Reports today that Treasury has repeatedly told the Rudd Government that the Private Health Insurance (PHI) rebate is inefficient is hardly surprising news. Many health commentators have been saying this since its introduction.

Indeed the then Labor opposition leader Kim Beazley claimed it was a “monumental waste of money”.

How can it be efficient to channel taxes through a private insurance company which spends 12 cents in every dollar on administrative costs, compared with spending it through public insurance, Medicare, where administrative costs are 3 cents in every dollar?

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The evidence from Australia is that private hospital care is up to twice as expensive as public hospital care. Taxes support that. The evidence from North America is that for profit private hospitals generally have higher mortality rates than public hospitals when the figures are adjusted for other causes. No comparable data is available in Australia.

The conclusions should be that we may have a private hospital industry which is less efficient when we measure cost and health outcomes rather than numbers of procedures, and that we fund that private hospital industry through an inefficient private health insurance industry. Surely that deserves investigation by the National Health and Hospitals Reform Commission (NHHRC).

It’s very obvious to doctors, patients and relatives across the country that the private/public divide is inequitable.

Public patients wait years on crutches or in wheelchairs for their hip replacements while private patients are treated within weeks. Public patients stagger around their homes for months half blind with cataracts, waiting in the queue while their richer neighbour has the procedure within weeks.

The PHI rebate encourages queue jumping of public waiting lists by those who, with taxpayer support, can afford PHI. When we see a patient who needs admission to hospital we have to adjust our treatment according to their insurance status.

For public patients we need to ask, “Will they need home help for the next year?” or “What narcotic pain killers are best for them in the long term?” For private patients the question is “How soon would you like it done?”

The rebate has also funded the growth of the private sector, taking doctors out of the short-staffed public sector. While many factors contribute to the documented drift of doctors from public to private hospital practice, if the private sector was not growing, those doctors would still be in the under-resourced public sector, trying to keep it functioning optimally. Instead, there is an easy alternative, funded by taxpayers.

The Government’s NHHRC claims principles of efficiency and equity. They then ignore the inefficiencies of the PHI rebate and the inequities of access to hospitals between those with and without such insurance.

It’s time the Prime Minister advised the Commission to look to the future and give us his promised “root and branch analysis” of the health system and “evidence based policy”. This must include the PHI rebate in the current review of the health system. Without such inclusion the review is fundamentally flawed.

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Peter Fray
Peter Fray
Editor-in-chief
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