Indefensible for public health, indefensible for taxpayers and their $12 billion subsidy. Private Health Insurance is a “wreck”, writes John Menadue. Put the funds into Medicare.

STEPHEN DUCKETT of the Grattan Institute has highlighted the growing and serious plight of PHI as more and more young people decide not to waste their money and are opting out of PHI.

In response, as reported in the Australian Financial Review on 23 July 2019, Mark Fitzgibbon, the chief executive of private health insurer NIB, proposed a bizarre suggestion: the government should scrap Medicare and mandate private health cover.

This is special pleading for a broken and terminal system. It would make things worse. He wants the government to save his failing industry despite a $12 billion annual subsidy.

All the evidence shows that PHI is indefensible as to both equity and efficiency. Just look at the health disaster in the US. It is a wreck.

Medicare was created by the Whitlam Government because of the abject failure of private health insurance or, as it was then called, voluntary health insurance. Fifty years later PHI is even more of a mess.

Band aid after band aid cannot save PHI.

The Coalition government knows that PHI is in trouble. But for ideological reasons, it wants to prop up what John Howard foisted on us in 1999.

There are 34 insurers with 40,000 variations of PHI policies available. Due to complexities and deliberate obfuscation, the public is confused over exclusions, inclusions and gap cover. It is an awful mess and it is not surprising that the public is increasingly sceptical.

It all takes us back to what Gough Whitlam said in 1969 about PHI.

“Voluntary health insurance was condemned in the Nimmo report for having become complex to the point of incomprehensibility, charging contributions beyond the means of many members of the community, paying less in benefits than the cost of medical and hospital services, causing serious and widespread hardship through the application of ‘special account’ regulations, appropriating too much of its own contribution income for operating expenses and accumulating excessive reserves.”

What he said fifty years ago about voluntary/private health insurance is even more true  today of PHI. It is inefficient and unfair. It is eroding Medicare. Yet the CEO of NIB wants to take us back to the days before Gough Whitlam introduced Medicare.

Reform Calls: private health insurance at the crossroads

The inefficient and unfair private health insurance is underwritten in Australia through an enormous government subsidy. Private health insurance is subsidized by Australian taxpayers at a cost of about $12 billion p.a. The motor industry never got a subsidy like this.

In 2015-16, that taxpayer subsidy for PHI was made up as follows:

  • $6.565 billion direct outlays in the budget for the rebate.
  • $1.6 billion tax-free income for those who got the rebate.
  • $1 billion estimate for the benefit of exemption of tax-payers from the Medibank Levy Surcharge.
  • $2 billion for the estimated cost to taxpayers of high costs associated with PHI and particularly unnecessary treatments.

That subsidy which is increasing every year should be abolished. Some of the money saved could be spent to include dental care as part of Medicare, at a cost of about $6 billion p.a. Almost 40 per cent of Australians earning less than $75 000 p.a. cannot afford to see a dentist.

Another option would be for the Commonwealth Government to introduce a Hospital Benefit Scheme to partner the Medical Benefit Scheme. Under such a new scheme, hospital benefits would be paid directly to the private hospital and not churned through wasteful PHI.

It is important to understand some history to realise the threat of PHI. We have been here before.

The ALP in the Senate in 1968 was responsible for establishing a Select Committee on Medical and Hospital Costs. To head off this report, the McMahon Government appointed Justice Nimmo to conduct an enquiry into Health Insurance. Not surprisingly, both the Nimmo report and the Senate report condemned the inefficiency and waste of private health insurance that I have mentioned.

Those two reports laid the basis and the reasons for establishing Medicare.

Let me summarise some major failings and risks of PHI.

  • It threatens our universal health system through seriously weakening the ability of Medicare as a single funder to control costs. We have seen the enormous damage that PHI has wrought in the US. We are steadily going down the same dangerous path. On present trends, we will have a divided healthcare system. One system will be for the wealthy with a safety net system for the indigent. This is where Mark Fitzgibbon of NIB wants to take us.
  • PHI not only weakens Medicare, but in itself it does not have the market power to match the power of health providers who hold all the cards. Dr Rachel David the chief Executive of Private Healthcare Australia told The Sydney Morning Herald that “private health funds have no control over input costs, which include medical device benefits, hospital accommodation costs, allied health costs e.g. dental, medical specialist gap costs among others.” Without perhaps realizing it, she put the case against PHI — its inability to control costs. Just consider some of the outrageous “gaps” in specialist fees.
  • It favours the wealthy who can jump the public hospital queue by going to private hospitals.
  • It penalises country people who have limited access to private hospitals.
  • It has administrative costs three times higher than Medicare.
  • Since John Howard introduced the PHI subsidy in 1999, premiums payable on PHI have increased by over 150 per cent but the CPI has risen by only 50 per cent.
  • PHI has made it extremely difficult for public hospitals to retain specialists who are attracted to remuneration which is often at least three times higher in private practice and private hospitals.
  • PHI has not taken the pressure off public hospitals.

If people want private health insurance, that is their right. But why should taxpayers subsidise the PHI industry to corrupt and undermine a universal system that is available to all.

The vested interests in PHI never argue their case in public. They rely on private lobbying of ministers and officials.

PHI is like a Trojan horse that lead us away from world’s best practice in health care, a single public payer with services provided by both private and public providers.

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John Menadue

John Laurence Menadue AO is an Australian businessman and public commentator, and formerly a senior public servant and diplomat. He is the founding chair and board member of the Centre for Policy Development.

You can follow John Menadue on Twitter @JohnMenadueThis article was originally published on Pearls and Irritations and is republished with permission.

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