Means testing is a start but private health rebates should be scrapped

If the government wants to support private health, it should fund the system directly. Robin Thom

The government’s plan to means test the 30% private health insurance rebate faces an uncertain future after yesterday’s scheduled parliamentary debate was delayed.

Under the scheme, singles with health insurance earning more than $80,000 and couples earning more than $160,000 will receive a rebate of 10 to 20%. Singles earning $124,000 and couples on $248,000 will no longer be eligible.

But first, the government needs to convince the independent MPs of the scheme’s merits. Associate Professor of Public Health Peter Sainsbury explains why this bill deserves the MPs’ support:

I’d like to see the rebate removed altogether but as a first step, means testing it is a very good and big step forward.

We know (from national and state data) that most people who take out private health insurance are more affluent than those who don’t.

So you’re actually subsidising people who, for the most part, would be holding private health insurance anyway. You’re just giving them a free handout of 30% of the premium, which is several hundred or a thousand dollars a year.

If you’re going to subsidise people, you should subsidise those who are most disadvantaged.

Are private health insurance subsidies the answer?

They’re not. The way to deliver good health care in Australia is to have a really solid, good quality, comprehensive public health care system, and have private health care as an optional extra.

There’s a lot of evidence from around the world that the best health systems – the ones that deliver the most comprehensive, equitable and (importantly) the most cost-effective health services – are those provided through taxation.

Why was the private health insurance rebate originally introduced?

It was introduced in 1999 when the then-Liberal federal government was desperate to raise private health insurance uptake rates that had fallen from around 70% in early 1980s to around 30% in the late 1990s.

The Howard Government was under pressure from the private health insurance industry (more than from the private health care industry) and it falls into the ideological shift to promote personal responsibility, the private provision of health care and private funding of health care.

Howard introduced a series of measures over two or three years. One of them was to offer a 30% rebate to people who took out private health insurance. But it had almost no effect on the uptake of private health insurance. If anything, it might have increased rates by 1% – it was marginal.

What actually worked to increase private health insurance rates from about 30% to 45% was the introduction, 12 or 18 months later, of lifetime ratings. This was essentially a scare campaign; you were told to get private health insurance now and or it would cost you later.

What makes the private health insurance rebate such poor health and economic policy?

Two things.

1) It didn’t achieve the aim of increasing private health insurance uptake rates.

2) If the government wants to support an industry with subsidies, the funds should go directly to that industry.

If the government wants to make it attractive for people to use private health care in Australia, then it needs to negotiate directly with private health care providers. Then you have some control over the volume and quality performance indicators for the money you’re providing.

The government needs to negotiate with private hospitals – or the organisations that run private hospitals – to determine what services they will provide.

It shouldn’t just give the money to some middleman in a completely uncontrolled way, which is what the private health insurance rebate is. There are no controls on it and no cap.

It’s a very poor way of subsidising an industry.

So should governments fund private health at all?

We should have a really good public health system and then if people want private health care for some reason – they like a nicer environment in hospital, they want to chose a particular doctor, they want to have a procedure done that isn’t normally provided by the public health system – then it should be an optional extra.

There’s a real advantage to having the middle classes and the more affluent people in a public system because then they’ve got a vested interest in maintaining the quality of that system.

What we sometimes see argued is that the public system should just be a residual system: a welfare system or a safety net for people at the very bottom of the social pile. If you go down that route, what you inevitably get is a poorer public system.

The private health insurance means test bill was expected to be debated in parliament today – do you know why it’s been delayed?

The government seems fairly anxious to get this measure through. It’s unclear whether this is based on ideology or whether it’s simply an important brick in their economic policy (they need the money).

What they’re desperate to do is avoid the bill being defeated. So what’s the point in putting it to the House if they’re confident they haven’t got the numbers to pass it?

I imagine they’ll keep putting it off for as long as they can until they can convince enough of the independents to vote for it. But hopefully they’ll keep working on those independents that are persuadable but have yet to be persuaded to vote for it.

Where do you see the division between public and private health moving in future?

People often talk about how the public don’t want to pay more taxes and they just want a public health-care system for the very poorest in society. But this isn’t true.

In a reader poll in last Saturday’s Weekend Australian, three-quarters of respondents said they would support a Medicare-style dental scheme if the income tax rate increased by 0.75%. So they would pay more tax for a decent dental scheme.

There was another question about aged care costs – 69% said the government should cover this increase.

What this really demonstrates is that the public is happy to pay tax if they’re going to get good quality services.