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.