It is too early to make a definitive judgment on the Government’s health reform package. As we know from the insulation debacle it is not the plan that matters but the implementation. Implementation is where the risks are as well as the rewards for the punter. In the meantime there are some pointers that need to be borne in mind as we make an assessment.

Firstly there is the politics. Tony Blair once emailed his Ministers in the lead up to an election and let the tactical cat out of the bag. His instructions were that they should announce initiatives and then lay the boot into anyone who had criticism. He said this absolved the Government from having to explain the detail of the initiative. Kevin Rudd is a master of Tony Blair play book. He is already calling on “wingers to get with the program” and has indicated that the states are opposed.

The Opposition is taking the right approach in waiting before it takes a position on the plan; it thereby avoids becoming a target. In the meantime it can point to contradictions in the Government’s explanations.

Secondly, there is the funding. The robbing Peter to pay Paul approach (using the GST to make up the gap in funding) may not have the appeal it currently holds over the longer term. The first approach to the funding issue should be to reduce the cost of health to the states. The Productivity Commission has estimated that transaction costs (sometimes known as agency costs) are twenty percent too high simply because of the duplication and waste. It is likely that they can be further reduced. This would relieve the pressure on the state budgets without the need to raid the GST and other taxes.

Moreover increases in funds are likely to lead to gaming of the system. This has already been seen on a small scale with the elective surgery waiting lists. The availability of more funds has meant that more patients have been referred for elective surgery paradoxically making the lists longer, when the whole objective was to make them shorter. In a situation where hospitals are to be rewarded on an activity (case mix) basis for not only their operating but also their sunk costs, then there will be a temptation to increase those activities. Examples of this abound in other jurisdictions. For example, there are more people signed up for the Welsh health care system than there are people in Wales.

The funding model may also introduce rigidities into the system that will preclude innovation and structural reform that could lead to greater efficiencies in treatment.

Lastly the new system may disadvantage rural and regional hospitals and lead to the closure because they are not financially sustainable. The Health Minister has said the payments will be on a sliding scale to take into account the regional differences. This will require judgements by the independent funding authorities which will put pressure on that authority to get it right. If the amount paid to these hospitals is insufficient to cover wildly varying cost structures then they will either have to close or they will have to be subsidized by state governments, which means higher rather than lower costs to disadvantaged jurisdictions. On the other hand a state such as Victoria is unlikely to enjoy its GST money being reallocated to a state with a less efficient health system because of “regional differences”.

In the end it is the punter that will make the life or death judgement on the system. Rudd would do well to bear in mind the experience in the UK where the funding was doubled but the health outcomes got worse and citizen reaction was more negative than before.