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Medicare Safety Net

Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
Kees van Gool
Health Policy Issues: 
Funding / Pooling, Access, Remuneration / Payment
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no


Australia's Medicare program subsidises out-of-hospital services by reimbursing patients 85% of the schedule fee. Providers can set fees at their own discretion and all charges above the 85% rebate were borne through out-of-pocket payments. With the introduction of the Medicare Safety Net in March 2004, the government will pay 80% of out-of-pocket expenses for out-of-hospital charges once the family?s threshold has been reached. The remaining 20% is met by patients.

Purpose of health policy or idea

Since 1984 Medicare has provided Australians with  rear-end deductible insurance for approved out-of-hospital services. With the introduction of the Medicare Safety Net, patients are eligible to claim a further 80% of their out-of-pocket costs once they reach their annual threshold.  The type of services covered include, but are not limited to, GP and specialist consultations, blood tests, psychiatry, X-rays, CT scans, MRI, tissue biopsy, radiotherapy and pap smears. The safety net is financed out of general tax revenues and is an uncapped program.

Main points

Main objectives

The main stated objective is to reduce the out-of-pocket expenses incurred for out-of-of-hospital medical services.

Type of incentives

Provider moral hazard:  The Medicare Safety Net will have an important bearing on provider incentives because providers can set fees at their own discretion and are paid on a fee-for-service basis.  Prior to the introduction of the safety net, competitive pressure amongst some provider groups have limited fee rises.  However, with the safety net, these competitive pressures will ease as patients no longer face the full impact of above schedule fees once they have reached their annual threshold.

Patient moral hazard: As patients face lower out-of-pocket charges, they may consume additional health care services.  It is  not possible to say at this stage whether the 20% co-payment feature of the Safety Net will be enough to prevent consumption of unneccesary  of medical care and thereby limit patient moral hazard.

Groups affected

Health care consumers who incur expenses greater than threshold., Providers of out-of-hospital services eligible for safety net claims, tax payers

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Characteristics of this policy

Degree of Innovation traditional rather innovative innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low very high very high
Transferability strongly system-dependent neutral system-neutral

Given Australia's high growth in out-of-pocket charges, the Safety Net could provide considerable financial relief for high users of out-of-hospital services.  However in Australia's fee-for-service system combined with doctors' ability to set fees, the Safety Net is likely to be inflationary and create a number of distortions in the provision of health care that may be counterproductive to its aims and objectives.

Political and economic background

The Medicare Safety Net is part of the AUD 2.4 billion MedicarePlus package.  It was introduced following a period of rapid increases in out-of-pocket payments for out-of-hospital services, especially in the area of specialists consultations.  In the five years between 1996 and 2001, out-of-pocket payments for health care increased by 52% in Australia, the second highest increase amongst OECD countries. Politically, the package was introduced in the lead up to a Federal election at a time when health care policy was perceived to be the Government's area of weakness. 

The current version of the MedicarePlus Safety Net was introduced after extensive negotiations in the Australian Senate that set the threshold level at $300 for low income households and elderly people and $700 for all other families.

Change based on an overall national health policy statement

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no

Origins of health policy idea

In April 2003, as part of its earlier "fairer Medicare" package, the Government introduced the concept of two safety nets for out-of-hospital costs.  The first safety net was for concession cardholders (the elderly and low income households) and would pay 80% of out-of-pocket expenses over $500 spent.  The second safety net would cover all other Australians and could be purchased through private health insurance cover for out of hospital services of more than $1000 in a calendar year for an individual or a family.

The current version of the MedicarePlus Safety Net was introduced after extensive negotiations in the Australian Senate that abandoned the idea of a private health insurance safety net product and expanded the government safety net to all Australians.  The government eventually set the threshold level at $300 for low income households and elderly people and $700 for everyone else.

Initiators of idea/main actors

  • Government

Approach of idea

The approach of the idea is described as:

Stakeholder positions

The MedicarePlus Safety Net was introduced following extensive negotiations with independent senators and minor parties.  The Safety Net was opposed by the main opposition party during the 2004 election campaign, which saw the government re-elected.

Actors and positions

Description of actors and their positions
Prime Ministervery supportivevery supportive strongly opposed
Minister of Healthvery supportivevery supportive strongly opposed
Independent and minor party senatorsvery supportivesupportive strongly opposed

Influences in policy making and legislation

The Medicare Plus Safety Net was considerably modified from the original proposal put to the Australian Senate by the Government (see details in earlier answers).  The Government did not have the balance of power in the Senate chamber and relied on the support of minor parties and independent senators.

Actors and influence

Description of actors and their influence

Prime Ministervery strongvery strong none
Minister of Healthvery strongvery strong none
Independent and minor party senatorsvery strongstrong none
Prime Minister, Minister of HealthIndependent and minor party senators

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

The policy was implemented through the Health Insurance Commission, the body that administers Australia's Medicare and Pharmaceutical Benefits programs. Once families have registered for the safety net, the HIC can keep an electronic record of out-of-pocket expenditure.  Once a family or individual reaches their threshold, the HIC will automatically pay families 80% of their out-of-pocket expenses. As at the 28 June, 2.85 million Australian families (out of 5 million) had registered for the safety net.

Monitoring and evaluation

No details of monitoring mechanisms have been made available.  Presumably, government safety net expenditure will be part of the annual budget estimates.

No details on Government's intention to evaluate the safety net evaluation are available.  However the Minister for Health released details of safety net expenditure by federal electorate during the 2004 election campaign (see outcomes section below).

Results of evaluation

None available

Expected outcome

Expenditure: When the MedicarePlus Safety Net was announced the government anticipated that its annual costs would be in the order of AUD440 million. However some reports have stated that this cost is likely to double as a result of the increase in fees that doctors are charging patients and a greater number of people meeting the threshold than was predicted. 

Out-of-pocket expenses: Out-of-pocket expenditure by Australians has risen sharply over recent years and the Safety Net policy was designed to relieve the financial pressure. The safety net reforms mean that families pay the first $300 or $700 (depending on their wealth and age) of out-of-pocket costs and then a further 20% of fees charged above the government subsidy. At the time of the policy launch it was expected that more than 450,000 families and individuals will benefit from the new MedicarePlus safety net each year, although this number is predicted to rise.

Distribution of Safety Net funds:  During the election campaign, the Minister for Health released details of safety net payments between March and July 2004, including a breakdown of the payments by federal electorate.  This data showed that the most wealthy Australian suburbs were benefiting the most from the safety net.  The electorate with highest average income received 6 times as much in safety net funds as the electorate with the lowest income.

Inflationary:  Economic theory would suggest that this policy might be inflationary and indeed there are early indications that this is the case with reports of specialist physicians increasing their fees.

Distortions: The safety net may also create some distortions in the provision of medical care.  For example, in the first few months of its operation, the Health Minister had to close a loophole that saw some obstetricians switch their inpatient services to outpatient because of the inherent safety net incentives.  The Safety Net may also create further incentives to providers to offer high cost out-of-hospital services.  There is no guarantee that these changes will result in more effective or efficient health care.

Impact of this policy

Quality of Health Care Services marginal marginal fundamental
Level of Equity system less equitable four system more equitable
Cost Efficiency very low low very high

This is an important policy that realigns the mechanism and incentives by which patients pay their out-of-pocket expenses for out-of-hospital health care.  It is a tax-funded policy, that is likely to lead to an increase in fees and charges but may, at the same time, reduce out-of-pocket expenditure for a large number of Australians.


Sources of Information

Web links:

Papers and articles:

Hall, J., Election 2004: Paying for Health Care., Australian Review of Public Affairs, available at:

Metherelll, M. "Doctors warned: stop milking Medicare", Sydney Morning Herald
August 24, 2004.

Metherell, M. "Huge blow-out in Howard's Medicare safety net" Sydney Morning Herald, September 14, 2004.

Metherell, M. "Rich cashing in on safety net" Sydney Morning Herald, September 17, 2004.

Author/s and/or contributors to this survey

Kees van Gool

Suggested citation for this online article

Kees van Gool. "Medicare Safety Net". Health Policy Monitor, October 2004. Available at