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The Medicare Safety Net: review and response

Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
(14) 2009
van Gool, Kees
Health Policy Issues: 
Access, Remuneration / Payment
Reform formerly reported in: 
Medicare Safety Net
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no no yes yes


The Medicare Safety Net, introduced in 2004, supplements existing public insurance and offers additional coverage for families with high medical costs. A 2009 review found that the policy reduced out-of-pocket costs for some patients, but also led to significant increases in doctors' fees. Furthermore, the greatest beneficiaries of the Safety Net were families with high incomes. Here we will summarise key findings and examine government and stakeholder responses to the review.

Recent developments

In Australia, doctors are free to set fees at their own discretion. To help offset the cost of medical fees, the Medicare program offers all Australians a fixed subsidy. The subsidy varies depending on the type of medical service used, but does not vary according to the doctor's fees. Accordingly, the patient faces out-of-pocket (OOP) costs if their doctor decides to charge a fee that is higher than the Medicare subsidy. 

In Australia, the majority of general practitioners charge a fee that is equivalent to the Medicare subsidy, leaving their patients with zero OOP costs. However, the majority of specialists charge fees above the Medicare subsidy, resulting in considerable OOP costs for patients. In 2004, the government introduced the Medicare Safety Net. This policy supplemented existing arrangements and provides additional coverage for families who incur high OOP costs during the year. Once a family's cumulative OOP costs reach a threshold, the Safety Net will reimburse patients 80% of the gap between the provider fee and the Medicare subsidy. When the policy was introduced, the threshold for low and middle income families was AU$300 and AU$500 for higher income families. The threshold works on a calendar year basis, and is reset to $0 on the 1 January every year. The Medicare Safety Net only applies to costs incurred for services provided in the out-of-hospital setting (i.e. not to admitted patients - for which there are other arrangements) (see Savage et al 2009 for more details). Importantly, the amount a patient receives via the Medicare Safety Net is tied to their doctor's fee.  In other words, once a family reaches the threshold and qualifies for Safety Net payments, they will be reimbursed 80% - regardless of how high the provider fee is.  

When the Medicare Safety Net was introduced, Parliament's upper house (the Senate) passed an amendment that required the government to initiate an independent review of the Safety Net within three years of the policy's implementation.

The review was undertaken by staff of the Centre for Health Economics Research and Evaluation (including the author of this report). The review found that the Medicare Safety Net was inflationary and that the most profound impacts were in the areas of obstetrics and assisted reproductive services (more details about the review's findings can be found in the "monitoring and evaluation" sections).

The review was published in May 2009 on the same day the federal budget was introduced into parliament. As part of the budget, and in response to the findings in the review, the Government announced that it would place a cap on the amount of money the Safety Net can provide for some types of medical services. This means that there is an upper limit to the amount of money the Safety Net can provide for some medical services. The services for which caps have been put in place include obstetrics, assisted reproductive services, hair transplants and varicose vein surgery. The policy change meant that for these medical services the Safety Net benefit would no longer be unlimited and no longer strictly tied to the provider fee. The caps that have been put in place are supposedly based on the fee structures of providers who charge median fees. The Government stated that patients will be no worse off if they receive care from doctors who charge fees less than or equal to the median fee of his/her colleagues. Patients who receive care from doctors who charge above the median amount could be worse off because they face higher OOP costs.  

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Characteristics of this policy

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

The problems with the Medicare Safety Net have received considerable media attention over the years. The changes announced in the budget were opposed by providers and the health industry, especially directors of IVF clinics. The Government made some concesions to these concerns in the final legislation that was passed by parliament. 

The changes address problems in the areas where there was clear evidence of excessive fee hikes. However, there is a risk that medical services for which no cap has been put in place will follow suit. This means that there will need to be constant monitoring and possible further legislative changes if further evidence of fee hikes emerges.

One finding of the review has not been addressed by the policy change. The review found evidence that some services that are typically provided in an inpatient setting are now sometimes provided in an out-of-hospital setting. For example, lipectomy, rhinoplasty, male mastectomy. The Medicare Safety Net has created some financial incentives for this to happen.  It may be the case that doctors are just billing patients as if the procedure occured out-of-hopsital rather than actually performing the procedure in an out-of-hospital setting.  But in either case this finding warrants further monitoring, and possibly further action.


Purpose and process analysis

Current Process Stages

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

Initiators of idea/main actors

  • Government
  • Parliament
  • Providers
  • Patients, Consumers

Stakeholder positions

The 2009 federal budget had two primary aims; provide short term fiscal stimulus to the economy in the wake of the global financial crises and second ensure that over the mid to longer term the budget returned to surplus. The measures proposed for the Medicare Safety Net were part of the latter aim. The Safety Net measures were envisaged to save $258 million over the 2009 to 2013 period. The proposed changes were envisaged to make the safety net more financially sustainable and curtail its high growth rates. The Government was a strong advocate for the changes. 

Following the introduction of the proposed changes to the Medicare Safety Net, there was a large scale and organised campaign by providers to oppose the measures.  They campaigned on the basis that some of  findings in the review were wrong and that the proposed changes would hurt patients (AMA submission to Senate Inquiry). A patient group called "Access" who are associated with IVF care denounced the proposed changes, however, the broader patient group called 'Consumer Health Forum" welcomed the new measures.

The position and influence of parliament is discussed in the "legislative process" section.

Actors and positions

Description of actors and their positions
Department of Health and Ageingvery supportivevery supportive strongly opposed
Minister of Healthvery supportivevery supportive strongly opposed
Two independent senatorsvery supportiveopposed strongly opposed
Opposition partiesvery supportiveopposed strongly opposed
Australian Medical Associationvery supportivestrongly opposed strongly opposed
Obstretric Groupsvery supportivestrongly opposed strongly opposed
IVF specialistsvery supportivestrongly opposed strongly opposed
Nurses and midwivesvery supportivevery supportive strongly opposed
Patients, Consumers
Access - IVF patientsvery supportivestrongly opposed strongly opposed
Consumer Health Forumvery supportivesupportive strongly opposed
current current   previous previous

Influences in policy making and legislation

The proposed changes were blocked in upper house of the federal parliament by the opposition parties and two independent senators. Their primary concerns were in regards to the impact the proposed changes would have on patients. They referred the legislation to a Senate Committee to hear submissions and report the findings. The Senate Committee considered the positions of a number of stakeholders (including medical providers), but supported the proposed changes to the Medicare safety Net. The opposition parties voiced some concerns over the proposed changes, but did not recommend blocking the legislation (Senate Community Affairs Committee, 2009).

The legislation was eventually passed by Parliament after some further amendments. These amendments meant that the Medicare subsidy would increase for assisted reproductive  services. One further amendment is that the new measures be evaluated in three years time.

The changes to the Medicare Safety Net will take effect on 1 January 2010.


Legislative outcome


Actors and influence

Description of actors and their influence

Department of Health and Ageingvery strongvery strong none
Minister of Healthvery strongvery strong none
Two independent senatorsvery strongvery strong none
Opposition partiesvery strongvery strong none
Australian Medical Associationvery strongstrong none
Obstretric Groupsvery strongstrong none
IVF specialistsvery strongstrong none
Nurses and midwivesvery strongweak none
Patients, Consumers
Access - IVF patientsvery strongweak none
Consumer Health Forumvery strongweak none
current current   previous previous
Nurses and midwivesDepartment of Health and Ageing, Minister of HealthConsumer Health ForumTwo independent senators, Opposition partiesAccess - IVF patientsAustralian Medical Association, Obstretric Groups, IVF specialists

Positions and Influences at a glance

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

Adoption and implementation

The adoption and implementation of this policy will be relatively straight forward. There are existing mechanisms by which the changes will be implemented, and most patients are unlikely to even realise that these changes have come into force. Although of course there will be financial implications for a small minority of patients. 

Whilst the government has published a detailed information sheet outlining the changes (DOHA, 2009), there is likely to be considerable confusion amongst patients about what impact the Safety Net changes will have. As part of the review conducted by CHERE, providers noted considerable confusion in the wider population about the original policy. The new measures add to the complexity of the policy and are therefore likely to also add to this confusion.


Monitoring and evaluation

The review was conducted over a four month period and found that the Medicare Safety Net was inflationary and caused provider fees to increase by 2.9% for every year after the policy was introduced. 

This meant that money spend on the Medicare Safety Net did not reduce patients' OOP costs by the full amount as was intended. Indeed, the review estimated that for every dollar spend on the Safety Net, 43 cents went towards provider incomes and 57 cents went towards reducing patient OOP costs. The inflationary impact of the Safety Net was not uniform across medical speciality areas. The most profound impacts were found in the areas of obstretrics and assisted reproductive services.

Some of the other main findings included:

  • Government spending on the Medicare Safety Net had increased from $210 million in 2004 to $324 million in 2008 - despite a near doubling in threshold amount in 2006 making it harder for people to qualify for benefits.
  • 55% of Safety Net money is directed towards the 20% of  families living Australia's wealthiest areas. Only 3.5% of Safety Net money is directed to the 20% of Australian families living in the poorest areas.
  • In 2007, 22% of Safety Net money went towards subsidising assisted reproductive services.
  • In 2007, 31% of Safety Net money went towards subsidising obstetric services.

See Savage et al (2009) for more details.

Expected outcome

The introduction of the Medicare Safety Net in 2004 meant that for the first time, government spending was tied to the fees charged by providers. Such a policy is incompatible with a health care system where doctors are free to set their own fees. The changes to the Medicare Safety Net are a step in the right direction and address problems in medical services which witnessed the highest growth in fees.

However, neither the Medicare Safety Net, nor the proposed changes, address the bigger problem of providing equitable access to specialist services.

There is considerable evidence that OOP costs are a major barrier to access to specialist services in Australia. OOP cost for specialist services can be substantial because the Medicare subsidy is well below the typical specialist fee. It is not clear why this gap has been allowed to grow over the years - whereas the gap for general practioner services is either zero or relatively small.

It is now clear that the Medicare Safety Net has not addressed the problem of access.  Wealthier sections of the community are more likely to benefit from the Safety Net, because they use specialist services more often than poorer sections. Indeed there is a danger that the Safety Net has further entrenched this pattern of service use.

Impact of this policy

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

The policy changes announced in the 2009 federal budget will deliver some important savings to government and will curtail the high growth rates of the Medicare Safety Net, especially in the fields of obsterics and assisted reproductive technologies. 

The policy changes will return some of the incentives to patients to find doctors who charge lower fees. It will be interesting to examine what happens to the fee structures of those doctors who charge in excess of the median fees. There is a reasonable expectation that the growth in fees at the extreme end of the spectrum will slow down and perhaps even fall.



Sources of Information

Australian Medical Association (2009).  Submission to the Senate Community Affairs Committee. Available at

Department of Health and Ageing (2009) Changes to the extended Medicare Safety Net - information sheet.  Availalble at

Savage, E. van Gool, K. Haas, M. Viney, R. Vu, M. (2009), Review of the Extended Medicare Safety Net, Department of Health and Ageing. Availalble at

Senate Community Affairs Committee (2009).  Report on the Health Insurance Amendment (Extended Medicare safety Net) Bill 2009.  Available at


Reform formerly reported in

Medicare Safety Net
Process Stages: Implementation

Author/s and/or contributors to this survey

van Gool, Kees

Suggested citation for this online article

van Gool, Kees. "The Medicare Safety Net: review and response". Health Policy Monitor, October 2009. Available at