Summary

Purpose of the review

1. 1   The Medicare Levy Surcharge (the Surcharge) is levied on taxpayers above certain income thresholds who do not hold appropriate hospital insurance. Introduced on 1 July 1997, the Surcharge was intended to encourage higher income earners to purchase private hospital insurance. The level from which the Surcharge applied was originally set at an annual taxable income of $50,000 for singles and $100,000 for families and couples. The threshold increased by $1,500 for the second and each subsequent dependent child.

1. 2   These thresholds remained unchanged until amended by the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Act (No. 2) 2008 (the Act). The Act lifted the Surcharge thresholds to $70,000 for singles and $140,000 for families and couples, effective from 31 October 2008. It also introduced indexation of these thresholds, linked to the annual increase in the Australian average full-time ordinary earnings, as reported by the Australian Bureau of Statistics (ABS) in December of each year.

1. 3   The Act requires an independent review of its operation for the first three consecutive years following the changes to the Surcharge. The review is to examine the impact of the Act on public hospital activity, operating costs and elective surgery waiting lists. KPMG was engaged to undertake this review.

Method

1. 5   Review Report 1 was primarily restricted to the analysis of public hospital and elective surgery data collected prior to the introduction of the Surcharge changes and made no findings with respect to the impact of the Surcharge on public hospital activity, public hospital operating costs or elective surgery waiting lists. This report builds upon the historical trends in public hospital and elective surgery activity identified in Review Report 1.

Limitations

1. 6   Though providing initial findings, the period of time covered by the data available at the time of this report was insufficient to enable definitive conclusions to be drawn on the influence of change in Surcharge thresholds on public hospital activity, public hospital operating costs and elective surgery waiting lists. The final report, Review Report 3, will further test the preliminary findings contained within this document.

Key findings

Impact on public hospital activity

1. 7   Public and private hospital data was available to June 2009, providing eight months data subsequent to the Surcharge changes. As illustrated in Figure 1, trends in public and private hospital separations remained relatively constant over the period examined. As such, it is concluded that changes to the Surcharge did not affect activity trends within the period for which data was available.

Figure 1: Relative trends in numbers of hospital separations by treatment choice.
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Source: AHS data for all hospitals (2006-07, 2007-08 and 2008-09)

1. 8   In 2008-09, there was a 3.2 per cent increase in the number of public patient separations, from the previous year. During the same the period, there was an 8.3 per cent increase in the number of privately treated patients in public hospitals and a 3.3 per cent increase in private patient activity in private hospitals (Table 1, Section 4.3). The higher growth in private patient activity relative to public activity is counter to what would be expected were the Surcharge to have resulted in a transfer of activity from privately to publicly treated patients.

Impact on public hospital operating costs

1. 9   The absence of a discernible impact on public hospital activity rates suggests there has been no significant impact on public hospital operating costs. Rather, the growth in private patients treated in public hospitals suggests increased revenue contribution from private patients to public hospital operating expenditure, independently of the Surcharge changes.

Figure 2: National elective surgery admissions, patients waiting and patients overdue at the end of the quarter, September 2007 to March 2010.
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Source: RP-ESWL (2010)

1. 10   Stage one of the Elective Surgery Waiting List (ESWL) Reduction Plan resulted in an injection of $150 million into the public hospital system in 2008 to provide a national blitz to improve access to elective surgery (Section 3.5). Stage two (2009) provided a further $150 million targeted to system and infrastructure improvements to improve elective surgery performance in the long term. Stage one funding resulted in an immediate and marked increase in admissions from the elective surgery waiting list and a reduction in both the number of patients waiting for surgery and those waiting longer than the clinically recommended time for surgery. This is apparent in Figure 2.

1. 11   Though there has been a marginal increase in waiting lists and overdue patients in 2009, this is more likely a result in the slowing of direct expenditure on elective surgery and a re-emergence of longer-term demand trends rather than a result of the implementation of changes to the Surcharge.

Summary of key findings

1. 13   The rate of growth in privately treated patients within public hospitals was higher than for public activity. This is the reverse of what would be expected were the Surcharge to have resulted in increased demand on the public hospital system.

1. 14   There was no indication in the mix of activity within public hospitals suggesting a shift in the types of cases treated following changes to the Surcharge.

1. 15   In that there is no discernible impact of changes to the Surcharge on public hospital activity, it can be concluded that the Surcharge has not impacted on public hospital operating costs.

Indeed, the finding of increasing private patient utilisation of public hospitals would suggest an increasing proportion of public hospital operating costs are being met through private patient payments.

1. 16   ESWL Reduction Plan funds appear to have been the principal factor driving increases in elective surgery admissions and reductions in waiting times.

1. 17   Though there has been a recent upturn in waiting times, this is more likely to be a resumption of historical trends as the immediate impact of the national blitz funded through the ESWL Reduction Plan diminishes, rather than as a result of changes to the Surcharge.

1. 18   As no discernible impacts on public hospital activity were found, private hospital insurance data were not undertaken for this report.