Health insurers should be allowed to cover more health services, including GP visits, under a more privatised Australian health system, an independent report says.

Victoria University’s Australian Health Policy Collaboration is calling for one of the greatest overhauls of Australia’s health system since Medicare was introduced to offer universal access to healthcare in 1984.

In a report released on Monday, the group said a national system of mandatory insurance with regulated competition would motivate health services to limit costs.

At the moment, health insurers are not allowed to cover primary care services such as GP visits, radiology and pathology, or outpatient visits to specialist doctors such as endocrinologists or orthopaedic surgeons.

This means healthcare, particularly for people with chronic disease, is fragmented with many different providers and funders, including federal and state governments and health insurers that try to shift costs onto each other. The result is that no one carer or service provider takes responsibility for a patient with incentives to keep them well or to get them better efficiently when they are sick.

Director of the collaboration Rosemary Calder said one of the biggest problems in Australia’s health system was a focus on treatment rather than prevention. She said preventative healthcare had become an optional extra and that being chronically ill was now seen as acceptable.

“Without an aggressive focus on reducing preventable illness and improving chronic disease management, governments’ fears of increasing health costs will be realised,” she said.

After researching different methods for controlling health expenditure, and particularly for rising chronic disease across the world, the group concluded that all Australians should have some form of insurance, whether it be public or private.

Ms Calder said at the moment Medicare is not insurance, but rather a “paying agency” for services.

Under the proposed system, there would be a basic basket of services for all that is designed to better prevent and manage chronic disease. In addition, private insurers could charge premiums for additional services such as personal training or more comprehensive dietary advice in primary care. For hospital care, the private insurers can also still offer choice of doctor and private hospital accommodation.

This would enable a longer-term relationship between a person and their healthcare provider in a “medical home”, so all of their conditions are dealt with in a co-ordinated way.

“Individuals could choose from effectively a competitive market that is required to provide that basic basket of services to all,” said Ms Calder, who once worked for former Victorian health minister David Davis.

While some health policy experts say expanding the role of private health insurers will inflate healthcare costs, Ms Calder said the proposed system would save money because poor access to care at the moment is “extremely expensive”. For example, she said people with unmanaged diabetes could develop blindness and amputations, which would be a lot more costly to manage.

“If we invest in that basic basket of services which includes more comprehensive care, better access to multi-disciplinary care, earlier interventions, over time the cost savings will be significant,” she said.