Do most Australians really want a healthcare system structured to ensure that the better off get better access to health services?

Or to put it another way – designed to ensure that those most in need of health services are least likely to have access?

If you doubt that this is what we have, read this review of the research on socioeconomic status and healthcare, recently published by the Primary Health Care Research and Information Service. It says equity in healthcare service delivery means that people’s access to or use of services is based on the need for those services.

The private health insurance rebate, Medicare Safety Net and co-payments for primary healthcare are given as examples of policies that contribute to inequities. The review says:

“For example, private health insurance may contribute to inequity because it prioritises care to those who are able to pay. Higher income groups that are more likely to have private health insurance may also benefit from tax rebates (totalling over $200 million per year), which are redistributed back to higher income groups.

Similarly, the Medicare Safety Net policy may inadvertently maintain or even increase inequity in primary health care access and utilisation. The Medicare Safety Net was introduced at a time when Australians faced substantial increases in out-of-pocket costs and it was designed to provide additional financial relief for those most in need. However, an evaluation of the policy in 2008 showed that 55% of all reimbursements by the Medicare Safety Net were distributed to the top quintile of Australia’s least socioeconomically disadvantaged population, whereas the most disadvantaged quintile received 3.5% of the total Safety Net reimbursements.”

Meanwhile, in the Sydney Morning Herald , economics editor Ross Gittins reviews the history of private health insurance subsidies, and cites a recent paper by John Menadue and Ian McAuley published by the Centre for Policy Development (and covered previously at Croakey), in arguing that subsidising private health insurance doesn’t only advantage the better-off but also makes healthcare more expensive than it needs to be. 

Gittins writes:

“Howard’s subsidy of health fund premiums was really a vote-buying election promise and a gift to the well-insured Liberal heartland. He tried to justify it by claiming that getting more people into private insurance would relieve the pressure on public hospitals.

As all the experts predicted at the time, it didn’t work. It shifted patients from public to private, but it also shifted doctors from public to private, leaving public queues little changed. It did, however, subsidise the better-off in their efforts to jump the queue.

As anyone who’s done high school economics could tell you, the benefit from a government subsidy of the price of something is shared between the buyer and the seller. The health funds have become a lot more profitable than they used to be.”

Gittins writes that those countries with the greatest reliance on private insurance to finance healthcare have the most expensive healthcare – without a commensurate improvement in their health, with the United States being the classic case.

“Using carrots and sticks to prop up private insurance not only subsidises a two-class health system, it delivers its greatest benefit to the incomes of medical specialists,” he concludes.

Meanwhile, as the Government tries to win support for its bill to means test private health insurance rebates, Associate Professor Peter Sainsbury from the University of Sydney, has been answering some related questions for The Conversation.


Private health insurance is “the parasite of the health system”

Question from The Conversation: Some of the Independents are concerned about the impact (of the means testing of private health insurance rebates) on regional areas, some of which have a shortage of doctors. If the bill passes, are we likely to see many people drop their private health insurance?

Peter Sainsbury:
The simple answer is no. The evidence shows that most of the people who have private health insurance are higher income earners and they have indicated they would probably stay in private health insurance if a means test was introduced.

But when you consider consumer responses to price increases, you can’t always judge the potential fallout just by asking consumers what they will do – you also need to look at what’s happened historically.

If we look back to the introduction of the private health insurance rebate, we see that despite the offer of a 30% rebate on premiums, it didn’t influence people’s decision to take out private health insurance. Hardly any new people joined a private health insurance fund in the year after the rebate was introduced.

If this didn’t influence people’s uptake, and we project this attitude to the current proposals, removing the rebate is highly unlikely to cause people to leave a health fund. This is particularly likely, given that it’s the higher income brackets – the people who are most likely to take up private health insurance anyway – who will lose the refund.

Question from The Conversation: The Greens support means testing the private health insurance rebate but oppose the exemption of high-income earners who take out private health insurance from the Medicare levy surcharge. What would be the likely flow-on effects of such a proposal?

Peter Sainsbury:
The government argues that imposing a Medicare levy surcharge on higher income earners who don’t have private health insurance encourages them to retain their health insurance and hence limits any exodus from the funds. And the surcharge raises a bit of additional taxation, although the amount is almost trivial compared with the savings from means testing the refund.

The Greens argue that it’s inappropriate to use a financial stick to encourage wealthier people to hold private health insurance – it’s better to have them paying and fighting for a better public system for everyone.

I agree with the Greens but this is all just posturing. If the government can get the numbers in the House, the Greens are unlikely to sink the proposal to means test the refund for the sake of getting their way on the levy.

Question from The Conversation: In the past, you’ve supported the means-testing bill as a short-term improvement but said the rebate should be removed in the long term. Would abolishing the rebate increase pressure on public hospitals?

Peter Sainsbury:
There’s very little, if any, evidence to indicate that abolishing the rebate completely – not just means testing it – would put any greater pressure on public hospital emergency departments, wards, or elective surgery.

The sorts of services that are provided in private hospitals are often quite different to the services that public hospitals provide. Most private hospitals offer a very limited range of services, particularly as you move away from inner metropolitan areas. The outer-metropolitan, regional and rural hospitals cherry-pick the services they provide, based on simplicity (procedures that require the least specialised care and the least specialised equipment) and profit.

It’s important to note that private health insurance uptake doesn’t necessarily affect private hospitals. People can still have private health care – and many people do – without private health insurance.

Studies show that if you’re disciplined enough to save, you’re likely to be financially better off paying for the private health care you need out of your own pocket. Look at the people who pay $2,000 or $3,000 a year for ten or twenty years – very few get their money back. They might have a hip replacement that costs $2,000 to $10,000 but overall they would be better off keeping their premiums and then paying for private hospital treatment out of their own pocket.

Question from The Conversation: So would you like to see private health insurance phased out in the longer term?

Peter Sainsbury:
Private health insurance is the parasite of the health system. In an ideal world, self-funded private health care would be an optional extra on top of a well-funded, comprehensive public health-care system.

The likelihood of abolishing private health insurance in Australia is remote. But we could reform the private health insurance industry. A more sensible approach would be to have far fewer funds, with much lower administration fees and less choice of policies. What we currently see isn’t real choice because consumers are so confused by the various options.

If the government wants to promote private health care, it should bypass the insurers and negotiate directly with the private health care providers (the private hospitals and medical specialists). This would give the government some control over the quantity and quality of the care that’s provided.






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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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