The `health Insurance' Furphy That The Public Can't Afford
Sydney Morning Herald
Monday March 11, 2002
Billions spent subsidising private health insurance would be far better directed to reaffirming Medicare, writes Stephen Leeder.
RISING premiums have again shone a spotlight on private health insurance. The proposed increase is less than the 12 per cent rise in costs of health care, both public and private, over the period since the last increase. It is only unexpected to those who believed that rising membership rates would stabilise or even reduce premiums. But there is no cap or control over private health care costs to justify such a claim. Consumer whim is unchecked. It is a small miracle that the premium increase is not higher.
A central ambiguity resides at the heart of the health insurance debate and it is this: Australia has a universal public health insurance system, Medicare, underpinning the majority of health care. Yet $2.4 billion of public money is now spent subsidising private health insurance. This ambiguity expands when private health insurance is commended to the electorate, who demand Medicare's continuation, as taking ``pressure off the public system".
If that were the intention, the $2.4 billion would have been used to better effect by direct investment in the public system. It is as though the Federal Government owned Qantas and now agreed to pay for one-third of all tickets purchased on Virgin.
But that analogy falls down in that the publicly funded system, which covers the bulk of the ``passengers", is also the ``no frills" system, catering for the vast proportion of emergency care and chronic illness services.
The private system predominantly manages elective and day-only surgery, with additional business class comforts.
Fair enough, too: if people wish to pay for frills, fine, but should other taxpayers pay one-third of those costs?
The ambiguity has grown because of confusion around the nature of Medicare. However much some may wish to rewrite its original purpose to be that of a safety net, Medicare was introduced to be universal. The idea that, unless young people ``run for [private] cover", they will have no health insurance in the future is true only if Medicare is not there or is turned into a charity system for the indigent. If that is not the intention, the advertising for lifetime cover was disingenuous.
Fortunately, for the sake of equity, there is no convincing evidence that care in the private system is superior to public system care in health outcome or financial efficiency. Heart patients, who get more procedures in the private hospitals, have no better outcomes.
Comparisons of the administrative costs of public and private health insurance administration reveal a three- or fourfold higher cost than for Medicare in the smaller multiple private health insurance companies.
The administration cost of private health insurance is now more than $700 million per annum. The lie that somehow private care is efficient and public care wasteful is another furphy.
The government subsidy for private health insurance has had a paradoxical consequence. The portion of total health costs ($54 billion in 1999-2000) paid by government rose from 65.5 per cent in 1997-98 to 67.3 per cent in 1999-2000. If pressure has been taken off anything as a result of the private health insurance supplement, it is the private contribution to health care.
The decision to subsidise all private health insurance may have other negative effects. Three stand out as deserving special vigilance.
First, in negotiating the next round of bilateral five-year Health Care Agreements between the Commonwealth and each state and territory, it is plausible that the Commonwealth will seek to recover the billions it pays for private health insurance by decreasing the support it offers for public hospitals. It is essential to establish whether there has been effective service substitution if the grants to the states are to be reduced.
Increased private hospital activity for conditions that would not otherwise fall to the public sector to treat is no reason to reduce support for public hospitals. Other indicators, such as numbers of patients treated (they could be treated for anything) or insurance rates are inadequate markers.
Second, there is a problem because Medicare does not cover allied health services (physiotherapy, speech therapy) and dentistry in the community. These services are met only by private insurance or out-of-pocket payment and are not equitably available. This creates an inequitable and artificial niche for private insurance.
Currently, by subsidising private health insurance, which covers dental services to some extent, the Government provides a 30 per cent rebate for dental care only to private health insurance holders.
As John Spencer, Professor of Social and Preventative Dentistry at Adelaide University, has shown, the subsidy for public dental care for adults is about $180 million while the private dental insurance rebate is about $330 million.
Third, the popularity of the private health insurance subsidies may freeze them in their current form. If private health insurance subsidies are to be maintained, they could be directed with better effect and preferentially to those who at present need private health insurance most but can afford it least. While we may aspire to expand Medicare's coverage, current realities mean that older people in need of allied health professional care in the community may wish to maintain private health insurance. On equity grounds, the subsidy provided to them should be larger than that given to younger, hale and wealthy members. Subsidisd ``lifetime rating" is a convoluted way to achieve this transfer.
The private health insurance subsidy, along with health financing arrangements in general, as recommended by the Productivity Commission, deserves seriously to be reviewed.
This country is affluent enough, and once had sufficient social goodwill, to introduce Medicare. It is time to reaffirm that commitment.
© 2002 Sydney Morning Herald
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