a $5 note on a blue background, with blue and white capsules dotted around
Image: Archi Banal

OPINIONPoliticsMay 24, 2023

Reinstating prescription fees, but with some people exempt, would be a mess

a $5 note on a blue background, with blue and white capsules dotted around
Image: Archi Banal

National’s plan to give free prescriptions to only the neediest groups might sound good on paper, but the truth is that universal policies are simpler and cheaper to administer, prevent stigmatisation and enable wider uptake, argues Clint Smith.

Medical professionals, disability and health advocates and poverty groups up and down the country have welcomed the budget’s removal of the $5 prescription charge. The opposition, not so much.

It was National that increased the charge from $3 to $5 a decade ago and they’re not keen on its universal removal now. At first they said they would ditch the policy entirely. Now, they say they’re open to making some exemptions, such as older people and people on low incomes (contrary to popular belief, the Community Services Card does not remove the prescription charge).

So, that raises questions: if National wins the election and reimposes the charge, who would have to pay it? And how would that affect the government’s books?

Ideally, National would just tell us in their alternative budget. But they don’t seem keen on releasing that for some reason. Instead, we can make the same kind of calculations they would, using official data. I did exactly these costings for three terms of opposition. And if I can manage it, National’s team certainly can.

When you’re designing a policy like this, you have to think about what demographics you want in and out, how much the policy affects them, and the cost of administration if you make the policy too complex.

Christopher Luxon during the budget day debate in parliament (Photo: Hagen Hopkins/Getty Images)

Let’s start with age. Would new prime minister Christopher Luxon really stand up and say “I’m putting a prescription tax on the elderly and kids?” No. That’s the 40% of the population aged 0-18 and 65+ excluded, leaving 3.1 million New Zealanders.

People on low incomes get an exemption too. Twenty percent of the 18+ population has the Community Services Card. Excluding those over 65, that’s about 600,000. We’ve already excluded over half the population.

Now what about people with disabilities, chronic health conditions, cancer, and pregnant people. National wouldn’t put a prescription tax on them, surely. OK. So far, we’ve excluded over four million people.

Lastly, who’s going to be the prime minister who puts a tax back on oral contraceptives?

Whoops. We’ve now excluded about 80% of the population from the charge. And who is left? Young or middle age, healthy, well-off, mainly male. In other words, exactly the people who are least likely to go to the doctor or have prescriptions (I’m in this group – I haven’t gone to the GP or got a prescription since 2018).

The budget is costed on removing the $5 charge from 31 million prescription items a year, or six per person. Let’s generously say that the remaining 1.1 million people we want to charge get an average of three prescription items a year. That raises just $16m a year.

Nothing to be sneezed at, you might say. That’s enough to restore tax breaks for a couple thousand landlords.

But, hang on, how are we going to sort out who pays the charge and who gets an exemption? We’re going to need to go through more than five million people and decide whether to give them an exemption, noted in their digital health records, based on those more than half a dozen criteria, which change over time. We’re going to have to link their MSD data to their health data. We’re going to have to allow or create forms of ID for people who don’t use digital health records. 

And that’s without counting the additional administration we’re putting on to the pharmacies, doctors and sick people trying to get their medicine.

Can we do that for less than $3 per person per year? Because, if we can’t, the administration costs more than the savings. 

At first blush, when a guy who owns seven houses and takes a limo to cross the road says “why should I get $5 off my prescriptions”, it seems logical (although I note he hasn’t taken the same logic to the rest of the subsidisation of medicine, or superannuation, or tax cuts). But the truth is universal policies are simpler and cheaper to administer. They prevent stigmatisation and shame for those who get the policy. They enable wider uptake and reduce the prospect of the policy being chipped away at in the future.

And, if the worry is the rich will now have a few more bucks, then the simple solution is to use the tax system to address that.

Every time we create a new policy with a set of exemptions because we don’t want some group to benefit from it, we make the state that much more complicated, that much more difficult to interact with, and that much more costly to administer. You would think a party that goes on and on about the number of public servants would embrace the chance to simplify things, rather than create more bureaucracy.

There was a guy, once, whose guiding philosophy was “from each according to his ability, to each according to his needs”. We don’t need to go full commie, though, to acknowledge that simple universal policies, funded by simple tax, are better than all this mucking around.

And, let’s not forget the big picture here. While we’re tinkering over who does and doesn’t pay $5, the evidence shows free prescriptions mean fewer hospital stays, saving $18 per dollar spent on removing the charge.

So, maybe, the best answer to the question “who should get prescription medicine for free?” is a simple one: those who need it.

Clint Smith was a policy and communications adviser to the Labour and Green parties, working on three alternative budgets, and the 2018 budget. He now runs Victor Strategy and Communications.

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