It’s no surprise that private health insurance premiums continue to rise. What is surprising is that more questions aren’t being asked about the merits of such extravagant public subsidy of the PHI industry.

As has been said time and time again at Croakey, by a variety of commentators, this is an expensive, ineffective and inequitable way to fund health care with all sorts of adverse and unintended consequences.

Ian McAuley, who lectures in public sector finance at the University of Canberra and is a Centre for Policy Development Fellow, says the latest PHI premium hikes raise some tough questions for Roxon, Rudd, et al.  He writes:

“Nicola Roxon has announced that private health insurance premiums will rise by 5.78 percent from April this year.  She also said that this year’s increase is lower than last year’s (6.02 percent), and is lower than the average in the five years before Labor came to office.

The Minister has not pointed out that the year just past was one of very low general inflation. When we look at the amount by which approved private health insurance premiums have risen in excess of inflation – that is, the real price rise – this has been the highest rise for five years.
So long as the Government supports private health insurance, such premium rises are inevitable. Just this week the influential journal The Economist warned that private insurance is an expensive way to fund health care – confirming what independent Australian economists have been pointing out ever since the previous Government re-introduced subsidies for private insurance in 1997.

The Government is in a difficult situation, however, but it’s partly of its own making. In promising to maintain support for private insurance when it came to office, it allowed political caution to triumph over sound economic policy.

It has made no attempt to explain to the public why support for private insurance is poor public policy. Instead it has taken the lazy but expensive option of continuing the Coalition’s misguided policy.

Private health insurance fails on every conceivable criterion of public policy – economic efficiency, bureaucratic costs, and equity. In drawing resources away from public hospitals it is almost certainly worsening public hospital waiting times.

As The Economist points out, with the backing of private insurance “government doctors and nurses may be encouraged to divert time to lucrative private patients”.

But, far from explaining the economic shortcomings of private insurance, the Government has gone in the opposite direction: the Minister’s press release concludes with the self-congratulatory message that hospital cover, at 44.7 percent of the population, is now the highest level in nine years.

Is it possible that the Minister and her advisers don’t understand the economics of health care?”

• Meanwhile, Nick Miller in his blog at The Age has been having a bit of fun at the expense of the PHI industry.

• Update (Feb 26): A strongly worded oped published by Fairfax that concludes: “Health insurance rebates and safety net subsidies to the rich significantly detract from Medicare’s great strength – its universality. If we want to seriously reform healthcare in the interests of all, these measures should be among the first to go.” The oped is by Charles Livingstone, a senior lecturer in the department of health social science at Monash University, and Michael Taylor,  a research fellow at the Australian Institute for Primary Care at La Trobe University.