Australia's public health insurance scheme, Medicare, commenced in 1984, provides universal coverage for citizens, permanent residents, and visitors from countries which have reciprocal arrangements with Australia. The aim of the national health care funding system is to give universal access to health care while allowing choice for individuals through a substantial private sector involvement in delivery and financing. Australian Medicare is financed largely from general taxation revenue, which includes a Medicare levy based on a person's taxable income.

Under Australia's federal system of government, responsibility for funding and delivery of health services is shared between the commonwealth (federal) and the eight state and territory Governments.

• The Commonwealth Government has a national leadership role in health policymaking and is responsible for key public health, health protection and quarantine services. Its role in service delivery is, however, limited and it operates primarily as a funder/insurer of medical, pharmaceutical and aged-care services. It also plays an important role in regulating and subsidizing private health insurance; as well as contributing funds to support state and territory governments' provision of health services.
• State and territory governments own and operate public hospitals as well as delivering a variety of mental health, dental, health promotion, school health and community health programs.

The Commonwealth Government's Medicare Benefits Schedule lists a wide range of consultations, procedures, diagnostic examinations and tests, and the schedule fee applicable for each of these items. Proposed listings of new medical procedures and new technologies on the schedule are assessed by the Medical Services Advisory Committee on the basis of evidence of safety, cost-effectiveness and of real benefit to patients. Although schedule fees are used to calculate Medicare benefits entitlements, doctors can charge whatever fee they wish, provided the service is not "bulk-billed". The benefit received by a patient ranges from 75 percent to 100 percent of the Medicare Benefits Schedule fee depending on factors such as where and by whom the service was delivered. Any difference between the benefit received and the fee charged must be met by the patient as an out-of-pocket (or "gap" payment). Where a patient or family receives many services in a year, there is a safety net, which reduces their out of pocket cost. When one person's or a family's "gap" payments exceed a certain threshold amount in a calendar year, all further benefits in that year are paid at 80 per cent of the actual fee charged. Some kinds of services are not covered by Medicare benefits, for example cosmetic services, services for which state or territory governments have been provided with commonwealth funding, and services covered by workers' compensation insurance.

Doctors can choose to charge a fee which is equal to the patient's benefit entitlement under Medicare. In such cases the patient faces no out-of-pocket costs for the service in question and their benefit is claimed directly by the doctor. Services delivered in this manner, with no patient "gap" payment, are said to be bulk-billed. Typically, more than 70 percent of all Medicare-eligible services are bulk-billed although the actual proportion, being a reflection of individual doctors' fees relative to benefits payable, varies significantly between specialties and localities.

Until recently Medicare benefits were only payable in respect of serviced delivered by medical practitioners but they are now also available in defined circumstances to patients who use practice-based nursing, psychology, dental and other allied health services. Generally such services must be delivered as part of a planned program of care, and specifically requested by the patient's physician, before a benefit can be paid.

Medicines and pharmaceuticals are directly subsidized by the Commonwealth Pharmaceutical Benefits Scheme (PBS). The PBS provides subsidies for about 600 kinds of drugs in nearly 1,500 formulations. Additional drugs are added when assessed as meeting safety, quality, effectiveness, and cost-effectiveness criteria. Most people are required to make a co-payment for subsidized pharmaceuticals.

A mix of public and private sector providers deliver health services. The majority of doctors are self-employed, and a small proportion of doctors are salaried employees of state or territory governments. Salaried specialist doctors in public hospitals often have rights to treat some patients in these hospitals as private patients, charging fees to those patients and usually contributing some of their fee income to the hospital. Other doctors may contract with public hospitals to provide medical services.

Australia actively encourages private insurance to supplement public coverage. Private health insurance can cover private and public hospital charges (public hospitals charge only patients who elect to be private patients in order to be treated by the doctors of their choice), and a portion of medical fees for private patients' inpatient services. Private insurance can also cover allied health/paramedical services (such as physiotherapists' and podiatrists' services) and some aids and appliances (such as eye glasses). Private insurance covers 43.1% of the population. Expenditure by private health insurance funds accounts for 7.1 percent of total health expenditure. The Australian Government encourages Australians to take out private health insurance through a 30–40 percent rebate on premiums, depending on age. The Government has also introduced the Lifetime Health Cover initiative, designed to encourage people to take out private hospital coverage early in life and maintain their coverage. People who join a health fund before they turn 31 years old and who stay in private health insurance will pay a lower premium throughout their lives relative to people who delay joining, regardless of their health status. People over the age of 30 will generally face a 2 percent increase in premiums over the base rate for every year they delay joining. Private health insurance in Australia is community-rated. The Government has recently announced a package of changes to private health insurance regulations, including expansion of hospital cover to outpatient and out-of-hospital services, as well as chronic care management for conditions such as diabetes and asthma, and disease prevention measures. There will also be some important consumer information initiatives, e.g., insurers will be required to provide standard product information to help people compare policies and to understand their entitlements under their policies.

Australians enjoy generally good health status. Life expectancy at birth in 2002-04 was 83 years for females and 78 years for males, both of which are among the highest in the world (the equivalent figures for the USA were 80 and 75 years respectively). Australia's infant mortality rate in 2004 was 4.7 per 1,000 live births, placing it in the middle range among developed countries. In the National Health Survey carried out in 2004–05, 84 per cent of respondents aged 15 years or over assessed their health as good, very good or excellent.

The averages cited above do, however, conceal some significant variations in health status especially as they affect indigenous Australians (Aboriginal and Torres Strait Islands people). For the period 1996–2001 life expectancy for indigenous Australians was estimated to be 59 for males and 65 for females; while the indigenous infant mortality rate was estimated to be about three times that of the non-indigenous population. Such differences can, in part, be attributed to the fact that indigenous Australians are disadvantaged across a range of socioeconomic factors that affect health: they typically have lower incomes, higher rates of unemployment, poorer education achievements and lower rates of home ownership than other Australians. However, such disparities in socioeconomic status do not explain all the variations in health status between indigenous and non-indigenous Australians with the former also having higher levels of smoking and alcohol misuse, and other risk factors such as poor housing and exposure to violence.

Australia, in common with the U.S. and other similar developed countries, faces health policy challenges in relation to demographic change, affordability, safety and quality in health care, adoption of new treatment technologies, workforce issues and meeting the needs of special populations. In addition, Australia is currently engaged in policy debate on issues such as the balance between public and private funding and provision of health care; ensuring access to affordable primary care services; better integration of primary and secondary care; prevention and early intervention; reducing disparities in health status between indigenous and non-indigenous populations; and meeting the needs of rural and remote communities.