same as it is projected to be in 2051 then, very nearly, an extra $17.07 billion in today's dollars would be needed to maintain the same level and quality of the three health services as they exist today. This view of the costs due to ageing is isolated, deliberately so, from the tricky issues that have been side-stepped by the assumptions underlying the analysis presented in this paper, particularly those issues related to possible increases in costs due to a larger number, greater variety and complexity of future procedures. 1 It might be noted, however, that the above estimate of an increase of $17 billion is over 3 per cent of Australia's GDP, while the projected future increase in cost to the Australian Federal Budget of providing the age pension is now put at 1 to 1.5 per cent of GDP by the Australian Government's Retirement Income Modelling Unit. 2 In other words, the pure effect of ageing alone on health costs is more than twice as big an issue as the prospective rise in the public costs of providing retirement income, thanks largely to the extent of private provision through superannuation that is now in place. An important component of this private provision preceded the advent of the Superannuation Guarantee; but the combined effects of voluntary and obligatory superannuation provision have certainly now reduced the budgetary issue of retirement income provision to ``manageable'' proportions. Can that be said to be true of the ageing effect on health costs? In considering the issue of future health costs, it is very important to appreciate that the real issue is not what effect ageing will have on its own, but what effects ageing and the other strong drivers will have in combination and interaction. Work by the former Economic Planning Advisory Council (EPAC) by the Retirement Incomes Modelling (RIM) Unit and by the 1996 National Commission of Audit has highlighted this, but although their respective assessments imply major budget pressures ahead (rather bigger than the $17 billion estimate above), these assessments have received little public discussion so far. There are uncertainties in any such assessments, especially about the extent to which healthcare costs per capita will continue to rise faster than the general CPI, as they have 1 Commonwealth Department of Health and Aged Care, ``The Ageing Australian Population and Future Health costs: 1996±2051'', Canberra, mimeo, Available from the Department's website, accessible via 2 See G. Rothman, ``Projections of Key Aggregates for Australia's Aged'', Retirement Income Modelling Unit Conference Paper 98/2, The Treasury, Canberra, Available from the Treasury website, via above entry portal.
4 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION 117 persistently done for some years now, and if so by how much. On the range of RIM analyses put forward by the National Commission of Audit: 3 Healthcare costs (public and private combined) in Australia are likely to rise by 6 to 8 per cent of GDP over the next 30±40 years. In 40 years' time, on these analyses, healthcare costs could reach 17 per cent of Australia's GDP, or about double the present gure, with the aged healthcare component being about 10 per cent of GDP. While substantial healthcare costs are met privately, currently around 70 per cent are met by government. Healthcare costs to the Commonwealth Government alone could rise by 4 per cent of GDP. It must be said that projections of future health costs are considerably more uncertain than those of future age pension costs, depending in particular on assumptions about future growth in relative health costs due to the various drivers mentioned above, such as new treatments, rising community expectations, more intensive use, etc. Nevertheless, plausible estimates for total health costs in the 2030s and 2040s range from 13 per cent of GDP upwards, and they imply an increase in public aged healthcare costs of at least 3 per cent of GDP to the Commonwealth Budget alone. 3. How to provide for future health costs? The looming rise of public costs for healthcare in the future clearly poses issues for intergenerational equity similar to those involved in the retirement income issue. The appropriate response in respect of retirement income is now widely agreed to be a balance between support from the taxpayer of the day, compulsory self-provision through superannuation beforehand, and voluntary saving beforehand. Is a similar response appropriate for healthcare? Leaving aside the intergenerational dimension, should there be some obligatory user contribution now (going beyond the Medicare levy), rather than maintaining a public system which is ``free'' to all at point of use, although very costly to the taxpayer? Given the heavy concentration of healthcare usage in old age ± and hence the link to retirement provision in general ± should such a contribution be separate, or closely linked with superannuation? At a very broad level, the answer is that policy needs to strike a balance between the three main potential sources of funds to meet future health costs for an older Australian community. They are basically the same sources as for retirement income: First, current taxes raised from the taxpayers of the day; Second, out-of-pocket contributions by those receiving healthcare at the time, paid out of their (then) current income; and Third, contributions to the costs of that care funded by advance provision now, i.e. through 3 National Commission of Audit, Report to the Commonwealth Government, Canberra, AGPS, June 1996, especially ch. 6.
5 118 FITZGERALD earmarked saving, accumulating in savings funds (both individual accumulation accounts and risk pools) ahead of the future need. 4 It is an issue for debate whether some such contributions should be mandatory (either the second or third types above, or both). It is important to note one difference vis-aá-vis the issue of ensuring provision for future income. In respect of health costs, at least part of any advance provision through saving should desirably be accumulated in risk pools to deal with unforeseen catastrophic health costs for those covered. Of course there is some risk-sharing inherent in the fact that future budgets will inevitably still meet a substantial part of the costs. In effect, much of the risk of catastrophic health costs for retired people will inevitably, and desirably, be borne by the future Australian taxpayer (collectively). In the absence of funds built up in advance, the sharing of the costs between taxpayers and the retired will be essentially a ``zero sum game''. The retired who are members of health insurance funds will likely receive some cross-subsidy from younger people, but in the absence of a radical reversal of the trend of recent years for younger people not to take up private health insurance, 5 the older members (and other groups prone to high health costs) would mainly insure each other, such risk-sharing still having advantages over self-insurance. If substantial funds were built up in advance, however, the taxpayer share and the share paid for out of retirees' other nances could both be moderated. Should there be mandatory contributions for health costs in retirement? Just as with income provision through superannuation, a case can ± as outlined earlier ± be made for mandatory self-provision ahead of time to meet health costs later on, particularly in retirement. However any consideration of such a policy needs to take a number of factors into account, including what people are already being required to contribute (via their employers) to their superannuation, as well as the modest present contribution to health costs via the Medicare levy. Before forming a view on those matters (and on whether any contributions for healthcare, mandatory or otherwise, should in fact be linked to the superannuation system), it is instructive to look at what other countries are doing, or debating. 4 An extremely important reason for considering advance provision is the sheer power of compound interest. For example, to deliver $1 in real terms in 30 years time (roughly the interval between mid working life and mid retirement) requires only a single contribution of about 8 to 13 cents now, if well invested ± i.e. so as to earn around the historical rate of return on business capital. In Australia this has been roughly 8 to 10 per cent per annum real. It might be noted that years of work (and potentially of accumulation) are still about twice as many as years of retirement for males in Australia, further improving the ``leverage'' held out by this type of arithmetic. 5 ``Life-time community rating'', recently introduced in Australia, was designed to make health insurance more attractive toyounger people. Coupled with the 30 per cent rebate on premiums, it has been successful in bringing about a signi cant, although not radical, reversal of the decline which has occurred in membership, from a high of around 70 per cent of the population two decades ago. In response to the present Australian Government's initiatives, the privately insured proportion of the population has recently risen from a low of around 30 per cent to about 37 per cent in mid That in ux of mainly younger and healthier people will take some pressure off premiums in the future, including for older people.
6 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION Other countries' models, particularly that of Singapore Although most countries' retirement income provision systems do not themselves cover health costs ± leaving that to separate public schemes or to private health insurance ± there are some instructive examples and various proposals are being debated in particular countries, e.g. in the United States. There have been calls in the U.S. for ``medisave accounts'' treated for tax purposes like the familiar 401(k) retirement savings accounts, with proponents looking to features such as choice (and use of own funds) as helping to contain future health costs. The most comprehensive model incorporating provision for healthcare costs (not only in old age) into a system which also provides for retirement income is Singapore's Central Provident Fund (CPF) scheme. Singapore is just one of a number of countries which have ``provident fund'' arrangements providing for a range of welfare needs, but Singapore's CPF is among the most comprehensive, funded by 20 per cent contributions from each of the employer and the employee (although the employer component is to be reduced). Retirement income provision is actually not, as some outside comments seem to imagine, the major destination of savings accumulated through the CPF. The largest need met through it by far is housing. Singaporeans in fact have a much higher level of home ownership (around 90 per cent) than do we or, say, Canadians or Americans (all around 70 per cent). Nevertheless retirement income provision is one of the CPF's major purposes. Singapore's government recognized early in the life of the scheme, in 1984, that health costs were very important not only to the security of Singapore's citizens in their retirement, but also to their welfare throughout life. Singapore has chosen to keep provision for most such needs off-budget. It was recognized that to meet unforeseen major health costs, particularly hospital-related costs, savings needed to be built up, both in individuals' accounts and in risk pools, and this was deemed to be best done through integration within the CPF. The CPF contains three elements to provide security against health costs: Medisave: Six per cent of salary rising to 7 per cent at age 35 and 8 per cent at age 45 is paid into a Medisave account until the balance reaches S$16,000, after which the excess can be transferred into the ordinary account providing for housing, retirement, etc. These funds, possibly together with some out-of-pocket contribution, may be used to pay for hospital and attending doctor expenses. Medishield: Medishield provides the risk pool or insurance element, covering Singaporeans against extraordinary hospital costs. It is funded by a system of premiums which is essentially age-phased lifetime community rating in its character. There are some exclusions from the scheme (e.g. normal pregnancies) and a lifetime individual coverage limit of S$70,000. In practice, only about 20 to 25 per cent of hospital costs are funded by it, the bulk coming from Medisave accounts. Medifund: This is the government safety net to support those without enough resources in their Medisave accounts or in other personal savings to meet their health expenses. It is particularly important for lower income people and for elderly people whose resources have dwindled. Singapore also allows out-of-pocket medical expenses in a wider category than the hospitalrelated costs primarily covered by these three elements to be deducted from tax, up to a maximum of 2 per cent of salary. The government also subsidises the health system to a substantial degree from its budget. Singapore does not encourage its citizens to take out thirdparty health insurance that could remove too much of their exposure to out-of-pocket costs.
7 120 FITZGERALD The government does not wish people to see healthcare as ``free''. In this regard it might be noted that when they do require hospital care, Singaporeans do have choices ± as between private room or larger wards and the like ± which carry different costs, to be met from their Medisave balances or out-of-pocket. The Singapore system is instructive in: Effectively addressing the health component of retirement security while avoiding (via mandatory minimum provision) excessive costs to the future taxpayer; Combining individual and pooled savings, plus a safety net; Leaving people with incentives not to overuse costly health resources (they have choices; and must bear some out-of-pockets); and Integrating provision for health costs with retirement income provision. Of course Australian institutions are quite different to Singapore's. Nevertheless, since the basic issues being addressed are the same, Singapore represents an instructive point on a spectrum. Other models on the spectrum like the U.K.'s system, which leaves the great bulk of the load to the future taxpayer, or the American system relying more on the private insurance market, but leaving parts of the community poorly covered, seem less instructive for us. 5. Possible ideas for integration of health provision into the superannuation system in Australia As for retirement income provision, Australia has a mixed system of funding ± about 70 per cent of total health costs being borne by public budgets, mainly through the Medicare system, and the other one-third being borne privately ± including a still substantial private health insurance (PHI) component. The proportion of the population covered by PHI has increased appreciably (to around 40 per cent in mid-2000) in response to the recently introduced 30 per cent rebate and lifetime community rating system. Unlike the age pension, publicly funded healthcare is not means-tested, and it is utilized by people across the income range, as indeed is private health insurance. In fact self-insurance for discretionary hospital procedures and reliance on the major public hospitals for complex surgical procedures and the like is not an uncommon strategy among better-off people. Older people, even on quite modest means, are, for fairly obvious reasons, among the keenest to maintain private health insurance cover if they can afford it. Presumably this is because it brings choice of doctor, there is less likelihood of having to wait for such important procedures as hip replacements, and, with the recent trend to reducing uninsured extra costs to the insured hospital patient, it provides relative security against downside nancial risk from unforeseen health costs. Overall, the situation resembles that in respect of superannuation coverage 15 or 20 years ago, before the push to extend coverage and contribution levels. Looking ahead 30 or 40 years, and considering the projected substantial growth in public healthcare costs, principally due to the ageing of the population, it must be realized that there is no effective way to prevent an unbalanced share of the burdens falling on future young Australian taxpayers unless either: Reliance on the ``free'' public health system shrinks and the private sector share increases, which seems unlikely to happen on any scale as long as the public system remains ``free''; or Some kind of patient contribution is phased in, presumably over an extended period,
8 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION 121 within the public system. Such a contribution could be met by people from funds built up via some ``add-on'' to the superannuation system, or separately (as discussed below). There would appropriately be ``safety net'' exemptions and the contribution could be capped at an annual limit. The limit could be broadly income-related (e.g. a basic amount, subject to safety net provisions, 6 plus one or two steps applying to people on higher incomes). Such a contribution scheme will only work without shifting too much of the burden to those, notably the retired, actually using healthcare in the future if there is pre-accumulation of adequate extra funds for the purpose. For reasons already discussed, these savings would comprise both individual accumulation balances and risk pools. Eligible uses of healthcare accounts In that regard, one eligible use of an individual accumulation could be to pay one's patient contributions directly from one's own accumulated ``healthcare account'', or to pay for hospital treatment in the private health system on a self-insurance basis. Alternatively, premiums for private health insurance could be paid from the account. With private health insurance now operating under a form of lifetime community rating, with premiums phased by age of entry, it would be very valuable to many retirees to have the means to pay those premiums through savings built up before retirement. Thus the accounts would serve as a ``front end'' for either the public or the insured route. It would clearly be reasonable for funds built up, and earmarked, to meet hospital and related major health costs to be eligible for the 30 per cent private health insurance (PHI) rebate, assuming it continues under future governments. If used for payment of private health insurance premiums the PHI rebate should clearly also apply, but of course only once. In either case, the rebate would appropriately be accessed only when the funds were actually paid out of the account for one of those purposes. Accumulation under superannuation tax treatment (i.e. a tax of only 15 per cent on fund income) and eligibility for the PHI rebate might even be suf cient incentives to encourage substantial voluntary participation in a health cocontribution scheme. (Here, ``co-contribution'' refers to the concept of employees contributing alongside the amounts that employers must contribute for their superannuation.) More likely, however, mandatory participation would need to be considered, for essentially the same reasons that led to making superannuation contributions compulsory. One important issue to consider is whether the accounts would only be drawn upon after retirement. I do not have a rm view on this, but it would appear appropriate and even desirable to allow pre-retirement access for eligible purposes, especially if participation in the scheme were made mandatory. As a related element of security in retirement, the balances in the accounts could be used by self-funded retirees to ``buy'' the Pensioner Health Bene ts, or PHB card (now more accurately called the ``health concession card''), for an annual payment equal to its average cost to the government for pensioners. The main bene t provided by the card is heavily subsidized access to prescribed medicines. It is believed from attitudinal research that many self-funded retirees would be prepared to pay much more than the card would actually cost the 6 Presumably such safety net provisions would not generally exempt retirees with adequate balances in their healthcare accounts (as discussed in the text following), other than in circumstances of hardship.
9 122 FITZGERALD government in order to gain security against the downside nancial risk posed by unforeseen substantial expenses for medicines. The card should be able to be provided to non-pensioner retirees for $4 to $5 per week ($200 to $250 per year) on a revenue neutral basis. 7 Should healthcare provision be integrated with superannuation? The basic policy case for integration with superannuation is founded on: The central importance of cover for major health costs to individuals' security in retirement; and The need for a universal contribution so as to reach an appropriate sharing of health costs between retirees as a group (funded out of accumulations they have previously built up), and future taxpayers. One practical argument for integration is that the superannuation industry has established systems to collect contributions (related to wage and salary income) from almost every employer in respect of virtually all employees. A further practical argument for a collection and aggregation system distinct from the private health insurance industry is the obvious one ± that, at present at least, only about 40 per cent of Australians are members of private health insurance funds. And as outlined, healthcare accounts residing with superannuation could serve to build up the means (especially ahead of retirement) from which to on-pay premiums to specialized PHI funds, but also to cater for those who do not wish to join such funds. Also, ``excess'' balances could simply add to ordinary superannuation provision. Administrative issues for the superannuation industry are discussed further below. Elements of a model The bones of an approach to adopting these ideas and integrating them with other retirement provision through superannuation funds are as follows: (i) The co-contribution concept ± i.e. the notion, which has previously been proposed, that employees should contribute something for their retirement alongside their employer's superannuation contributions ± could be revived. It could take the form of (say) a 2 or 3 per cent co-contribution phased in and earmarked to a healthcare account within one's superannuation fund. Such a contribution could be phased-in in steps of 1 per cent at twoyear intervals following completion of the phasing-in of the Superannuation Guarantee in There should also be no practical dif culty in incorporating this element into older-style de ned bene t funds; almost all such funds have an accumulation component for members' own contributions. (ii) Subject to consistency with an overall reform of the structure of taxation applying to superannuation, reform which should ideally treat contributions from all sources equally, the healthcare contributions should be: ± treated as contributions in lieu of salary; and ± taxed as for other superannuation amounts. 7 See D. Scho eld, ``Re-examining the distribution of health bene ts in Australia: Who bene ts from the Pharmaceutical Bene ts Scheme?'', NATSEM Discussion Paper No. 36, University of Canberra, October Available from the NATSEM (National Centre for Socio-economic Modelling) website.
10 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION 123 (iii) The healthcare account could be used: ± for hospital-related costs, either private hospital costs or, in future, to meet a possible income-related (and capped) patient contribution to the cost of treatment in the public health system (as outlined above); and ± would attract the PHI rebate when so used. (iv) Alternatively, the healthcare account could be drawn upon to pay private health insurance premiums (with eligibility only once for the PHI rebate). Those so insured would of course also pay the patient contribution when they used the public system, as many privately insured patients do on occasion. (v) Purchase of the health concession (or PHB) card in retirement would be a further eligible use but would presumably not attract any rebate. (vi) Any excess balances in the accounts 8 could be transferred to ordinary superannuation accumulation account. At retirement the account balance would remain invested under something like the sheltered tax regime (with rules on rate of draw-down) that applies to exible pension accounts in Australia, but modi ed appropriately to re ect rising health needs with age. Some illustrative parameters The concept has not yet been subjected to detailed modelling analysis, but some purely illustrative modelling has been done on simpli ed and very approximate (but plausible) assumptions. The main parameters and results from that exercise are given in Box 1 below. The sole purpose of presenting such a speculative scenario is to help make the concept more concrete ± in particular to illustrate how it could improve individual retirees' security and ultimately their ``free'' disposable income as well, and materially improve the future sustainability of public health funding. Box 1: Illustrative scenario for healthcare accounts 3 per cent healthcare contribution phased in in 1 per cent steps mid-2004, mid-2006 and mid Medicare patient contribution, basic amount plus additional amount at upper incomes, yielding approximately 1 per cent of average income per annum, introduced after healthcare contribution fully in place (from mid-2008); safety net exemptions. Maximum account balance approximately 30 per cent of average income; excess transferable to ordinary superannuation. Eligible health expenses able to be met from account pre- or post-retirement. Person retiring in fth year of scheme (2008) has funds to cover eligible health expenses including PHB card ve years into retirement; several years longer if card not purchased. 8 Research would be required to determine an appropriate maximum balance, amounts in excess of which could be ``swept'' across into one's ordinary superannuation account. Ideally this would be income-related in some simple way (e.g. a basic amount plus additional amounts for those in upper income bands).
11 124 FITZGERALD Persons retiring 15 or more years after introduction have additional retirement income bene ts as well as full health cover throughout whole of retirement, e.g. about 4 to 5 per cent extra income bene ts for 20th year retirees. Ultimate savings to public Budget costs for healthcare could be around 1 per cent of GDP ($5 billion per annum today's terms). This is about one-third of the minimum projected increase in age-related health costs to the Commonwealth Budget. This is obviously not a fully edged proposal. Many details would need to be worked out. For example, it would need to be considered whether the accounts could be used to meet presently non-insurable medical costs (``gaps'') or ``ancillary'' medical, dental, etc. expenses. This could, among other things, have signi cant cost implications for fund administration. Indeed, even con ning the accounts essentially to hospital-related care would have an administrative cost to funds which would need to be charged to the accounts. Administering the accounts would indeed seem likely to become a specialized activity that superannuation funds could choose to outsource, as they outsource some (or all) investment to specialist managers now. Introduction of such a scheme would obviously be contemplated only in conjunction with consideration of parallel reforms to Medicare itself. Ideally, the Medicare funding arrangements (at government level) should also be moved towards pre-funding for the future. For example, if the Medicare system were operated through a trust fund, that fund could be managed so that projected income from relevant sources, including patient contributions, would (together with anticipated fund investment income) meet projected future liabilities. The trust fund would be managed so as to keep the Budget proportion of future health costs at an appropriate level (say not exceeding a given percentage of government taxation revenues). Transport accident and workers' compensation arrangements are already operated on such lines in some jurisdictions. Whatever arrangements applied at government level, the system of patient contributions outlined here would need to be introduced only after a signi cant lead time and would, as discussed, ideally involve a system of income-related caps and appropriate safety net provisions, particularly over the transition period. On the face of it, the ideas as outlined would be generally compatible with community rating, notwithstanding that use of healthcare account balances for self-insurance against certain hospital costs would be allowed, since ± apart from meeting the patient contribution ± such use should not be very extensive. 6. Summary What I have outlined is essentially: To bring in a 3 per cent additional employee co-contribution to superannuation targeted at accumulating provision for future healthcare. It would proceed in parallel with complementary reforms to Medicare, notably the introduction of a patient contribution charged on use of the public system. The 3 per cent co-contribution could conceivably be voluntary, the main ``carrot'' being the 30 per cent PHI rebate, payable when the funds were used as health insurance premiums or to meet an equivalent category of insurable health costs. Since the ultimate aim for public policy
12 IDEAS FOR THE FUNDING OF HEALTHCARE IN THE CONTEXT OF THE AGEING OF THE POPULATION 125 is to ease the burden of health costs to future budgets, the change could be ``sweetened'' further by reducing and possibly eventually eliminating any separate Medicare levy as patient contributions to healthcare in the public system (with income related caps) were phased in. However any such step would need to ensure that the net position of future public budgets in respect of health was still materially improved. Experience suggests that to achieve the ultimate policy objectives, the health co-contribution will need to be mandatory ± obviously so if it is ultimately to replace the Medicare levy. This proposal would Help bring forth a gradually introduced and importantly, pre-funded, contribution from this generation to the costs of their own healthcare later on, especially in retirement; and Help both those who use the public health system and those who choose private cover, especially in their retirement, to afford it, and e.g. give them the means to purchase the additional protection of the health concession or PHB card. The healthcare contributions would be integrated with superannuation, the accumulating balances adding to income bene ts to the extent not drawn upon for healthcare. Individuals' overall security in retirement would be enhanced.
What is an intergenerational report? An intergenerational report assesses the long term sustainability of Commonwealth finances. It examines the impact of current policies and trends, including population
finding the balance between public and private health the example of australia By Zoe McKenzie, Senior Researcher This note provides an overview of the principal elements of Australia s public health system,
PENSIONS AT A GLANCE 2011: RETIREMENT-INCOME SYSTEMS IN OECD COUNTRIES Online Country Profiles, including personal income tax and social security contributions AUSTRALIA Australia: pension system in 2008
Submission to the National Health and Hospitals Reform Commission (nhhrc). A New Health Savings Based System for Australia. A new health savings based system is proposed based on the best aspects of the
A super waste of money Redesigning super tax concessions April 2015 ISSN 1836-9014 Matt Grudnoff Policy Brief About TAI The Australia Institute is an independent public policy think tank based in Canberra.
Chapter 11 SUPPLEMENTARY FINANCING OPTION (4) VOLUNTARY PRIVATE HEALTH INSURANCE Voluntary Private Health Insurance as Supplementary Financing 11.1 Voluntary private health insurance includes both employer
Private Health Insurance (PHI) Proposed means testing not consistent with Community Rating 12 July 2011 On 7 July 2011, the Commonwealth government introduced legislation into Parliament to establish a
FEDERAL BUDGET 2009 SUMMARY 13 May 2009 As widely expected, last nightʼs Federal Budget contained a number of proposals that will affect clients. Importantly, the proposals will require passage of legislation
FSC Deloitte Future Leaders Award 2013 Australia s ageing population What existing policy settings could be changed, or new polices implemented, to better insulate Australia from the future economic impacts
11 August 2014 Review of Australia s Welfare System CANBERRA ACT 2600 Dear Sir/Madam Welfare Review Submission The Financial Services Council (FSC) represents Australia's retail and wholesale funds management
Retirement incomes Submission to the Tax White Paper Task Force July 2015 Executive summary 2015 1 Background The Australian retirement income system comprises three pillars: a publicly funded means tested
An economic assessment of the Private Health Insurance system Prepared by Econtech Pty Ltd September 2008 ACHR AUSTRALIAN CENTRE FOR HEALTH RESEARCH AUSTRALIAN CENTRE FOR HEALTH RESEARCH LTD ABN 87 116
COUNCIL of MORTGAGE LENDERS Briefing Paper on Equity Release What is equity release? 1. Equity is the difference between any mortgage you may have and the value of your home. Equity release is a way of
POLICY BRIEF Visit us at: www.tiaa-crefinstitute.org. September 2004 The 2004 Report of the Social Security Trustees: Social Security Shortfalls, Social Security Reform and Higher Education The 2004 Social
21 October 2008 AFTS Secretariat The Treasury Langton Crescent PARKES ACT 2600 Email: AFTS@treasury.gov.au Dear Sir/Madam Purpose Australia s Future Tax System Preliminary Submission from the Institute
Garry Barrett UNSW Yi-Ping Tseng University of Melbourne November 2006 Overview Outline of Presentation 1 Introduction 2 Social Security in Australia 3 Voluntary private retirement saving 4 Mandated private
APPENDIX B Updated Estimates of the Insurance Coverage Provisions of the Affordable Care Act In preparing the February 2014 baseline budget projections, the Congressional Budget Office () and the staff
Health 13 May 2014 Commonwealth of Australia 2014 ISBN 978-0-642-74982-6 This publication is available for your use under a Creative Commons Attribution 3.0 Australia licence, with the exception of the
Australia Exchange rate: US$1.00 equals 1.32 Australian dollars (A$). Old Age, Disability, and Survivors First laws: 1908 (old-age and disability) and 1942 (widows). Current laws: 1991 (social security),
UHI Explained Frequently asked questions on the proposed new model of Universal Health Insurance Overview of Universal Health Insurance What kind of health system does Ireland currently have? At the moment
The Association of Superannuation Funds of Australia Limited ABN 29 002 786 290 ASFA Secretariat PO Box 1485, Sydney NSW 2001 p: 02 9264 9300 (1800 812 798 outside Sydney) f: 1300 926 484 w: www.superannuation.asn.au
APPENDIX D COMPARISON WITH OVERSEAS ECONOMIES HEALTHCARE FINANCING ARRANGEMENTS Table D.1 Comparison of Healthcare Systems in Selected Economies Part I Predominant funding source Hong Kong Australia Canada
EARLY RETIREE HEALTH INSURANCE ISSUES By Marilyn Moon, American Institutes for Research and TIAA-CREF Institute Fellow March 2007 EXECUTIVE SUMMARY Individuals considering early retirement, i.e., retirement
ACA Impact on Premium Rates in the Individual and Small Group Markets Paul R. Houchens, FSA, MAAA BACKGROUND The Patient Protection and Affordable Care Act (ACA) introduces significant changes in covered
Health & the economic crisis: the Australian case Country: Australia Partner Institute: Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney Survey no: (14) 2009
Chapter : Ageing pressures and spending Overview Ageing of the Australian population will contribute to substantial pressure on government spending over the next years. Total spending is projected to increase
18 August 2011 Australian Healthcare & Hospitals Association Position paper Private Health Insurance (Rebate and Medicare Levy Surcharge) Introductionn The Australian Healthcare & Hospitals Association
Making the Most of Your Super For many people, super is one of the best ways to accumulate wealth. The Government provides tax benefits to encourage people to fund their own retirement. With more Australians
WINNER 2014 ALUCA TURKSLEGAL SCHOLARSHIP Australia 2050 Lara Neate BT Financial Group Question 10 According to the treasury, over the next 40 years the proportion of the population over 65 years will double
Retirement Income White Paper Insights Presentation Alun Stevens Jack Ding Nathan Bonarius Agenda Background Preliminary projections What are the risks? What are the possible solutions? Purpose of presentation
ASFA Research and Resource Centre Employer contributions to superannuation in excess of 9% of wages Results of survey and other research Ross Clare Director of Research March 2010 Association of Superannuation
7 Reasons Why Property Investment can t be ignored. Know your options before it s too late. What is in this report? This report is a must read for anyone looking to improve their lifestyle and enjoy greater
Australia: Retirement Income and Annuities Markets Contractual Savings Conference April 2008 Greg Brunner Pension system Age pension in place since 1908, funded on a payas-you go basis Means testing. The
Why is Life Insurance a Popular Funding Vehicle for Nonqualified Retirement Plans? By Peter N. Katz, JD, CLU ChFC This article is a sophisticated analysis about the funding of nonqualified retirement plans.
EXECUTIVE SUMMARY The Government published the Healthcare Reform Consultation Document Your Health, Your Life (the Consultation Document ) on 13 March 2008 to initiate the public consultation on healthcare
End of financial year planning tips May 2014 With the end of the financial year fast approaching, it is a good time to review financial planning strategies with a view to optimising your outcomes. This
Second report on the costs of the Australian Government s Run-Off Cover Scheme for midwife professional indemnity insurers 2011-12 financial year Commonwealth of Australia 2014 ISBN 978-0-642-74954-3 Ownership
The Definition of a Social Insurance Scheme and its Classification as Defined Benefit or Defined Contribution I. Introduction John Pitzer June 30, 2003 1. In an interview posted on this electronic discussion
Our Vision Pensions Tax Reliefs To become the Best Provider of Solutions for Businesses in Coventry & Warwickshire Types of pension schemes There are two broad types of pension schemes from which an individual
Levy Consultation 2010/11 Accident Compensation Corporation Work Levy Rates for Employers and Self-Employed People Your chance to have your say on what you pay Deadline for Submissions 5.00 pm, 10 November
Home Ownership and Superannuation White Paper This paper contains general advice about our superannuation products and has been prepared without taking account of your objectives, financial situation or
OECD PROJECT ON FINANCIAL INCENTIVES AND RETIREMENT SAVINGS Project Outline 2014-2016 The OECD argues in favour of complementary private pension savings to boost overall saving for retirement. Financial
FISCAL INCENTIVES AND RETIREMENT SAVINGS Project Outline 2014-2015 The OECD argues in favour of complementary private pension savings to boost overall saving for retirement. Financial incentives may be
NATIONAL BUDGET 2012/13 On 22 February 2012 the Finance Minister, Pravin Gordhan delivered his National Budget Speech and announced the tax proposals for the forthcoming year as well as proposals which
Compulsory Health Insurance: Should government still be the health insurer of first resort? Prepared by Matthew Crane, Kris McCullough, Jamie Reid and Collin Wang Presented to the Actuaries Institute Actuaries
Retirement Security June 2006 Public Policy Issue Statement Background Retirement plans represent an important aspect of the total compensation package used by employers to recruit and retain employees.
Contributing the Family Home to Super An innovative proposal designed to assist with the accommodation and income needs of older Australians wishing to remain in their own homes. Abstract There has been
COMMONWEALTH EXPENDITURE ASSOCIATED WITH RETIREMENT (SUBCLASS 410) VISA Copyright Statement Commonwealth of Australia, 2011 This copyright work is licensed under a Creative Commons Attribution - No Derivatives
Chapter 10 SUPPLEMENTARY FINANCING OPTION (3) MEDICAL SAVINGS ACCOUNTS Medical Savings Accounts as Supplementary Financing 10.1 Medical savings accounts are mandatory employment based and income linked
ACOSS Submission February 2009 Submission to the Taxation Review Panel Adequate, fair, sustainable, and simple: ACOSS, February 2009 Table of Contents Summary... 1 Directions for reform... 2 1. Adequate...
Booklet 1 Getting the best out of your superannuation savings MAStech Smart technical solutions made simple Contents Introduction 01 Introduction 03 Saving through super 08 How a super fund works 09 How
For adviser use only. Not for public distribution. 2014 Federal Budget Analysis In one of the more highly anticipated Federal Budgets, the Government announced major changes that should be discussed with
Understanding Superannuation Client Fact Sheet July 2012 Superannuation is an investment vehicle designed to assist Australians save for retirement. The Federal Government encourages saving through superannuation
Understanding tax Version 5.0 This document provides some additional information to help you understand the financial planning concepts discussed in the SOA in relation to tax. This document has been published
Introduction Introduction Social Security Framework Singapore s social security framework is founded on the principles of self-provision and self-reliance. The responsibility to provide for one s own retirement
Centrelink payments and entitlements and work bonus 1 July 2014 While there are many different Centrelink payments and entitlements available, in this flyer we have outlined the criteria for the most common
Centrelink payments and entitlements, pension bonus scheme and work bonus 1 January 2014 While there are many different Centrelink payments and entitlements available, in this flyer we have outlined the
ASFA Research and Resource Centre Superannuation and high account balances April 2015 Ross Clare Direcr of Research The Association of Superannuation Funds of Australia Limited (ASFA) Level 6, 66 Clarence
Prime Time Advisory News Update May 2016 Newsletter Topics AMA Private Health Insurance Comparison 2016 Budget Breakdown Top Ten Tax Tips for 2016 AMA Private Health Insurance Comparison Recent price increases
Building super on a fair foundation: Reform of the taxation of superannuation contributions ACOSS Paper 185 February 2012 CONTACT Australian Council of Social Service Locked Bag 4777, Strawberry Hills,
CLIENT FACT SHEET July 2010 Understanding superannuation and superannuation contributions Superannuation is an investment vehicle designed to assist Australians in saving for their retirement. The Government
Private Employee Benefits SINGAPORE 2014 Your Local Link to IGP in SINGAPORE: Aviva Aviva entered the Singapore market in July 2001 through the acquisition of the former Insurance Corporation of Singapore.
SECURING RETIREMENT INCOMES TAX & SUPERANNUATION: BENCHMARKING AUSTRALIA AGAINST THE WORLD S BEST RETIREMENT SAVINGS SYSTEMS FEBRUARY 2013 CONTENTS 1 Executive Summary 2 Introduction 3 The variety of retirement
Tax relief offers important advantages to pension savers, but does little to encourage pension saving, particularly among low and medium earners says Pensions Policy Institute The Pensions Policy Institute
s of Tax 2011/12 Resident Individuals The following rates apply to individuals who are residents of Australia for tax purposes for the entire income year. 1 Tax Payable 2, 3 0 6,000 Nil 6,001 37,000 15
TRENDS AND ISSUES SEPTEMBER 2015 FACULTY RETIREMENT PLANS: THE ROLE OF RETIREE HEALTH INSURANCE Robert L. Clark Zelnak Professor Poole College of Management North Carolina State University Retiree health
Tax relief for pension saving in the UK This report is sponsored by Age UK, the Institute and Faculty of Actuaries, Partnership and the TUC. The PPI is grateful for the support of the following sponsors
Submission to the Parliament of Australia Senate Community Affairs Committee Enquiry into Health Policy, Administration and Expenditure September 2014 Introduction The Australian Women s Health Network
Community Rating More Trouble Than Its Worth? Prepared by Jamie Reid, Ashish Ahluwalia and Sonia Tripolitano Presented to the Actuaries Institute Actuaries Summit 20-21 May 2013 Sydney This paper has been
Pensions - Tax Reliefs Types of pension schemes There are two broad types of pension schemes from which an individual may eventually be in receipt of a pension: Occupational schemes Personal Pension schemes.
The Hon. Kevin Rudd, MP, Minister for Foreign Affairs Parliament House Canberra ACT 2600 6 June 2011 Dear Minister, We should like to bring to your attention discrimination in the taxation system adversely
Good Super Reply Paid 3528 Tingalpa DC QLD 4173 Phone: 1300 788 658 email@example.com www.goodsuper.com.au 31 March 2015 Senior Adviser Financial System and Services Division The Treasury Langton Crescent
PrivateHealth.gov.au Australia s leading independent source of information about private health insurance There are many things to consider when looking into private health insurance how does it all work?
Consulting Retirement Consulting Talent & Rewards The Real Deal 2012 Retirement Income Adequacy at Large Companies RETIREMENT YOU ARE HERE About This Report This study assesses whether employees of large
HANDOUTS Property Taxation Review Committee Legislative Services Agency September 1, 2004 Criteria For Good Proposals for Property Tax Reform Dr. Thomas Pogue, University of Iowa DISCLAIMER The Iowa General
Consulting Health & Benefits 2011 Health Insurance Trend Driver Survey 2011 Health Insurance Trend Driver Survey Contents 2 Introduction Comparison to Other Surveys About the Survey 6 9 Trend and Premium
7 December 2015 The Hon Sussan Ley MP Minister for Health Parliament House CANBERRA ACT 2600 Email: PHIconsultations2015firstname.lastname@example.org Dear Minister Actuaries Institute submission to the Private Health
FINANCIAL SYSTEM INQUIRY Phase TWO CHAPTER TWO CONSUMER OUTCOMES CHAPTER 2 - CONSUMER OUTCOMES OUTLINE This chapter outlines our recommendations on how the life insurance and financial advice sectors could
Expanding the coverage of private disability insurance to reduce the economic burden of social disability insurance The Financial Services Council March 2014 Contents Glossary... i Executive summary...
FAQS ON INCREASE IN CPF SALARY CEILING AND CPF CONTRIBUTION RATE CHANGES FOR BUDGET 2015 Why is the Government raising the CPF salary ceiling (i.e. ordinary wage ceiling) to $6,000? The CPF salary ceiling
Contact us Hoa Bui T: + 61 (02) 9335 8938 E: email@example.com Briallen Cummings T: + 61 (02) 9335 7940 E: firstname.lastname@example.org www.kpmg.com.au No reliance This report should not be regarded as suitable
An Ageing Australia: Preparing for the Future Mike Woods Deputy Chairman, Productivity Commission COTA National Policy Forum Productivity Commission million 90% confidence interval 95% confidence interval
Health Care Expenses and Retirement Income How Escalating Costs Impact Retirement Savings January 2012 About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit