Medicare and the Pharmaceutical Benefits Scheme (PBS) (VCE SSCE Health and Human Development): Revision Notes
Medicare and the Pharmaceutical Benefits Scheme (PBS)
Introduction to Australia's health system
Australia operates a sophisticated health system that brings together all levels of government—federal, state, and local—along with private sector providers. This complex network delivers a high standard of care, ensuring positive health and wellbeing outcomes for Australians.
The system is comparable to those in other developed nations and involves shared responsibility across different sectors. Responsibility in this context means being answerable or accountable for something within one's control.
Three fundamental components work together to increase healthcare access for all Australians:
- Medicare (universal health insurance)
- The Pharmaceutical Benefits Scheme or PBS (subsidized prescription medicines)
- Private health insurance
On an average day, Australia's health system demonstrates remarkable activity and investment. The nation spends approximately $508 million on health daily, which equates to around $21 per person. Of this daily expenditure, governments contribute $347 million, while private health insurance providers spend $45 million.
The scale of daily healthcare delivery includes:
- 829,000 prescriptions filled under the PBS
- 433,000 visits to general practitioners
- 32,000 hospital admissions
- 23,000 emergency department presentations
- 26,000 Medicare-subsidised optometry services
- 6,000 elective surgical procedures
Medicare
What is Medicare?
Medicare represents Australia's universal health insurance scheme, providing the foundation for accessible healthcare across the nation. Established in 1984, Medicare ensures that all Australians, permanent residents, and citizens from countries with reciprocal healthcare agreements can access subsidized healthcare services funded by the federal government.
Countries with reciprocal agreements include New Zealand, the United Kingdom, the Republic of Ireland, Sweden, the Netherlands, Finland, Belgium, Slovenia, Italy, Malta, and Norway. This means Australian citizens can also access healthcare in these countries.
Medicare's primary aim is to provide affordable, essential healthcare through what we call the public health sector. While many doctors operate in private practice (particularly general practitioners), consultations with them still receive partial Medicare coverage.
What does Medicare cover?
Out-of-hospital services
Medicare provides financial support for many essential healthcare services that occur outside hospitals. These out-of-hospital expenses include costs for services such as doctors, specialists, tests, and x-rays.
General practitioners and specialists: Medicare covers consultation fees for both GPs and specialist doctors (such as dermatologists, paediatricians, and cardiologists). The coverage applies whether you're visiting for a routine check-up or seeking specialist treatment for a specific condition.
Medical tests and examinations: Essential diagnostic services receive Medicare support, including x-rays, pathology tests (blood tests, urine tests), and other investigations needed to diagnose or monitor health conditions.
Eye care: Optometrists' eye tests are covered under Medicare, helping Australians maintain their vision health through regular examinations.
Some surgical procedures: Most surgical and therapeutic procedures performed by general practitioners receive Medicare coverage.
Dental services for children: While Medicare generally doesn't cover dental care, there are important exceptions for children. Under the Child Dental Benefits Schedule, eligible children aged 2-17 can access up to $1000 worth of dental treatment over two years. To qualify, the child must be eligible for Medicare and either they or their family must receive certain government benefits, such as Family Tax Benefit Part A or Youth Allowance.
Mental health support: Medicare covers a limited number of psychology consultations, but there's a specific process to follow. Patients must first see their GP, who will assess their needs and develop a Mental Health Treatment Plan. With this plan in place, the patient can then access subsidized psychology sessions.
The Medicare Safety Net: This important protection ensures that people who require frequent services covered by Medicare, such as doctor's visits and tests, receive additional financial support. When an individual or family reaches a certain threshold in patient co-payments (the payment made by the consumer for health products or services in addition to the amount paid by the government) for out-of-hospital expenses—$2169.20 in 2020—Medicare-covered services become cheaper for the rest of that calendar year.
In-hospital services
Medicare's coverage for hospital services depends on whether you choose to be treated as a public or private patient.
Public patients in public hospitals: When you receive treatment as a public patient in a public hospital, Medicare provides complete coverage. This means in-hospital expenses (costs for treatment and accommodation in a public hospital) are fully covered, including all treatment by doctors and specialists, initial care, aftercare, and the cost of your hospital stay. You won't pay anything out of pocket for these services.
Private patients: If you choose admission to a private hospital or elect to be a private patient in a public hospital, Medicare contributes 75 per cent of the Schedule fee for treatment by doctors and specialists. However, you'll be responsible for the remaining costs, including accommodation and other expenses.
Understanding Medicare billing
To understand how Medicare payments work, you need to grasp several key concepts that work together in the billing process.
The Schedule fee
The Schedule fee is the amount that Medicare contributes towards certain consultations and treatments. The government decides what each item is worth, and that's what Medicare pays. These fees are listed in the Medicare Benefits Schedule, a comprehensive document covering the range of services and Medicare's contribution to each.
The Schedule fees aim to represent a 'reasonable' average cost for each particular service. For example, in 2020, the Schedule fee for a standard GP consultation was $38.75. This means that regardless of what your doctor actually charges, Medicare will contribute $38.75 toward that consultation.
For most general practice consultations, Medicare now provides a rebate of 100 per cent of the Schedule fee.
Out-of-pocket expenses
Since many doctors charge more than the Schedule fee, patients often face out-of-pocket expenses—costs that patients must pay themselves. The difference between what the doctor charges and what Medicare rebates is called the 'gap' or 'out-of-pocket expenses gap fee'.
Worked Example: Calculating Out-of-Pocket Expenses
Here's a practical example of how this works:
| Item | Cost |
|---|---|
| Doctor's consultation fee | $75.00 |
| Medicare Schedule fee | $38.75 |
| Medicare rebate to patient (100% of Schedule fee) | $38.75 |
| Out-of-pocket expense to patient | $36.25 |
In this scenario, the doctor charges $75.00 for a standard consultation. Medicare contributes its Schedule fee of $38.75, leaving the patient to pay the remaining $36.25 out of their own pocket.
Previously, patients had to pay the full consultation fee upfront and then claim the Schedule fee back from Medicare separately. Now, with Medicare electronic claiming, you can receive your Medicare rebate when you pay at the doctor's surgery, making the process much more convenient.
Bulk billing
Bulk billing occurs when the doctor or specialist charges only the Schedule fee. The payment is claimed directly from Medicare, so there are no out-of-pocket expenses for the patient. In these situations, Medicare pays the doctor directly, and the patient doesn't pay anything at all.
Many medical clinics advertise themselves as bulk billing practices, which greatly increases access to free healthcare for all community members. Other clinics might offer selective bulk billing—for example, bulk billing pensioners, Health Care Card holders, or patients under 16 years of age while charging standard fees for other patients.
The diagram above illustrates the difference clearly. In scenario (a), with bulk billing, the doctor charges $38.75 (the Schedule fee), Medicare pays this amount directly, and the patient pays nothing. In scenario (b), without bulk billing, the doctor charges $75, Medicare contributes $38.75 (the Schedule fee), and the patient must pay the $36.25 difference.
What is not covered by Medicare?
While Medicare covers most clinically necessary hospital and medical services, there are important exclusions to understand.
Cosmetic procedures: Any procedures undertaken purely for cosmetic reasons—such as breast enlargement or rhinoplasty (nose job)—generally don't receive Medicare coverage. However, if these procedures are clinically necessary (for example, reconstructive surgery after an accident), they may be covered.
Private hospital costs: Medicare pays 75 per cent of the Schedule fee for medical treatment in private hospitals but doesn't contribute to accommodation or other associated costs.
Dental care: Most dental examinations and treatments aren't covered by Medicare. Although some children aged 2-17 can qualify for Medicare-funded dental care through the Child Dental Benefits Schedule, most people must pay for their own dental healthcare costs.
Home nursing and ambulance services: Medicare doesn't cover home nursing care or ambulance transportation.
Alternative therapies: Treatments considered 'alternative medicine' generally fall outside Medicare coverage. These include chiropractic services, acupuncture, remedial massage, naturopathy, and aromatherapy. Medicare may contribute if these services are carried out or referred by a GP, but this is not guaranteed.
Allied health services: Physiotherapy, podiatry, and additional dental services such as orthodontics don't receive Medicare rebates.
Health-related aids: Equipment such as glasses and contact lenses, hearing aids, and artificial limbs (prostheses) are exempt from Medicare coverage.
Pharmaceuticals: While prescription medications aren't covered under Medicare, many receive subsidies through the PBS instead.
Third-party responsibility: Medical costs for which someone else is legally responsible don't qualify for Medicare contributions. For example, if your injuries are covered by a compensation insurer such as the Transport Accident Commission (TAC) or WorkCover, or if an employer or another organization is responsible, they're expected to pay the medical fees rather than Medicare.
Exam tip: When answering questions about services not covered by Medicare, remember that this includes both medical services and procedures (like physiotherapy and cosmetic surgery) and products (like glasses and hearing aids). If an exam question specifically asks about services not covered by Medicare, product examples like glasses cannot be used in your answer.
Advantages and disadvantages of Medicare
Medicare brings significant benefits to Australians but also has some limitations. Understanding both helps you appreciate how the system works.
| Advantages | Disadvantages |
|---|---|
| Reduced cost for essential medical services, including free treatment and accommodation in public hospitals | No choice of doctor for in-hospital treatments |
| Choice of doctor for out-of-hospital services | Waiting lists for many treatments |
| Available to all Australian citizens | Does not cover alternative therapies or allied health services |
| Reciprocal agreement between Australia and other countries allows Australian citizens to access free healthcare in selected countries | Often does not cover the full amount of a doctor's visit |
| Covers tests and examinations, doctors' and specialists' fees (Schedule fee only), and some procedures such as x-rays and eye tests | |
| The Medicare Safety Net provides extra financial contributions for medical services once co-payments reach a certain level |
How is Medicare funded?
Medicare requires substantial funding to operate. In the 12 months from July 2019 to June 2020, Medicare covered 428 million services and paid out over $24.6 billion. This funding comes from three main sources.
General taxation: A portion of the income tax collected from all working Australians contributes to Medicare funding. This forms the largest component of Medicare's revenue.
Medicare levy: The Medicare levy is a 2 per cent tax for all Australian taxpayers to fund Medicare. This additional tax is placed on the taxable income of most taxpayers. However, those with low incomes (below $20,000) or specific circumstances (such as Pensioner Concession Card holders) may be exempt from paying the levy.
Medicare levy surcharge: The Medicare levy surcharge is an additional 1-1.5 per cent tax on high income earners who do not have private health insurance. This surcharge applies to people earning more than certain thresholds—$90,000 per year for individuals and $180,000 for families in 2021.
The surcharge operates on a sliding scale based on income levels. For instance, someone without private hospital insurance earning more than $90,000 will pay an extra 1 per cent of their income to Medicare. If their income exceeds $140,001, they'll pay an extra 1.5 per cent instead.
The Medicare levy surcharge serves a strategic purpose: it encourages higher-income individuals to purchase private hospital insurance and, where possible, to use the private health system. This helps reduce demand on the Medicare-funded public system.
It's important to note that the revenue collected from both the Medicare levy and Medicare levy surcharge doesn't fully cover Medicare's operating costs. Therefore, general income tax must also contribute to funding the system.
Pharmaceutical Benefits Scheme (PBS)
Understanding the PBS
Alongside Medicare, the Pharmaceutical Benefits Scheme (PBS) forms another crucial component of the federal government's contribution to Australia's health system. The PBS has evolved significantly since its introduction in 1948, when the government first provided free medicines to pensioners and 139 lifesaving and disease-preventing medications to the rest of the community at no cost.
The original aim was straightforward but powerful: to provide essential medicines to people who needed them, regardless of their ability to pay. While the purpose remains unchanged today, the system now operates through subsidies rather than free provision, with consumers making patient co-payments.
From 1 January 2021, Australians pay $41.30 for most PBS medicines or $6.60 if they hold a concession card. The government subsidizes the remaining cost of these medications. These co-payment amounts are adjusted annually on 1 January to keep pace with inflation.
Currently, over 5000 brands of prescription medicine receive PBS coverage. This figure includes different brands of the same medication, providing patients with options while maintaining affordability. However, some drugs aren't listed on the PBS, requiring patients to pay the full cost.
The Pharmaceutical Benefits Advisory Committee (PBAC) plays a vital role in the PBS system. This independent committee comprises health professionals who regularly review and consider new medications for inclusion in the PBS. Their assessments ensure that subsidized medications are both clinically effective and represent good value for the healthcare system.
The scale of the PBS is considerable. In 2019-20, the government paid more than $12.5 billion in subsidies for PBS-listed medications, with approximately 208 million medicines issued on PBS prescriptions during that year.
PBS Safety Net
Similar to Medicare's Safety Net, the PBS offers additional protection for individuals and families who require expensive ongoing medication. The PBS Safety Net ensures that people who spend a large amount of money on Pharmaceutical Benefits Scheme (PBS) medications receive additional financial support.
Once an individual or their immediate family has spent $1497.20 (as of 2021) within a calendar year on PBS-listed medicines, the system provides extra assistance. From that point forward, the patient pays only the concessional co-payment rate of $6.60 for each PBS prescription, rather than the standard $41.30. This significantly reduces the financial burden for people managing chronic conditions requiring multiple medications.
Case study: PBS access to life-saving medications
The PBS regularly expands to include new, life-saving medications, dramatically improving access and affordability for Australian patients. A case from 2020 illustrates the PBS's impact.
Case Study: Multiple Sclerosis Treatment
Multiple sclerosis (MS) affects over 25,600 Australians, with 75% being female. Most people receive their diagnosis between ages 20-40, making it the most common acquired neurological disease in younger adults. While various treatments exist, there's currently no cure for MS.
The medication siponimod (brand name Mayzent) was listed on the PBS for the first time to treat patients with secondary progressive MS. Before PBS listing, this medication cost patients more than $25,000 per year. With PBS subsidy, patients pay just $41 per prescription, or $6.60 with a concession card. The PBS estimates that approximately 800 patients benefit from this listing annually.
Case Study: Cancer Treatments
The PBS also expanded access to several cancer medications. For example:
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Atezolizumab and bevacizumab (brand names Tecentriq and Avastin) became available in combination to treat advanced hepatocellular carcinoma, the most common type of primary liver cancer. Previously, patients faced costs up to $170,000 for a course of treatment. With PBS listing, around 500 patients per year benefit from standard co-payment rates.
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Olaparib (brand name Lynparza) received expanded PBS listing for newly diagnosed, advanced high-grade epithelial ovarian, fallopian tube, or primary peritoneal cancers. This listing benefits approximately 300 patients annually who would otherwise pay around $140,500 per course of treatment.
These examples demonstrate how PBS listings can transform access to essential, potentially life-saving medications, removing financial barriers that might otherwise prevent treatment and supporting better health outcomes for Australians.
Remember!
Key Points to Remember:
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Medicare is Australia's universal health insurance scheme, established in 1984, providing subsidized healthcare to all Australians, permanent residents, and citizens from reciprocal agreement countries.
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Medicare covers essential services including GP and specialist consultations (paying 100% of the Schedule fee for most GP visits), medical tests, eye examinations, some children's dental care, and limited psychology sessions. Public patients in public hospitals receive completely free treatment and accommodation.
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Understanding the billing system is crucial: The Schedule fee is the government-set amount Medicare pays. Bulk billing means doctors charge only the Schedule fee with no patient cost. When doctors charge more, patients pay out-of-pocket expenses (the gap between the doctor's charge and Medicare's contribution).
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Medicare is funded through three sources: general taxation, the Medicare levy (2% tax) on most taxpayers, and the Medicare levy surcharge (additional 1-1.5% tax) on high earners without private hospital insurance.
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The PBS makes essential medicines affordable by subsidizing over 5000 prescription medications. As of 2021, patients pay $41.30 per prescription (or $6.60 with a concession card), with the government covering the remaining cost. Both Medicare and PBS offer Safety Nets providing additional support once spending thresholds are reached each year.