Friday, June 29, 2012

The policy of prescription charges

In the Budget this year, the government announced it would be raising prescription charges from $3 to $5 an item, causing serious concerns around access to healthcare. Today, in their post-Budget dump, they released the policy documents around that decision, and they tell a very ugly tale.

The idea was, of course, cooked up by Treasury, driven by a desire to cut health spending [PDF]. Their initial report on the matter, T2011/2570: Improving the Targeting of Co-payments in Primary Care [PDF], pushed for cuts in both prescription charges and subsidised doctor's visits. However, that paper also noted the potential downsides - that it could decrease use of health services, and that this could increase costs elsewhere (for example, if people stop getting their statins or asthma inhalers and instead end up in hospital). it presented two options: an increase to $5 and to $10, with savings of $45 - $50 and $160 - $170 million a year respectively. In a subsequent paper on Savings Options in Health [PDF] they pushed for an even higher increase, to $15 or $20. Their estimated savings for these options "assume no behavioural impacts i.e. no reduction in prescription volumes", but presented such a drop largely as a saving due to reduced pharmaceutical costs, offset marginally by greater subsidies to high-volume users.

That's right: in Treasury-land doubling or tripling the price of something, or even increasing it sixfold does not reduce demand. Which is some very interesting (but convenient, in that it lets them completely ignore the obvious negative consequences) economics.

(There's a more explicit version of Treasury's methodology here [PDF]: take the number of prescriptions last year, multiply by the cost increase, and that's the "saving". Given that the primary purpose of increased charges is to influence behaviour, this suggests that they are either being highly dishonest, or do not believe in the supposed benefits of their own policy).

In April, Treasury recommended [PDF] an increase to "the lesser of $10 or the cost to the pharmacy for each prescription item", with reduced exemptions. The health budget could then be cut by $50 to $75 million "to return the savings to the centre". It seems to have taken some "Free and Frank advice on increasing the pharmaceuticals co-payment" [PDF] on the problems of such a system (both implementation difficulties, and the negative side-effects) to talk them out of it.

So, it looks like we got off lightly. But like rust, Treasury never sleeps; I'm sure they'll be back pushing for an even greater increase next year.