Posted: February 22, 2005

The great private health heist

Health headlines in recent times highlight a disturbing counterpoint in Australian health policy.

Last week, Australia’s largest health insurer (the government-owned Medibank Private) announced that it will reduce the number of private hospitals with which it provides no-gap services by 10 per cent. This will substantially increase the out-of-pocket fees for a number of privately insured patients. It is further evidence that subsidising private health insurance is pernicious public policy.

Since 1998, the Commonwealth Government has introduced a series of measures to increase private health insurance coverage. These include the introduction of the 30 per cent private health insurance rebate, Lifetime health cover, and a Medicare levy surcharge for high income earners without private insurance. The Treasurer argued that these measures would create downward pressure on premiums and take the pressure off public hospitals but has this been the case?

In the last three years, private health insurance premiums have increased, on average, by 6.9 per cent (2002), 7.4 per cent (2003) and 8.0 per cent (2004). This is way above the CPI benchmark. According to Samantha Maiden writing in The Australian on February 16, the aforementioned Medibank Private raised premiums by 9 per cent in 2004 before recording a profit of almost $45 million - a four-fold increase on the previous 12 months.

The total cost of the 30 per cent private health insurance rebate has also blown out. The policy was originally estimated to cost $1.3 billion in its first year but the revised cost for 2000 was $2.1 billion. In 2004-05 the budgeted estimate for the rebate is $2.5 billion.

In addition, research published in the Australian Health Review (February 2005) by Professor Stephen Duckett of La Trobe University argues that the private health insurance rebate is contributing to longer waiting times at public hospitals – a problem the rebate was meant to fix - and that this finding is consistent with international data. In earlier research, Duckett and Jackson concluded that subsidising private health insurance cannot be justified on efficiency grounds as, taking casemix into account, public hospitals are more efficient than private hospitals. The objective of "taking pressure off public hospitals" could be more efficiently achieved by direct funding of public hospitals rather than through subsidies for private health insurance.

The public health system could certainly use an additional $2.5 billion per annum and the redirection of the subsidy from the private to the public sector is clearly justified on efficiency and equity grounds. Why are more and more people paying higher and higher private health insurance premiums yet continuing to use public hospitals and waiting longer to do so? This is appalling public policy, particularly at a time when the Commonwealth argues it can’t afford a public dental health scheme (the Commonwealth Scheme cost $100 million per annum when it was axed in 1997). Meanwhile the poor and the elderly eat baby food as they wait up to 8 years for an appointment in state public dental systems. ‘Don’t worry’, says Health Minister Tony Abbott, ‘your private insurance will cover it’! It’s a pity those most in need can’t afford the outrageous premiums.

Blog entry posted by Sally