Sep 16, 2010

Why Independents should support means testing private health insurance rebate

Consumers should welcome health minister Nicola Roxon's announcement that she will reintroduce legislation to means test the private health insurance (PHI) rebate, writes health policy consultant Jennifer Doggett.

All consumers, with the possible exception of medical specialists and senior health fund executives, should welcome health minister Nicola Roxon's announcement that she will reintroduce legislation to means test the private health insurance (PHI) rebate. As an industry welfare measure, the rebate has undoubtedly been successful. However, as a health funding mechanism, this scheme is a disaster. Study after study has found that it has virtually no impact on fund membership and that the $4.5 billion spent annually on premium subsidies would deliver better health outcomes if used to directly fund health services. The Labor Party knew this when its parliamentarians voted against the introduction of the rebate scheme in 1999. The planned reintroduction of the means testing Bill is a hopeful sign that Labor remembers why the rebate was a bad idea from the start. Given the crucial role the Independents will have in determining the passage of this Bill through the lower house, it is vital that they understand how the rebate scheme short-changes rural communities. Currently, the 30% of Australians living in rural and regional areas contribute to the PHI rebate program via their taxes but do not receive the same level of access to private health care compared with people living in cities. This is due to the lack of private health care services across the majority of rural Australia. In fact, private hospitals are virtually unknown in regional areas, outside of a handful of major centres on the eastern seaboard. The same applies to dentists and allied health professionals, such as physiotherapists and dietitians. Despite the poor oral health status of many rural and remote communities, it is almost impossible to find a privately practising dentist in the bush -- unless, of course, they are in a top-end tourist resort on holiday from their inner-city practice down south. The fact is that rural communities rely almost exclusively on the public sector to provide them with the health care they need. Having a blue-chip, fully paid-up, premium health insurance policy is of no use to someone in a rural area where there are no private health services available. Means testing the rebate will have no negative impact on access to health care in the bush. In fact, reducing expenditure on this inefficient scheme will free up resources to spend on public health services in regional areas of need. It is also important that the independents understand that PHI membership has little impact on demand for care in the public sector. This is an issue that Rob Oakeshott has previously raised in the context of changes to the PHI rebate. Research indicates that private health fund membership is unlikely to change significantly as a result of means testing. If a small number of people drop their cover as a result of the changes, it is likely to be those at low-risk who have taken out cover to avoid tax penalties. These people are low level users of health services and their decision will not impact on demand for health care in either the public or private sectors. If the Independents are sceptical of this finding, they need only consider the position of the Australian Healthcare and Hospitals Association -- the peak national body for public hospitals and community health and aged care services. The AHHA supports the means testing of the rebate and has no concerns about any adverse impact on its members. If the Independents are concerned about inequities in access to health care in rural areas and want to reduce the increasing stress on public hospitals, they should support the means testing Bill and use their voting muscle to wrangle some additional funding for public health services in rural and regional Australia. Every dollar we spend on the unfair and inefficient rebate scheme is one we cannot spend providing services to those Australians who need them most. *Jennifer Doggett provides consultancy services to the Australian Healthcare and Hospitals Association.

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10 thoughts on “Why Independents should support means testing private health insurance rebate

  1. Julius

    “Every dollar we spend on the unfair and inefficient rebate scheme is one we cannot spend providing services to those Australians who need them most.”

    Nice satisfying piece of rhetoric with which to end an article and sum up your feelings but the fact is every dollar we spend on anything else is one we cannot spend providing services to those Australians who need them most so you haven’t made much of a contribution to damning the rebates. Try broadening your mind a little and consider whether it isn’t better to give some preference to the cost to families of health (and education for another example) than to just give a broad tax cut to everyone. I know many whose views I largely share would say that we should do as little fiddling round with rebates and subsidies as possible and just let the individual have as much of his income to spend as is practicable so he or she can make the choice but you obviously don’t start from that presumption so my question stands and I invite you to accept that (put in John Stuart Mill’s terms which were once clearly the principle on which our income tax law was based) “taxable income” should only count income after more or less necessary expenditures and prudent savings were met. (I say more or less necessary because one can argue at the margins about all sorts of health and education expenditures just as one can about expensive and inexpensive diets).

  2. negativegearmiddleclasswelfarenow.com

    The health rebate is middle class welfare and hence unjustifable. It falls into the same category subsidies to private schools. They should be means tested and then eventually abandoned. They have no place in the land of a fair go.

  3. zut alors

    This article could be improved by indicating at what level the rebate is proposed to cut off. Such information would give more perspective.

  4. MichaelT

    This is a classic case of a policy area which should be decided on the basis of the evidence, not ideological predilections. $4.5 billion is a hell of a lot of money for the government to forego unless the public benefit of it can be clearly demonstrated with rigorous research.

  5. Mark Heydon

    The rebate should be means tested and eventually go entirely. At the same time, the penal medicare surcharge, for those not taking out PHI, should also go, or at least be fully incorporated into the marginal tax rates so everybody pays it.

  6. Julius


    “The health rebate is middle class welfare and hence unjustifable.” and “no place in the land of the fair go”.

    That is all too brief and cryptic to be self-evident or entirely clear in its basis and implications.

    Presumably, because of what “fair go” suggests, you would not agree with those whose principal argument against “middle class welfare” is that it is damaging because 1. it means raised taxes which are prima facie a bad thing; 2. it hurts, by raising taxes and removing (part of) the need for self-help, incentives to productive and prudent activity; 3. it breaks down the principle that welfare should be a safety net for those who absolutely need it to be able to have a reasonable sort of life in our country.

    Perhaps you would go further and object to the line taken by the bien left in Britain which, starting with the National Health Service, gave themselves and the middle classes generally free medical and hospital care with the excuse (maybe a genuinely fundamental reason for some) that otherwise the new universal health care system would not have sufficient public support. For analogous reasons it has never been easy to separate poorly resourced Catholic primary schools for the poor from the Shores, Melbourne Grammars – and Xaviers and Riverviews.

    In the case of the National Health Service in the UK (which I and other members of my family have used) an unintended consequence is that the middle classes get much better service from it than the poorer and less well educated.

    A basic starting point is that any system of taxation and transfers involves the greater number of people with less money effectually deciding it is OK to and then voting to take money from those that have more, each side having a rather different idea of what is a fair go.

    The attempt to fall back on a degree of objectivity (a bit like invoking the rule of law in matters of justice and the rule of the market when the alternative is to have imposed decisions about what it is good for us all to have available for sale and purchase) by invoking criteria of efficiency and economic incentive has obvious merit in principle but the difficulty points to the need to see decisions about rebates, subsidies, transfers and plain churning as a necessary fudging operation in the political world in which they are made. And the inevitable inefficiencies resulting from thresholds, phased out means tests and the like mean that there is an additional reason for avoiding more or less arbitrary means tests and cutoff points, the other reason being that no one just on the wrong sided is likely to think they are being treated fairly.

    The “middle class welfare” that gets my goat to some extent illustrates my last point because there is little prospect (I trust) that I will participate in the huge costs of providing aged pensions and virtually free health care and pharmaceuticals to people with big houses and considerable capital in and out of superannuation funds – except as one who helps pay for it!

    Still, accepting that governments (politicians) will continue to churn too much of what productive people earn I would much rather see the way they did it providing incentives and giving relief to those who spend a lot on health care and education than artificial boosting of superannuation payouts to people who basically hardly save and will receive full age pensions, pensions and free health care to people living in $million(s) houses – and don’t get me on to wind farms and photovoltaic panels.

  7. Harvey Tarvydas

    Dr Harvey M Tarvydas

    Jennifer Doggett

  8. Harvey Tarvydas

    Just in case you were wondering
    Dr Harvey M Tarvydas

    Important and timely article Jennifer Doggett. Your commenters demonstrate the right passion in their support.
    To be fair it’s a complex problem/issue. The right and wrong of it stands out clearly in your article and in the comments it inspired.
    The mess of competing and demanding players (very competent in screaming and soiling) in ideologies, politics, health providers, institutions (private and public), practitioners and then some makes it tough to cut through and then there are the ‘secret’ knowns that remain unknown – many times more people are killed or injured by the ‘medical professions’ lapses of competence or attention (well covered up) than by the lack of a dollars worth (or a billion) of funding here or there.
    The stand you call for here needs to evolve to use leverage against one of the most unfair players in this difficult game/balancing act (the halo wearers) who save your life so they should be given preferential power, influence and status (they already have these) as to their needs from the ‘health system’.

  9. Jennifer Doggett

    Julius – fair point re the rhetoric. You are right that in theory the dollars spent on the rebate could be used anywhere. In practice, however, governments do view budgets, to some degree at least, in portfolio silos. Having a very expensive and fast-growing program such as the PHI rebate scheme on the books does make it harder for Nicola Roxon to argue at the Cabinet table for increased funding elsewhere in her portfolio.

    Your (or perhaps I should say J S Mill’s) idea re the taxes is an interesting one. My concerns about it are that it would be extremely regressive (the value of tax exemptions for necessary expenditures would be much greater for high income earners). Also, that it relies on making a distinction between ‘necessary’ and ‘discretionary’ health services, which is increasingly more difficult to do as health care becomes more diverse.

    Zut Alors – means test is planned to start at $75k for singles and $150k for families.

  10. Julius

    @ Jennifer Doggett

    Curious how the word “regressive” in relation to taxes has come to be used for what, though I do not claim to be a historian of taxation, was conventionally called “proportional” taxes.

    Logic suggests that “regressive” should be confined to taxes such as feudal lords could exact from the peasantry which were paid at a greater rate by the poor. Progressive taxes are those that impose a greater rate in proportion to the taxpayers wealth or income. I don’t think anyone would quibble about that statement.

    If the justification for your use of “regressive” was that poorer people had to pay a larger proportion of their *total* (not marginal) income or assets to buy something then the word makes no useful distinction and is another piece of rhetoric. After all the failure to subsidise vegetable prices for people on less than average wages could be regarded as regressive. Only the Salvos, Vinnies or Brotherhood of St Laurence don’t impose “regressive” prices on people….

    So, may I suggest you revisit the question of whether you effectually want to make people on high incomes (over a threshold) pay more for the private medical services when you don’t make them pay more for seats in the outer at the football or Italian ice cream; particularly when you are compelling people to pay for private health insurance. So, when a family man or woman has an income out of which, though it is well above average, they struggle to pay for the mortgage, the school fees and the private health insurance (or tax in lieu) you want to take more from them by the tax system’s rules when they need health care than when they are just the payers of already high marginal rates of income tax (though less than they were 40 years ago when it began to be recognised that there was an element of truth in supply side economics and even in the Laffer Curve but I just mention that to show that I am aware that, under the influence of that great socialist activity, warfare, our society has put up with much higher rates than those which merely take nearly half a persons marginal earnings).

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