Distributional Impacts of the Australian Pharmaceutical Benefit Scheme's Safety Net

About 80% of prescriptions dispensed in Australia are subsidised under the Pharmaceutical Benefits Scheme (PBS). The PBS Safety Net (SN) arrangements 'protect' individuals and families from large overall expenses incurred through high use of PBS medicines within a calendar year. Its operation is only means tested in the sense that two thresholds exist - a lower threshold for concessional patients and a higher threshold for general patients. For concessional patients, the SN threshold has traditionally been set at 52 PBS scripts per year. Once these patients reach the SN, they are no longer required to pay the patient copayment for PBS subsidised items for the remainder of the year. For general patients reaching the SN, the copayment rate is reduced to the lower concessional rate. In his 2005 budget speech, the Federal Treasurer, the Hon. Peter Costello, announced that the SN thresholds would increase for both concessional and general patients from 1 January 2006. Within this policy context, this paper investigates using the microsimulation model 'MediSim' which Australian families are likely to be high users of PBS medicines and therefore benefit from the PBS safety net arrangements. The proportion of PBS scripts used by concessional and general patients funded under the SN arrangements is examined and the distribution of scripts and costs across different family types investigated. The results show that government outlays on the PBS are targeted to low income families, those with concessional status, and elderly couple or elderly single person families with no dependent children. The SN plays an important function in capping the costs of medicines for many Australian families. Of those concessional families using PBS medicines, one in four are likely to reach the SN threshold while one in ten families without concessional entitlements are likely to. The proportion of families expected to reach the SN does varies by income for concessional families, and family type-lifecycle group for both concessional and general populations, indicating the presence of some redistributive effects.