The Canberra Times

By Lesley Russell

It's a mantra in conservative quarters that requiring co-payments for health care-services is an effective way to manage health-care costs and address what is called ''moral hazard'' the idea that cheap, or even free, health care will lead to inappropriate or over-consumption of health-care services.

The evidence is support of this long- standing contention is quite thin. Most people cite the health insurance study conducted by the RAND Corporation between 1971 and 1982. Health economist Jonathan Gruber reviewed this data in 2006 and concluded increasing co-payments did not appear to harm the health of ''the average person''.

Increased co-payments certainly lead to fewer doctor visits, but the data suggest that necessary visits are curtailed at the same rate as unnecessary visits, and at least for the less well-off which would include the majority of people with a chronic illness overall health-care costs may actually increase due to deferred treatment.

A study published this year in The New England Journal of Medicine showed that when co-payments for outpatient visits for elderly patients were increased, visits to primary care and specialist doctors dropped, but hospital admissions and the number of days in hospital increased. The effects of increases in co-payments for ambulatory care were magnified among patients living in areas of lower income and among those who had hypertension, diabetes, or a history of heart disease.

The affordability of prescription medications is one of the most pressing public health issues in both the United States and Australia. Many patients take less than their prescribed doses to make medications last longer or do not fill prescriptions at all because of cost. The failure to correctly take essential medications for chronic illnesses can have substantial adverse consequences for the patient and increase the overall costs of health care. Studies in both countries show that increasing co-payments for prescription drugs reduces the use of these medications. The patients most sensitive to price changes are those who are taking long-term medications but who are not receiving regular care for their conditions.

These increases in out-of-pocket drug prices lead to sizeable increases in both demand and spending elsewhere in the health-care system.

One estimate is that 35per cent of the savings achieved by reductions in drug spending are offset by consequent increases in other medical spending.

Conversely, two papers published in the November edition of Health Affairs highlight that when consumers pay less for certain prescription drugs needed to treat diabetes, high blood pressure, high cholesterol and congestive heart failure they are more likely to adhere to a regimen. Ironically, the situation regarding the ability of older, poorer, and sicker Australians to afford the co-payments associated with their needed health care is almost certainly worse than that for their American counterparts.

In the US many pharmacy chains have introduced ''$4 generic drug'' programs, permitting patients to purchase selected generic medications for US$4 ($A4.03)per month. Eight of the 10 largest retail pharmacy chains have programs offering low-cost generics and prices can be as low as $A10.08 for a three-month supply. Most of the drugs most frequently prescribed in the US have generic versions, and are available on the $A4.03 programs. Some pharmacy chains charge membership fees for access to these low-cost products. The prices offered by these programs are substantially lower than the cash prices that people without prescription drug cover normally pay, and even for those with cover, paying out of pocket may save money, since the average co-payment for generic drugs under commercial insurance plans is $A10.08 per month.

An Australian move to encourage the availability of generic medicines as cheaply as this for the most common chronic conditions could benefit even those with concession cards, and lead to direct improvements in health outlays and health outcomes. Currently for the most commonly used generic drugs the Australian Government pays about $12 and the consumer can pay more than $15 for a month's supply.

Of course there are hurdles, and the current drug manufacturers will be quick to point these out. But they too stand to benefit from a system that ensures a larger market through greater certainty that people will get all their prescriptions filled regularly.

With the Australian and US dollars at parity, this is the right time for the Government to consider moves to encourage the importation of these products, or better still the local manufacture of cheap generic drugs for the Australian and Asian markets.

Dr Lesley Russell is a Senior Fellow at the Center for American Progress in Washington, DC. She is a Research Associate at both the Menzies Centre for Health Policy and the US Studies Centre at the University of Sydney.