The Rudd Government is bringing us a North Korean health system. Thanks to the Australian Health Insurance Association’s full page newspaper advertisements we can see the future — those long lines of bored, tired and sick people in cold and miserable waiting rooms.

The reality is that the Government is actually increasing the incentives for high income earners to hold private insurance.

Yes, increasing. Because while the rebates are to go, the penalty for not having private insurance, the Medicare Levy Surcharge, is increasing. For example, under the present arrangements, someone with an income of $150,000 pays a $1500 tax penalty for not holding private insurance; the Government’s proposals increase that penalty to $2250. They will, indeed, lose the 30 percent rebate, but at most that rebate is worth no more than $600 for a single policy.

It’s the surcharge, not the rebate, that gives high income earners a financial incentive to hold private insurance. In any event, people with high incomes, even though they could afford some level of self-insurance, tend to over-insure.

So why the protest?

Perhaps it’s a threat to warn the Government not to meddle with private insurance — even when such meddling is in the industry’s favour.

More likely, it is to raise fear in the community, for research shows that people’s decision to buy insurance is not based on rational decision-making; rather it is based on fear, stoked by visions, no matter how unrealistic, of the consequences of being uninsured. In effect this campaign is an extension of the previous Government’s “Run for Cover” campaign.

Fear is the essential content of these advertisements. Never mind the fact that the incentives are about hospital care, not doctors’ surgeries as implied by the pictures. And, more importantly, never mind the fact that over the ten years private insurance has been so heavily subsidized and its membership has increased, waiting times remain the same problem as they did in 1999.

Private insurance does not reduce waiting lists. All it does is to re-shuffle them. It is only a funding mechanism — a high cost one at that — in a health system with limited resources. It may shift some demand from public to private hospitals, but in doing so it also shifts resources (doctors and nurses in particular) from public to private hospitals. In promoting some to the front of the queue, it pushes others further to the back of the queue — often people with high health care needs.

The Government may be shocked to find that the industry’s response to increased assistance is a petulant and inaccurate advertising campaign.

But they shouldn’t be surprised; parasites are not known for showing gratitude to their hosts.

If this measure is defeated in the Senate the Government has an opportunity to re-think its health financing policy, in particular to devise ways to fund private hospitals without passing that funding through private insurance. There may be some squeals for a while, but all we would lose is another high cost financial intermediary. Another AIG, another Lehman Brothers, but no loss to the real economy

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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