Common(wealth) Knowledge #52: Federalism and the Healthcare Crisis
How much can the Commonwealth government help the healthcare crisis?
On May 28th, the New South Wales Ministry of Health released a damning report into NSW Health’s handling of the COVID-19 pandemic in regional and remote NSW. Meanwhile, every week there are more news stories about overstretched hospitals and long waiting lists. Is there anything that the Commonwealth government can do to step in and help out the State governments?
The initial Australian Constitution did not give the Commonwealth much power over the healthcare sector. However, in one of the few successful constitutional referendums, and with bipartisan support, in 1946 the government was given some healthcare powers, in the form of Section 51(xxiiiA), known as the ‘welfare power.’ Check out Common(wealth) Knowledge #35 for why that referendum passed when others have failed.
The two important parts of the welfare power, at least when it comes to healthcare, are the “pharmaceutical, sickness and hospital benefits” and the “medical and dental services” powers. Reading these two clauses on their own suggests that the Commonwealth government can fund medical programs that provide ‘benefits,’ alongside hospital ‘services.’
Unfortunately, the law is never that straightforward. If it was, we wouldn’t need lawyers.
The Pharmaceutical Benefits Scheme (PBS) allows the government to subsidise prescription medication that is prescribed by a doctor who is licenced under the Commonwealth government. This scheme was upheld by the High Court of Australia in British Medical Association v Commonwealth (1949). As of January 2023, the maximum out-of-pocket cost for ordinary Australians is $30, and for concession card holders it is $7.3.
However, moving beyond PBS, things become more complicated. Section 51(xxiiiA) prevents the Commonwealth government from creating a full public healthcare system. The caveat in the welfare power is that it cannot “authorize any form of civil conscription.” This means that doctors cannot work for the government directly, because this would count as ‘conscripting’ doctors.
Although, as we shall see soon, the government can fund some hospital programs, it cannot directly employ doctors. Instead, the doctors have to work as contractors.
This is where ‘bulk-billing’ and the Medicare Benefits Schedule (MBS) comes in. Under this system, doctors have more autonomy to set their own prices, and choose to determine whether they will charge the patient or Medibank directly. When doctors bill Medicare, they agree to take the payment set by the government in legislation, which is usually lower than charging the patient.
Neither PBS nor MBS can do much to help state governments here. The only real option here for the government is to regularly update the MBS bulk-billing prices to keep up with market prices, as not doing so will mean that doctors have less incentive to bulk-bill, as they will receive more money from charging the patient than they will from the Medicare price.
The main way for the Commonwealth government to get involved, then, is by helping to fund hospitals and state medical programs. The historical approach has been to leave the healthcare system in the hands of the state governments because they can react better to local needs. The reasons behind it aren’t too dissimilar to why state governments are also responsible for education.
Section 51(xxiiiA) also allows the Commonwealth government to provide benefits for students, but there are limitations on this too. For example, in Williams v Commonwealth (No 1) (2012), the High Court said that the Commonwealth government couldn’t rely on the student benefits clause to fund chaplaincy programs in state schools, with at least one principal using that money to employ their chaplain for an extra day per week. This wasn’t deemed to be a direct ‘student benefit,’ so was invalid, and it demonstrates the limit of welfare power funding schemes.
Thus, the primary way for the Commonwealth to support State healthcare programs, including those overwhelmed by Covid-19, is by providing additional funding. This is the ‘pharmaceutical, sickness and hospital benefits’ clause. But that funding must be to confer a direct benefit, and it means negotiating with the State governments to determine what needs more funding.
The scope of ‘civil conscription’ has been narrowed in recent decades, with the High Court confirming in Alexandra Private Geriatric Hospital Pty Ltd v Commonwealth (1987) that it doesn’t apply to the benefits clause. This means that regulations that ensure that Commonwealth-provided financial benefits are used appropriately are allowed.
However, civil conscription still applies to the services clause. So, while the Commonwealth government can offer bulk-billing and the Medicare scheme, these must remain opt-in schemes; if participation was compulsory, it would be conscription. Also, while the Commonwealth government can fund healthcare programs, it cannot employ more doctors, meaning that it can’t do much to help manage problems caused by a lack of medical staff.
Ultimately, the Commonwealth government can only rely on two clauses of the welfare power to help with healthcare. While the Commonwealth can provide funding and provide optional avenues for cheaper appointments and prescriptions, like PBS, doctor participation must remain voluntary.
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Alexandra Private Geriatric Hospital Pty Ltd v Commonwealth (1987) 162 CLR 271;  HCA 6.
British Medical Association v Commonwealth (1949) 79 CLR 201;  HCA 44.
Commonwealth of Australia Constitution Act 1900 (Imp) 63 & 64 Vict, c 12.
Williams v Commonwealth (No 1) (2012) 252 CLR 416;  HCA 23.
Elijah Granet’s ‘Better AustLII’ web extension.