Why keeping your essential medicine cheap is a win for health and inflation

Australians continue to feel the cumulative impact of higher prices across much of their everyday spending. For a government considering cost-of-living measures that provide genuine relief without fuelling further inflation, there are few policies as effective as making essential medicines more affordable.

Following successive reductions to the maximum patient co-payment in 2023 and 2026, Australians have saved more than $1.4 billion on PBS medicines.

In its first term, the Albanese government made history, reducing the cost of medicines for the first time in the 75-year history of the PBS - cutting the general co-payment from $42.50 to $30.

On January 1 this year, to deliver on Labor's election commitment, the Prime Minister acted again to make the general co-pay just $25. If action hadn't been taken in 2023 and 2026, the maximum price of medicines would have been $51.10.

Prescription medicines are now at their most affordable level since 2004 - a time when Ian Thorpe won five gold medals at the Athens Olympics, the Nokia flip phone was a must-have and the Holden Commodore was Australia's top-selling car.

This year alone, Australians have saved more than $130 million after the reduction of the general co-payment to $25 on January 1. All Australians need it to remain frozen.

The success of this policy highlights an important economic principle: not all cost-of-living measures are created equal.

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Some forms of assistance increase disposable income in ways that can stimulate aggregate demand and contribute to inflationary pressures. Others directly reduce the price of essential goods and services. Cheaper medicines fall firmly in the latter category.

Freezing the PBS co-payment at $25 until 2030 would deliver ongoing cost-of-living relief while helping to contain future price pressures. Unlike many spending measures, it works by preventing an increase in the cost of a necessity that millions of Australians rely upon every day.

Economic analysis by the Pharmacy Guild of Australia indicates that locking in 2026 medicine prices beyond 2027 would have a direct disinflationary effect, while any secondary demand impacts would be negligible.

There is another economic benefit that receives little attention.

When medicine prices are indexed to inflation, higher co-payments can themselves contribute to future inflation measurements. In effect, rising inflation helps drive higher medicine prices, which can then feed back into future inflation calculations. Freezing the co-payment breaks that cycle and removes an unnecessary pressure point from household budgets.

Yet beyond the economics lies a simple reality.

Medicines are not discretionary products or usual items of commerce.

Australians can postpone a holiday or buying a new television. They cannot postpone managing diabetes, controlling high blood pressure or treating asthma.

Community pharmacists see every day the tough choices their patients make between rent, groceries and medicine. We see working parents skipping or rationing prescriptions for themselves, so their children don't go without.

We see Australians living with chronic conditions who depend on multiple prescriptions each month to stay healthy, stay working and often, so they can continue to be the carer for others.

For these Australians, certainty matters. Now is the time to deliver such certainty.

Concession card holders already have certainty. Their PBS co-payment has been frozen at $7.70 until 2030. Australians paying the general co-payment do not enjoy the same protection.

From January 2027, unless action is taken, their medicine costs will begin increasing again.

Working families deserve certainty. Self-funded retirees deserve certainty. Australians living with chronic health conditions deserve certainty.

The cost of essential medicines should be predictable no matter where they live or work.

When medicines are affordable, people are more likely to fill their prescriptions and take them as directed. Better adherence leads to better health outcomes. It reduces complications from chronic disease, prevents avoidable hospitalisations and helps relieve pressure on primary care and emergency departments that are already operating under significant strain.

Overall, cheaper medicines are a big benefit to our health system which we all recognise is under pressure.

The PBS is one of Australia's most successful public policy achievements because it is founded on a simple idea: access to essential medicines should never depend on an individual's capacity to pay or their location.

That principle remains as relevant today as ever.

Government expenditure on the PBS amounts to just 0.7 per cent of GDP. That percentage is the same as it was two decades ago, and it is projected to remain at or below that level for at least the next four years. The PBS, unlike other areas of health and community services, is sustainable.

The solid policy architecture already exists. Public support already exists. The benefits are already being delivered but are at risk without a continued freeze at $25.

More than $1.4 billion has already been returned to Australians through cheaper PBS medicines. Families have benefited. Patients have benefited. The broader healthcare system has benefited.

Now is not the time to reverse course.

At a time when inflation continues to dominate economic debate, governments should favour measures that ease household cost pressures, strengthen health outcomes and support price stability. A freeze on the $25 PBS co-payment until 2030 achieves all three.

The Labor government has already taken an important first step by continuing to reduce the cost of PBS prescriptions.

The next step is to keep the freeze.