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The virtues of healthy choice and competition

By Mikayla Novak - posted Wednesday, 29 March 2006

Issues surrounding the state of Australia’s health sector are not only increasingly occupying the thoughts of health professionals, interest groups, academics and policymakers, but they are fast taking on the mantle of the new “barbeque stopper” for everyday families and individuals alike.

Certainly the evidence suggests that Australia retains one of the best health systems in the world. Australia ranks third among comparable OECD economies for overall life expectancy and sixth for healthy life expectancy. Australians are also enjoying the benefits of lower death rates and a reduction in the incidence of most diseases.

Despite this, some obvious problems remain in the health sector that require attention. The environment for health care in most advanced countries, including Australia, is one in which there is enormous upward pressure on medical and hospital costs. This is the result of an absence of price signals, which generates ever-increasing consumer demands for “free” health services, as well as the “capture” effect from those working within the system.


In Australia’s health care system, which remains predominated by public sector financing and provision, these rising costs are projected to cause significant fiscal pressure on governments as they attempt to cater for the health needs of an ageing population.

The strains on the public health care system have been widely reported. Some of the symptoms of our over-stretched system including intractable waiting lists as queuing is used to ration demands; excessive burdens on health professionals and anecdotal evidence of growing shortages in the health workforce; and, as revealed by some recent prominent cases in Queensland and New South Wales, poor quality of treatment in public hospitals and other facilities.

While most health advocates argue that a greater redistribution of taxpayers’ money into health is required to resolve these issues, the fact remains that our health sector is not starved of resources. Indeed, the growth rate of spending on state-subsidised medical services in recent years has increased by an average of 12 per cent a year. Overall health spending has more than doubled from 1995-96 to $45 billion, and now represents around 10 per cent of gross domestic product.

Apart from the fact that more public funding into health means less money for schools, roads, policing and other services, the possibility that greater consumer choice and provider competition ought to play a role in driving systemic improvement in the health sector has not been sufficiently appreciated.

Yet, the benefits of choice and competition are numerous and manifest in so many walks of life. Choice is a superior way of delivering services to people, allowing consumers to select what packages they want and not the package that an authority decrees on their behalf.

Second, given that people are different and have divergent tastes, choice and competition ensures that providers specialise to cater for these different preferences. This in turn spurs innovation among providers, as they seek to raise quality and restrain costs in delivering services that appeal to the public.


Finally, choice and competition empowers those on low incomes by ensuring that they no longer need to remain trapped in substandard service provision.

To be sure, elements of choice and competition in the Australian health sector are not new. Indeed, one of the unheralded strengths of our system is the extent of private sector involvement in the provision of services. Around 60 per cent of surgical procedures now take place within a rapidly expanded private hospital sector, and almost nine million Australians (including over one million low-income earners) are covered by private health insurance products.

The private sector plays a central role in ensuring that the above-cited benefits of choice and competition are realised and, as has been noted by expert commentators, it plays an important role in helping the public system become more financially sustainable than would otherwise be the case.

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About the Author

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

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