Funding the Medical Profession Australia 1975-1983

Dec 12, 2000Health Funding, Paper

The Fraser Period


Medibank Dismantled

Stagflation was continuing. Government emphasis turned to controlling expenditure The Fraser government believed health costs were being pushed up inexorably. Federal government’s focus turned to the reduction of public expenditure on social welfare. Fraser dismantled Medibank and changed the way the Commonwealth provided health funding to the States.


  • On election the Coalition government immediately began whittling away Medibank – despite Fraser’s electioneering promise to preserve it.
  • Responsibility for the HIC was transferred from the Minister for Social Security to the Minister for Health.
  • Nurse industrial action escalated. In Victoria 4000 nurses protested outside Parliament House over pay and staffing. Bans and bed closures followed later in Queensland and NSW


  • The first major reversal of Medibank began in October. The Coalition government:
    • allowed people to opt out of Medibank and insure with a private (but registered) health fund.
    • a Medibank levy of 2.5% was imposed on those not taking out private insurance.
    • in a new hospitals agreement with the States, the Commonwealth agreed to meet 50% of net operating costs of public hospitals – on certain conditions.
  • The federal government discovered a technicality which allowed the Commonwealth to require approval of state hospital budgets before paying the 50 per cent hospital operating costs grant. This put a restriction on state Labor governments and had the unintended consequence of increasing bureaucracy and red tape within the system.
  • The Coombs Royal Commission reported, recommending substantial changes to the Public Service.


  • The Fraser government first halved then stopped the Hospital Development Program which provided capital for upgrading and extending public hospitals. It started using its funding powers to intrude on the States’ right to make and implement health policy in the hospitals for which States were responsible.
  • A Health Services Advisory Committee was appointed to advise the federal government on health policy.
  • A Royal Commission into Human Relationships reported on sex education, family planning and related services, and the role of women in such matters.
  • The NSW Wran Labor government appointed Peter Wilenski to chair a wide-ranging inquiry into ways to improve the machinery of government in NSW. Wilenski’s recommendations were based on new management theory, and made at a time when the 1970s recession was bringing the post-war “golden age” of prosperity to an end. Costs of government were increasing. The Wilenski measures centralised more control under the Premier and politicised the bureaucracy.
  • Laurie Brereton, Wran’s Minister of Health, abolished the NSW Health Commission and called in the Public Accounts Commission to “razor gang” health expenditure. Hospitals and doctors were subjected to new management theory and cost cutting programs.
  • Many doctors considered that the newly established NSW Health Department with its abstract management models and social science (economics and politics) concepts of efficiency was not equipped to handle the professional “messy” everyday emergency arena of hospitals and medical services.


  • In July, medical benefit rates were reduced from 85 to 75 per cent of schedule fees. The maximum patient contribution was raised from $5 to $10.
  • In November, Medibank was abolished altogether including the tax levy. Health insurance, whether public or private, was no longer compulsory. In place of Medibank, the Coalition instituted a universal, 40 per cent rebate on schedule fees, and fixed the maximum patient contribution at $20 per service. Basic public hospital care was free to pensioners and uninsured persons. Bulk billing was abolished except for those entitled to Pensioner Medical Service benefits and other people whom government criteria identified as disadvantaged.
  • The Coalition government cut funds to the community health program, the school dental scheme and the hospital development program.
  • The Victorian Health Commission was created to take over the functions of the Hospitals and Charities Commission, the Mental Health Authority and the Health Department.


  • The Coalition abolished the universal Commonwealth medical benefit.


  • The Coalition government made further changes:
    • Free treatment in hospital standard wards ended.
    • Those failing to insure privately now faced huge bills if admitted to hospital.
    • The Commonwealth met 30 per cent of the schedule fee for any medical service to those covered by private insurance.
    • Uninsured persons and those without entitlement to pension or unemployment benefits were now unable to claim any subsidy for medical or hospital charges.
    • A tax rebate was introduced on the cost of basic medical/hospital insurance.
    • States (Tax Sharing and Health Grants) Act changed the way the Federal government funded hospitals. Fraser ending tied grants to States for funding hospitals. The Commonwealth funds provided for public hospital and health services were now included in general revenue grants to the States – with conditions attached. The Commonwealth exerted its power to set conditions for the grants. If States allowed their hospitals to provide free services to anyone other than those entitled to the Pensioner Medical Benefits or those the Commonwealth defined as disadvantage, the grants to States would be reduced by the amount these services cost. This put a break on State Labor governments extending health welfare.
  • A by-product of the new untied grants was that hospitals and health care providers now had to compete with others for an appropriate share for health services out of their State’s general grant. This shifted the heat of health politics and industrial action away from the federal government to State governments. If hospital services were perceived as deteriorating it was State governments that got the blame for under-funding. Relationships between State governments and autonomous State AMA branches deteriorated over cuts to hospitals and health care.
  • Having replaced its Health Commission with a Health Department, NSW started cutting hospital costs. NSW nurses began to leave in higher numbers.
  • The NSW government abolished charges in State psychiatric hospitals for acute mental patients but retained charges for long term patients.
  • The Commonwealth government took over payment of all nursing home benefits.


  • Nurse industrial protest rallies began in NSW over cuts to hospital funding.
  • By this time, 2.7 per cent or 808 of the 29,575 doctors practicing in Australia were salaried hospital-based specialists (not including young resident doctors)