Extended Medicare Safety Net Review of Capping Arrangements Report 2011: Executive Summary

Page last updated: 01 August 2011

The Extended Medicare Safety Net (EMSN) was introduced by the Australian Government in 2004 to provide financial relief for families and singles who incur high health-related out of pocket (OOP) costs. For those who qualify, the EMSN provides benefits in addition to the standard Medicare rebate for Medicare services provided out of hospital. Families and singles qualify for EMSN benefits once they have accumulated a given threshold in OOP costs for out of hospital services during the calendar year. After the threshold is reached, the EMSN pays 80 per cent of all OOP costs for out of hospital Medicare-related services for the remainder of the calendar year.

An independent review of the EMSN, published in 2009 (the 2009 Review), found that the EMSN accounted for three per cent of total Medicare spending, but that EMSN expenditure was growing at more than twice the rate of total Medicare spending. It also found that the EMSN led to a significant increase in average provider fees, particularly in some medical speciality areas. The fee increases resulted in considerable leakage of government benefits. Over 50 per cent of all EMSN benefits contributed to the funding of obstetrics and assisted reproductive technology (ART) services. While the EMSN did make services more affordable for some (e.g. people using ART services and patients with complex conditions such as cancer), it had little impact on affordability of services for those living in more remote or in lower socioeconomic areas.

Following the 2009 Review, the Australian Government introduced caps on the amount of EMSN benefits paid for selected Medicare Benefits Schedule (MBS) items. Caps were introduced on 1 January 2010 on items relating to obstetric services, pregnancy related ultrasounds, ART services, and one item each relating to cataract surgery (42702), hair transplantation (45560) and a varicose veins procedure (32500). Subsequently, midwifery items were also capped. For capped MBS items, there is a maximum limit on the amount of EMSN benefit per service. Capping arrangements were accompanied by increases in the Medicare rebate for a number of obstetric services, and a restructure of MBS items for ART services.

About this review

This review meets a legislative requirement to undertake an independent evaluation of the impact and operation of EMSN capping arrangements. The terms of reference for the review are an assessment of (1) the operation of capping EMSN benefits; (2) the extent to which the introduction of EMSN caps has made the EMSN more sustainable into the future; and (3) changes to fees charged, services provided and patient OOP costs for the capped items since the introduction of EMSN caps. Our analysis is based on Medicare data that was requested by us and provided by the Department of Health and Ageing. All dollar figures are expressed in constant 2010 dollars and have been adjusted to the Australian Bureau of Statistics’ Consumer Price Index.

Key findings

Between 2004 and 2009, EMSN expenditure grew by 133 per cent from $231.2 million to $538.6 million. This compares to out of hospital Medicare rebate spending (excluding the Medicare safety nets) which increased by 40 per cent over this period. In 2010, total EMSN expenditure was $311.8 million, representing a decrease of $226.8 million compared to 2009 and $124.6 million compared to 2008. Whilst this indicates that capping may be effective in reducing EMSN expenditure, there are two important caveats to this finding. Firstly, there is evidence that some patients and providers brought forward some of their service use in anticipation of the caps being implemented, thereby inflating 2009 expenditure and deflating 2010 spending. Secondly, 2010 expenditure may be understated because the data for this review was extracted at a point in time when not all claims for 2010 services had been received and processed by Medicare Australia.

Despite these caveats, it is clear that the largest contributors to the fall in EMSN expenditure are MBS items subject to caps. EMSN expenditure on private obstetric services decreased by $133 million (although Medicare rebates for obstetrics increased by $24.9 million) and by $83.2 million for ART services (although Medicare rebates increased $13.8 million). The percentage of EMSN spending on obstetrics and ART services fell from 55.8 per cent in 2009 to 27.1 per cent in 2010. The reduction in EMSN expenditure has been relatively greater in wealthier areas and major cities, compared to lower socioeconomic and regional areas.

In the case of the capped varicose veins item (item 32500), the number of out of hospital services fell by nine per cent in 2010. There is some evidence that providers reduced their fees for services provided out of hospital. However, the drop in EMSN benefits was greater than the drop in provider fees, causing OOP costs to rise, especially for patients who were charged higher than the median fee for this item. OOP costs for patients who were charged below the median fee were relatively stable, while the OOP costs for patients charged above the median fee continued to rise.

In the case of the capped item relating to cataract surgery (item 42702), the number of services provided out of hospital fell by 23 per cent in 2010 compared to 2009. For in hospital services, the relative decline was 6.8 per cent. Provider fees fell for services provided out of hospital, especially fees charged at the median and above. However, OOP costs for services below the median fee increased by at least $100. For services above the median provider fee, OOP costs have increased substantially and appear to have returned to their pre-EMSN levels. It should be noted that in addition to capping arrangements coming into place at the start of 2010, the MBS fee for this item was also reduced in November 2009 as part of a separate Budget measure. This means that some of the observed changes may be due to changes to the MBS fee, rather than the EMSN cap.

For capped item 45560, relating to hair transplants for the treatment of alopecia, the number of services provided out of hospital fell by 51 per cent in 2010. Provider fees for out of hospital services began to decline in 2008 and this trend continued following the EMSN cap. OOP costs in 2010 were higher than pre-2004 levels (prior to the introduction of the EMSN).

For ART services, sample data suggests that the number of ART cycles in 2010 fell by 11 per cent when compared to 2009 but was almost identical to the 2008 figure. Provider fees for most types of cycles remained largely stable in 2010, although for frozen/donated embryo cycles (accounting for around 31 per cent of all cycles) fees at the lower end of the distribution increased, whereas they decreased at the higher end. Some of these changes may be due to the increase in MBS fee for some ART items and the restructuring of items. We found that in 2010 average and median fees for all ART cycles combined fell by $108 and $1,465, respectively. However, this reflects a change in the types of cycles utilised, rather than a decrease in the provider fees.

OOP costs rose substantially for those women who accessed stimulated cycles. The median OOP for stimulated A cycles increased from $950 in 2009 to $2,000 in 2010. Women who accessed frozen/donated embryo cycles saw OOP costs increase from $330 to $950 over the same period.

For obstetrics, the number of private confinement claims fell by four per cent in 2010 compared to 2009. The biggest falls came in the latter part of the year, suggesting that the impact of EMSN caps on the overall demand for private obstetric services may have become more apparent as the year progressed. There is evidence of anticipatory behaviour which resulted in more planning and management items being charged in December 2009. Provider fees for antenatal services were largely stable. Nevertheless, we found that provider fees at the higher end of the fee distribution fell by around $191 in 2010. OOP costs increased markedly. For both normal and complex pregnancies, the median OOP costs increased by $1,000 (50 per cent), while the 90th percentile OOP cost doubled.


Due to the legislated time requirements of this review, the data used may not have captured the full impact of EMSN caps. In many ways, it is too early to determine the true impact of EMSN caps and it will be worthwhile monitoring future trends when more data become available. Nevertheless, it is clear that capping arrangements have reduced EMSN expenditure. For capped items, the introduction of EMSN caps has removed the government’s financial exposure to provider fee rises. However, the government remains exposed to EMSN expenditure growth due to the volume of services used, the number of people/families who qualify for EMSN benefits, as well as fee increases for uncapped items.

There have been some falls in provider fees in 2010, and these are most evident amongst capped items. Fees charged at the higher end of the distribution for varicose veins, cataract surgery and obstetrics have decreased. However, the decline in Medicare benefits has been greater which has meant that OOP costs have increased for most capped services.

In the context of the Australian health care system, we have previously shown that the EMSN is an inefficient mechanism by which to fund health care services (Savage et al., 2009). EMSN capping arrangements have reduced the Australian Government’s financial risk but this gain comes at the expense of higher OOP costs for some patients. Furthermore, this review shows that there are numerous opportunities for providers to shift billing practices in order to avoid caps, thereby creating incentives that may not be aligned with providing the most efficient care.