The private health insurance industry argues in a new study (which was uncritically reported by some media outlets) that insurance subsidies for the rich benefit the health system overall by reducing pressure on the public sector.
Clearly, the industry is desperate to stave off moves to means-test the private health insurance (PHI) rebate, flagged for inclusion in next week’s federal budget. The private insurers know that they won’t get much sympathy from the electorate for the loss of taxpayer subsidies for high-income earners, who could easily afford to purchase PHI insurance outright if they found it useful. Therefore, they are heroically trying to convince us that we are all better off if the rich queue jump their way to health care at our expense.
Of course this is a nonsense. The same misguided logic could be used to support the purchase of helicopters for the wealthy in order to reduce congestion on the roads or to subsidise the purchase of waterfront mansions to free up the less attractive housing stock for the rest of us.
The PHI rebate is basically an industry welfare measure that props up the over-regulated, internally conflicted and phenomenally inefficient private health insurance industry at a cost of about $4.5 billion a year to the taxpayer.
Most credible health economists (apart from those being paid by the PHI industry) agree that the rebate scheme is a policy nightmare. Study after study has found that it has virtually no impact on fund membership and that the funding spent on premium subsidies would deliver better health outcomes if used to directly fund health services.
The industry-commissioned study comes to a different conclusion by using a flawed methodology and making several incorrect assumptions.
For example, it conflates private health insurance with private health care and completely ignores the fact that many people choose to fund their own private health care directly. In fact, direct consumer contributions for health care contribute than double that of PHI to the Australian health budget. Yet the Deloitte study ignores the option that people will have to drop their PHI cover and pay directly for their care in the private sector.
Another major flaw with the study is that despite being presented as an economic analysis, it fails to consider any alternative uses for the resources currently going into the rebate. For example, it ignores the fact that the funds saved through means-testing the rebate could be used to reduce demand for public hospital care, thus reducing waiting times for treatment overall.
The reality is that PHI does little to take pressure off the public hospital system. It does nothing to address some of the most serious health inequities in our community, such as the health gap between indigenous and non-indigenous Australians and between those of us in cities and those who live in the bush. Furthermore, it contributes little to efforts to meet some of the most pressing challenges facing our health system — poor access to dental services and mental health care for many in the community and the prevention and ongoing management of chronic disease.
The research also ignores the impact of private-sector demand on Australia’s fixed medical and nursing workforce. One of the major constraints on the public sector is the lack of a sufficient workforce. If demand drops in the private sector, workforce availability will increase thus enabling the public sector to increase its output.
Clearly, the Deloitte study cannot be seen as a serious piece of policy analysis. It does, however, provide an illuminating example of how creative the PHI industry can be when faced with the loss of government largesse on which it has come to depend.
If only the industry could be as innovative and pro-active when tackling some of the major health problems facing our community. This would be a much more effective way of convincing the electorate that it’s worth the $4.5 billion a year it receives from the public purse.
*Jennifer Doggett is a health policy analyst.
I have private health insurance, the minimum I can get to make me exempt from the high income surcharge. Even without the rebate, I’d be better off self insuring and paying my medical expenses as they arise. Even with private health insurance, I don’t feel an overwhelming desire to prefer private to public hospitals if necessary.
Hate to be all Gengis Khan about this but I already pay a swag of money via tax towards the public health system. I think the rebate which encourages me (and others) to move most of my health care costs across to the private health insurance is quite reasonable.
And your argument that, as it doesn’t solve the inefficient use of public funds, it isnt doing its job is a bit of a furphy – that’s not what it is designed to do.
And “if private cover demand for resources drops then more resource becomes available for public” is about as fatuous an argument as I have come across in many a day (I admit this is a gross exaggeration – I come across lots of fatuous arguments every day). Presumably the demand from the private side will just shift across to the public side so there will be no net gain.
Really poor journalism guys…..
Thanx for this informative analysis of what seemed private health industry’s specious special pleading.
The health insurance rebate doesn’t encourage people to move most of their health care costs to the private system because (1) most of the people who insure privately would do so without the rebate, and (2) privately insured patients have their most serious conditions treated by the public system cos only the public system has the capacity to treat most very serious conditions.
It is misleading to put ‘if private cover demand for resources drops then more resource becomes available for public’ in quotes cos Doggett did not write this. What she did write was: ‘If demand drops in the private sector, workforce availability will increase thus enabling the public sector to increase its output’. This correctly refutes the private health industry’s claim that it reduces the pressure on the public system cos the private system shifts resources from the public to the private system.
iwas addressing the fallacy that the private health industry reduces pressure on the public system.
If the Health Funds can convince the public they are value for money, they should survive. I believe they will find this hard to do as they are too use to being propped up by governments.
Mr Moodie
Gosh you are right, I did put quotes around words that weren’t the author’s.
“If demand drops in the private sector, workforce availability will increase thus enabling the public sector to increase its output.”
“if private cover demand for resources drops then more resource becomes available for public’
Although I am hard pressed to see what substantive difference there is between both, I absolutely agree that I should be horsewhipped for misquoting and that my comments should be dismissed.
I also love the way you make your claims 1 and 2 without a scintilla of evidence to support it apart from your bombast!
Not sure about your last line “iwas addressing the fallacy that the private health industry reduces pressure on the public system.” Are you really Dogget in disguise?