Sunday, January 29, 2006

Healthcare and Education Spending

[Ed note: I wrote the post a while ago
but I never got round to posting it. After reading two articles
in the Economist, I was motivated to post it. Although it is
about Australian education and healthcare it is applicable to other

Spending on healthcare and education is tied in
with poverty traps, reforming the tax system and welfare.
Currently, Australia has a complicated system that creates poverty
traps as benefits are means tested, disrupts the effective delivery
of services and complicates the tax system even further.

Reforming the way education and healthcare are paid for will
make significant in-roads to improving these community services.
This isn't about who should paid which has largely been settled in
favour a joint payment by both the individual and the state.
Rather it is about how the state money is provided to fund the

Education and healthcare are currently funded in a
top down approach. The money slowly trickles down until
eventually some very small amount reaches the front-line where the
service is actually delivered. The money gets eaten up by
salary increases, administration expenses and pet projects.
This all leads to waste and increased costs in delivering the

The funding needs to injected into the bottom, at the
point of service delivery. The funding is then delivered to
where it is needed by those who need the service. It also
brings in the possibility of competition as service providers now
half to provide a service that the consumer wants to use.

best way to inject the funding at the point of delivery is to create
non-means tested education and health accounts. The federal
government recurring spending would go into each person's education
and health accounts to be spent as the individual determines.

accounts would come with a left and right of arc. An education
account can only be spent on providing education and health accounts
only on health. The health accounts would have further
restrictions on the type of health services it can be spent on i.e.
most cosmetic surgery would be out. If you want that save up
and pay for it yourself. If the individual chooses services
that cost more than what is placed into the accounts yearly then the
individual has to pay the difference. For example, you send
your child to the most expensive private school then you will need to
pay the difference between what the account provides and what the
school charges.

The accounts would replace most if not all the
federal funding of health and education. The introduction of
the accounts would see any restrictions on price and price caps
removed. This will introduce price signals into the delivery of
the services and increasing the scope of competition in the delivery
of services. In this time of population movement, travelling
and globalisation the money in the accounts can be spend with
overseas providers of healthcare and education.

ensure the functioning of the accounts a minimum capitalisation of
the accounts will be mandatory. Just as financial institutions
are required to do. Continuing the theme of choice, the
individual will have the choice of who manages the accounts: their
bank or building society, insurance organisation or the RBA for the

The health and education accounts strike a balance
between effective delivery and competition in service delivery while
ensuring a fair level of access to these services for all
Australians. The accounts also empowers Australians to take
responsibility and control of their lives. These accounts take
what is best of the Canadian, UK public funded systems with the best
of the US funding at point of delivery.

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