Why Australia Did Not Build a National Health Service

Moss Cass was an unlikely broker for a national health insurance scheme. As a doctor, he had written pamphlets that argued for a fully nationalized medical service staffed by salaried health professionals. This, Cass argued, would make it possible to abolish medical fees entirely.

Making doctors salaried public employees was also attractive from a public-health point of view. A fee-for-service practitioner has a vested interest in your sickness; a salaried practitioner has a vested interest in your health. A fully public health system is thus better suited to providing preventative medicine. By contrast, as an insurance scheme, Medibank preserved the fee-for-service model while shifting the financial burden from individuals to the government.

To understand why a public insurance scheme prevailed over a British-style National Health Service, we need to backtrack a little. World War II was a watershed in the development of Australian social policy. The Curtin and Chifley Labor governments came out of the war committed to building a comprehensive social-welfare system.

The government’s key advisory body on health policy, the National Health and Medical Research Council (NHMRC), proposed replacing private practices with a coordinated system of hospitals and group-practice clinics. These were to be organized in a regional hierarchy, staffed by a salaried medical service, and administered by the Commonwealth Department of Health. A joint parliamentary committee on social security established in 1941 adopted the NHMRC’s recommendations more or less wholesale.

The Curtin and Chifley Labor government opted for a less ambitious plan in the short term that would subsidize hospital treatment and the cost of pharmaceuticals. However, even this proved problematic.

In 1946, Chifley’s government successfully called a referendum on social services that gave the federal government power over a range of health and medical services. However, Labor agreed to a proviso that this power would not “authorize any form of civil conscription.” The concession suggested that the Labor leadership had little interest in creating a nationalized, salaried medical profession.

The Australian branch of the British Medical Association seized on this to launch a High Court challenge. They claimed that it amounted to “civil conscription” if a pharmaceutical benefit scheme required doctors to use an official government prescription pad and formulary to prescribe medicines. The High Court accepted this far-fetched claim, making it clear that the legal system would deem a national health service unconstitutional.

The medical profession presented a united front in its opposition to a pharmaceutical benefits scheme and “socialist” medicine. At the same time, many doctors still thought preventative medicine could only be guaranteed by a salaried medical practice. For many general practitioners servicing low-income communities, becoming a salaried public employee was more attractive than working under a fee-for-service model.

In 1961, Whitlam conceded that Australia’s constitution ruled building a national health service on the British model. Instead, he suggested that the Commonwealth Government could use its right to give state governments conditional financial grants as a work-around. It could still compel the states to build a regional network of hospitals staffed by salaried medical professionals.

While the constitution precluded the “socialization of doctors,” Whitlam argued, it was no impediment to the “socialization of hospitals.” Although Cass would have favored shifting the emphasis from hospitals to general practice and community-based primary health care clinics, this was a step forward.

The 1969 Labor platform called for

the provision of general practitioner medical services staffed by salaried medical practitioners willing to join and available without charge and without means test to persons who choose to use such services.

However, Whitlam ended up ignoring the party platform and proposing a tax-funded national insurance scheme instead.

Medibank vs. Public Health Care

Despite its limitations, Medibank was definitely an improvement on what had existed before. Postwar conservative governments had only provided free health services subject to a means test.

Anyone who didn’t qualify had to take out private health insurance, with the government limiting its role to subsidizing insurance providers. Families were allowed to claim the cost of their premiums as a tax deduction. By the mid-1960s, around 15 percent of households lacked private insurance, yet were barred from accessing free services by the means test.

Many who did have cover still found themselves under-insured. Private insurers offered refunds as a proportion of doctors’ fees based on patients’ premiums, the seriousness of their illness, and the cost of the service. By the mid-1960s, average insurance payouts only covered around two-thirds of fees. Those who could only afford lower premiums — or who presented with more serious illnesses — received even less.

Australia’s private health insurance system gave better refunds to those who could pay higher premiums. Tax deductions also favored those with higher incomes. On top of this, when medical fees rose, insured patients had to cover the additional costs. When the government tried to narrow the gap between fees and refunds by increasing subsidies to insurers, doctors simply raised their fees again.

The Birth of Medibank

This was the system that Labor’s Medibank aimed to fix — and to a large extent it did. It was a remarkably equitable approach to health insurance. Medibank put Australia far ahead of countries like the United States that still rely on private insurance that is overwhelmingly linked to an ongoing employment contract.

Along with guaranteeing free treatment in public hospitals, Medibank set a standard rate for general practitioner visits while still allowing doctors to run private practices. Doctors could “bulk-bill” by accepting the scheduled fee set by Medibank, effectively making consultations free for patients. Alternately, if doctors wanted to charge more than the scheduled fee, their patients had the option of paying the full fee upfront and claiming reimbursement to the value of the scheduled fee.

While not a fully public health system, Medibank was still a historic step forward. It was typical of Whitlam’s technocratic, research-based, and redistributive approach to welfare policy.

Whitlam did not give the health minister Doug Everingham responsibility for Medibank. Instead, he gave it to Bill Hayden, the social security minister. This decision was symptomatic of Whitlam’s general approach to health care and social welfare. Political scientist Peter Sloman has defined this approach as typical of the “transfer state.” Instead of providing high-quality public services funded by taxation, it favors direct cash transfers that top up household incomes to reduce inequality.

Whitlam wasn’t always averse to publicly owned services, from education and social housing to sewerage and swimming pools. When it came to health, however, he opted to meet the Liberals on their own terrain, accepting the insurance model of health care provision and introducing Medibank to make it more equitable. Instead of transforming the way health care was provided, Whitlam’s reforms redistributed the cost of health insurance.

The Medibank Strike

In November 1975, Australia’s governor general John Kerr sacked the Whitlam government with the backing of the Queen, the CIA, and the conservative opposition parties. The Liberal-National Coalition led by Malcolm Fraser won the following election. Immediately, Fraser moved to water down Medibank, initially by making it easy for people to opt out and purchase private health insurance instead.

Fraser’s goal was to reduce Australia’s universal health insurance scheme to a residual system for low-income earners. This effectively abolished the guarantee of universal health insurance coverage.

Although organized labor played little role in the development of Medibank, the Coalition’s attack was the perfect opportunity for rank-and-file unionists to mobilize against the wider Fraser agenda. In July 1976, Australian unions called a national strike that saw up to two million workers walk off the job in defense of Medibank. It was one of the few general strikes in Australia’s history.

In the mid ’70s, the idea of striking to advance a nonindustrial political agenda was still relatively novel. However, it was in line with an emerging trend toward politically oriented industrial action. Sydney building workers had pioneered “green bans” on ecologically, historically, or socially destructive projects.

In the wake of Indonesia’s 1975 invasion of East Timor, maritime unions placed bans on Indonesian shipping. Railway and maritime unions blockaded uranium shipments in support of the antinuclear movement. Unions in Queensland also launched political strikes defending civil liberties against Joh Bjelke-Petersen’s hard-right state government.

The 24-hour Medibank general strike shut down public transport, closed schools and most industrial enterprises, and grounded aviation. Even pubs shut their doors. However, the Australian Council of Trade Unions (ACTU) only grudgingly backed the strike.

ACTU president Bob Hawke — who hailed from Labor’s right faction — believed that union militancy would stymie negotiations over Medibank between the trade union movement and the Fraser government. The ACTU did not organize union-sanctioned rallies or marches to back the rank-and-file driven 24-hour shutdown.

The strike did not halt Fraser’s attacks on Medibank, although it did delay them. Strike action also built broad public support for what was already one of Whitlam’s most popular reforms.

From Medibank to Medicare

In 1981, driven by an austerity agenda, the Fraser government moved to abolish Medibank altogether. In addition to its popularity, Medibank was one of Whitlam’s most expensive social policy reforms.

From the opposition benches, the ALP leadership showed little enthusiasm for defending Medibank. By now, Cass was the Labor spokesperson on health, and found himself having to defend a scheme he had little taste for. However, the experience of Medibank in operation had largely allayed any public misgivings about universal health insurance while reassuring the medical profession that its interests were not under threat.

Following the 1976 Medibank strike, the unions also threw their considerable social power behind universal health insurance and free, non-means-tested hospital care. This was a crucial factor, since Australian unions could have gone the way of their US counterparts, brokering deals for health insurance with individual employers as part of workplace agreements.

By the early 1980s, Labor’s program for government insisted on imposing wage restraint and buying industrial peace from unions by way of an “Accord” between the unions and government. As a payoff for limiting union rights, Hawke offered workers a “social wage.” Universal health insurance was the most important component of this. In 1982, Labor committed to restoring Medibank in order to win union support for the Accord.

With the Accord sealed in February 1983, the ALP returned to power the following month. Bob Hawke now became prime minister. Having locked unions into a system of centralized wage indexation, the following year Labor delivered on its part of the deal and introduced Medicare, which essentially restored Whitlam’s Medibank.

The legacy of the Accord is still debated, and the ACTU played a contradictory role. Although the union federation bought into an agenda of wage restraint and industrial quiescence, it also extracted concessions that extended the reach of Australia’s hitherto modest welfare state.

Today, Medicare remains a popular but imperfect scheme. Its claim to universality is undermined by the growing “gap” fee that many doctors charge above the scheduled rebate. In addition, it excludes dental care, psychological treatments, and many allied health services, leaving many patients out of pocket. Defending Medicare is a vital task for working-class politics today, but we also need to expand its scope.