The ground on which the major battles will be fought has been staked leading to this year’s federal election. Climate change, the economy and health have been nominated by both major parties as the critical areas for contention.

The first round of the contest in health begins this week when the government reintroduces its Bill to means test the Private Health Insurance rebate. The 2009/10 Budget initiative to means test the rebate for individuals with a taxable income above $75,000 and couples with a combined income above $150,000 was voted down by the Opposition last year. It has committed to do so again, creating a double dissolution trigger. For the Prime Minister Kevin Rudd, this is a revenue measure. The Private Health Insurance Rebate costs more than  $3.5 billion a year and is one of the most expensive and least effective of government subsidies. The means test would generate $2 billion in savings. For the Opposition, restrictions on access to the rebate are an attack on private medicine.

In a health policy sense there is no contest here. The 30% subsidy of private health insurance was introduced by the Howard government in 1999 ostensibly to stem the falling rates of private health insurance. It was expensive and ineffectual in that it had no appreciable impact on insurance rates. A later Howard government measure, the imposition of life-time health cover, whereby premiums increase by 2% each year for each year private health insurance is not held past the age of 30, stemmed the fall in insurance rates but did not increase them to previous levels.

The rebate was bad policy on all counts. It did not achieve its intended result; it created a very significant cost to the Budget; it fuelled health inflation and encouraged inefficiency in the private health insurance industry.

The politics are a different thing, however. Tony Abbot will portray the means testing of the rebate as an additional cost impost on families and an attack on the private health system, and he may get some traction. While the rebate did not increase private health insurance rates, its removal may nonetheless cause them to fall. Households have factored the rebate into their budgets and those affected will feel the cost.  A similar impact will be felt with another stalled Budget measure, the changes in the Medical Benefits Schedule for some obstetrics items. The Medicare safety net, introduced while Abbot was Health Minister, allowed specialists to inflate their fees in the knowledge that the additional cost would be met by the taxpayer rather than the patient. The reduction of public subsidies is unlikely to see them lower their fees and the cost will be felt by the patient.

All of this, while small in scale, foreshadows what is to come in the health debate as the election nears. The differences between the major parties coming towards the election are substantial.

The Rudd government has an ambitious reform agenda before it. Abbott is a conviction politician, who is temperamentally and ideologically opposed to much of that agenda. Rudd, having taken considered advice about health reform, and now engaged in extended consultations with the states and territories, finds himself at odds with own timetable for reform as announced before the last election and so cannot avoid committing himself to a position on the recommendations of the Health and Hospital Reform Commission.

Before the last election, Rudd committed himself to a Commonwealth takeover of public hospitals if the states were unable to satisfactorily improve its performance. In government he has learned that while hospitals are important, 80% of health care is concerned with primary care and preventative health. The Reform Commission’s recommendations reflect this emphasis.

Abbott has learned nothing from the farce where, before to the 2007 election, the Commonwealth did assume responsibility for the Mersey Hospital in Tasmania and then had to contract back with the state government for its management. He is committed to Commonwealth control and management by local boards, presumably on a Victorian Health Department model. In a policy sense he is opposed to the system-wide reform process recommended by the Health and Hospitals Reform Commission and in favour of disaggregation of health provision into smaller locally controlled units. Politically he will trade on popular frustration with state government management of hospitals and charge the government with laxity in not meeting its own deadlines.

The Reform Commission’s recommendations for inter-governmental responsibilities in health care make a lot of sense. Consolidate policy and funding responsibility for aged care and primary care with the Commonwealth, which already carries the greater funding responsibility. Establish a single national acute hospital services funding with the Commonwealth while leaving the day-to-day management of hospitals with the states. Control of pricing signals is much more effective as a policy tool than direct management.  For Rudd, the impediment to these reforms lie in his state- and territory-based colleagues. The November 2009 COAG meeting failed to agree on the reform of inter-governmental responsibilities in health care. For Abbott, they are an ideological step too far — too centralising, too systematic.

Primary health-care reform will get less attention than hospital management but is the more important debate. Australia’s creaking fee-for-service medical system is begging for reform. It is inefficient, makes poor use of scarce health workforce resources and perpetuates discontinuities in care. Models of integrated interprofessional care supported by fund holding for enrolled populations are preferred internationally and are recommended (initially) for particular patient groups by the Reform Commission. They will be opposed by vested medical interests and by Abbott who will see in them an undermining of the individual relationship between patient and physician.

The first shots have been fired in what will be an extended battle over health care in this election year. The issues are such that they cannot be avoided by either of the major parties. For this we can be grateful.