The debate over private health insurance has been stuck in a Kabuki-like ritual for the last few years.
PHI premiums inevitably rise much faster than inflation and wages, more young people inevitably abandon PHI or drop to a lower level of cover, PHI companies inevitably lament the rapidly rising costs they have to bear in health, and the government inevitably talks about how it has got premium increases down to their lowest level in x years, despite them still growing at a multiple of CPI. Rinse, repeat.
The Grattan Institute’s Stephen Duckett, the country’s best health economist, has valiantly tried to break the debate out of this rut with a new working paper that tries to return to first principles about PHI and why we support it with billions of taxpayer dollars and strict regulation.
The paper, written with Kristina Nemet, argues that we need to determine what the purpose of PHI is. If it’s to complement the public health system, there’s little rationale for supporting it — if people want health insurance, they should be free to have it, but it’s not a worthwhile use of taxpayer funding to support it. But if it’s a substitute for parts of the public system:
The substitution-based argument for a subsidy is stronger if: it results in a cost saving for government; or private provision is economically more efficient than services that are provided universally through the public system.
The paper argues that those conditions don’t seem to apply. The evidence that it delivers cost savings for the government is mixed at best, with different studies suggesting both private and public hospitals were less efficient than the other, or about the same. But worse, it encourages over-servicing.
“It is unlikely that PHI reduces total spending on health,” the paper concludes. “It pays for some services that would not meet thresholds of ‘clinical need’ in the public system.” Moreover, “[s]ome of the additional activity funded by PHI may not improve patient outcomes. And in some cases it appears that private health care is adding cost but not improving outcomes.”
And even if there was a case for subsidising private health care, PHI subsidies may not be the best way to deliver it — it might be more efficient simply to give money direct to private hospitals.
Public policy under successive governments and incremental tinkering has confused the purpose of PHI subsidies to an extent that only some sort of root-and-branch review is going to help. The last serious intervention on PHI was when the Gillard government changed access to PHI subsidies to constrain their relentless growth, which had seen them reach nearly $6 billion a year in 2012. The Coalition vaguely promised at the time that it would remove the shackles, but has never got around to it.
While the purpose and efficiency of spending on private health insurance is an issue for governments, it’s also one for younger people, who are abandoning PHI, and are right to do so. PHI for younger people isn’t merely a scam, it’s another front in our society’s widespread economic war on younger people.
Whether it’s our refusal to address climate change, housing affordability, the degradation of our higher education system and the imposition of student debt or the franking credit rort, our political system prioritises the economic interests of older generations, like my own and Baby Boomers, and punishes young people.
PHI is a direct transfer of wealth from young, healthy people who rarely claim benefits, to older people who are heavy users of the health system. And while PHI is voluntary (though people in their 30s face punitive premiums if they don’t join a health fund by the time they are 30), young taxpayers who sensibly choose not be a victim of the rort still have to contribute to it via their taxes.
Just this week there was yet further evidence of the way the political system is skewed to reflexively serve the interests of older voters. Interest rate cuts designed to stimulate employment and lift wages for Australian workers have unleashed a torrent of complaints from retirees about the impact on their savings and demands that the government do something.
Within two months of an election partly fought and won on preserving the franking credits rort, the government again responded quickly and adjusted deeming rates to boost pensions for savings-rich retirees.
If young people continue to abandon PHI, expect similar pressure on the government to provide yet more taxpayer support for a system ever more skewed toward Gen X and Baby Boomer policyholders and our increasing health needs. And don’t expect any attempt to establish a coherent policy framework for it — beyond generational interest.
What should be done about private health insurance in Australia? Write to boss@crikey.com.au and let us know your thoughts.
More taxpayer subsidies flooding into the coffers of private companies and more exclusions into any payments once you get sick.
Once upon-a-time public hospitals were free – the only good thing that Joh did in Queensland was have the lottery fund them. Another regime sold the hospital supporting lottery to a private company and …. *poof* it was gone.
Australia is cursed with carpetbaggers and the young and poor, usually both, are considered “leaners”.
Public hospitals still are free.
Australia has one of the world’s best health and hospital systems anywhere in the world, ask any millionaire they’ll tell ya. The trap – treating health care as a market. The false pathway – following the US model. The answer – spend more money on people, gain greater efficiencies over facilities and disposables.
It is refreshing to see some new thinking about health care funding. But I suspect that it will suffer the same fate as the Henry Tax review. In my view, much of the problem originates from the puerile idea that heath care costs ought to be subject to ‘market forces’. The problem with that assertion is manifold. Those that hold almost religious belief in markets also believe the neo-classical economic fantasies about economic rationality. A cursory consideration of the choices individuals make in respect of health would reveal that there is very little rationality when it comes to one’s health, particularly when one is ill and less so if the illness is serious.
That obvious absence of mythical economic rationality allow surgeons and other specialists to charge what they bloody well like. That and obvious over-servicing in the private health sector is the source of the great cost to public funding of health. That and the fact that the PBS seems unable to do any reasonable deal with big pharma. Just compare the cost to the PBS of medicine here and the cost paid by the NZ government for exactly the same medicine.
But there will be no change in the next 3 years. This muppet government simply does not have the wit or the vision to do anything about a policy area that is complicated way beyond its policy talents. That and the neo-liberal market delusions.
This ideologically poisoned government should just cut its losses and abandon all subsidies into private health funds as they are private business and should stand or fall by their performence, after all they refused to give the car Industry a measly $200 million to keep manufacturing in Australia but are spending billions propping up private health funds, the savings could then be spent on building up our medicare system to once again world standards, there should only be one private health fund for the wealthy instead of the dozens now competing against each other for an ever shrinking customer base.
Thank you Mr Keane for this article.
I remember reading a Guardian article in 2017 about this issue.
”Medicare was created by the Whitlam government because of the abject failure of private health insurance or, as it was then called, voluntary health insurance.
As a result of the growth of private health insurance since 1999 under the Howard government, Medicare is now seriously threatened. Government subsidies for private health insurance will take us back to the pre-Whitlam and pre-Medicare era.”
The Australian government today knows that private health insurance is in real trouble. But for ideological reasons it wants to prop up what John Howard foisted on us in 1999. That is the reason for the current review. It is like putting lipstick on a pig.
https://www.theguardian.com/australia-news/2017/apr/20/propping-up-private-health-insurance-is-like-putting-lipstick-on-a-pig#comment-96904892
It is inefficient and unfair.
It is eroding Medicare.
Yet inefficient and unfair PHI is underwritten in Australia through an enormous government subsidy.
It is subsidised by Australian taxpayers at a cost of $11bn a year.
The motor industry never got a subsidy like this.