National Health Insurance in Australia: New Concepts and New Applications.

Like most other OECD countries, Australia has achieved universal coverage and a substantial control of total health expenditures under a national health insurance program. Like them also, a major objective of health policy is to increase supply side efficiency, for which the relatively recent concepts of managed competition and diagnosis related groups (DRGs) constitute potentially useful tools. Their application in Australia has to take into account the complications of a dual system of health service provision and funding and a federal system of government with overlapping responsibilities of national and state governments in the public sector. A proposal to extend the services covered by the public Medicare program and to include within it the option of private coverage by health plans, operating under managed competition conditions along the lines advocated by Enthoven, is described. Contracts for all hospital services would be in terms of DRGs and other output-related measures. As in the proposed Dutch program, the main source of revenue of the private health plans would be risk-related subsidies from a central fund. The potential for market failure resulting from "cream skimming" (deliberate risk selection) by health plans can be reduced to minimal proportions by incorporating measures of service use/health status in the subsidy formula, together with pro-competitive regulation and the continuing option of public coverage under Medicare for those who do not take the private option.