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Things you should know about private health insurance rebates

The government will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30. The removal of the rebate from the lifetime health cover loading…

The loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate. LUKAS COCH/AAP

The government will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30.

The removal of the rebate from the lifetime health cover loading, once again, raises questions about the efficiency and equity of public subsidies for private health insurance.

This is not the first cut to government rebates for private health insurance. From July 2012, the tax rebate for private health insurance has been means tested. Individuals with incomes below $84,000 now receive a 30% rebate, and the subsidy gradually reduces to zero for incomes greater than $124,000.

And from today, the loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate.

What do the rebates mean?

The private health insurance rebate has been growing at over 6% per year and is estimated to be around $5.56 billion in 2012–13. This is a significant proportion of the health budget that could, for example, cover a national dental scheme, or over a third of the cost of the National Disability Insurance Scheme or could be used to reduce the waiting list in public hospitals.

The main argument for the rebate is that it sustains a viable health insurance industry in Australia. In turn, private health insurance ostensibly supports private hospitals and increased patient choice, and reduces waiting times for elective surgery in public hospitals.

But does the rebate actually sustain private insurance?

After the 1975 introduction of a universal public health scheme (now known as Medicare), it was expected that private health insurance membership would decline. And that’s exactly what happened.

PHIAC 2013/http://phiac.gov.au/wp-content/uploads/2012/08/membershipall.zip

The graph above shows that private health insurance membership declined sharply, from nearly 80% to just over 30% by the late 1990s.

In response, the then-Liberal government (with John Howard at the helm) introduced a suite of measures to encourage private health insurance membership. These included:

  • a government-funded rebate on private health insurance premiums,

  • a means-tested tax penalty for those without insurance,

  • a premium surcharge for people taking out membership after the age of 30, and

  • a prominently advertised “Run for Cover” scheme that waived the surcharge for those taking out insurance before June 30 2000.

These threats of higher premiums, coupled with the “Run for Cover” campaign, were the main drivers of the jump in membership from 30% to 45% in 2000. Membership levels have remained steady since then.

It’s too early to tell if the means-testing of the private health insurance rebate will have an impact on membership levels but, so far, it has not. That is, people don’t seem to have stopped their private health insurance because they no longer receive funding from the government for it.

In fact, membership seems to have increased by more than 1% between July 2012 (when means testing was introduced) and March 2013.

But while membership went up in the aftermath of the Howard government drive, it’s not clear that subsidising private insurance from 1999 was successful in reducing pressure on public hospitals – its main expressed intention at the time.

Funding the rich?

New insurees who responded to the financial incentives did not significantly reduce their use of the public hospital system. Waiting times in public hospitals did not fall when private insurance take up increased and national median waiting times rose in the subsequent decade.

Some people who would have been treated in public hospitals shifted to private beds, but the resources went with them. The result was no significant overall increase in treated patients.

Indeed, since government still paid for public hospitals, and now paid a rebate on private insurance for treatment in less efficient private hospitals the net effect was to increase government expenditure

At best, there may have been some short-term saving in direct government spending from increased membership, but that was offset by patients paying out-of-pocket costs, or in premiums. In this context, premiums are like a tax but without the variation with income - private insurance “reshuffles money and reshuffles the queues”.

Private health insurance and access to private hospitals are the main reasons why people who are better off wait less time for surgery. What has actually happened is that Medicare’s equity-of-access principle has been eroded by a tax subsidy of over $5 billion for the financially better off to jump the queue for elective surgery (and to use more dental or optometry services).

Our tax dollars would be better and more equitably spent on prevention, improving hospital services, and widening access to other services.

Why have private health insurance at all?

Even without the government subsidy, there remains the question of why we want to a parallel private health system for the quality of health service that we agree should be available to everyone paid from their taxes under Medicare.

Private insurance premiums are a cost to individuals just like taxation. And they cost more than a tax-funded system without producing better quality health outcomes. Medicare has advantages of scale (it is accessed by everyone) and purchasing power that enable lower costs and improved quality control.

In contrast, private health insurance is generally unsuited to pooling resources across people of different health needs and income, while actively ensuring equity of adequate care. This is especially so in Australia where insurance companies have regulated premiums and very limited scope to tie member contributions to their insured risk.

If we want high quality health care with choice, private insurance is not the only way we can have it – and is relatively expensive. Private hospitals could be subsidised from taxes at lower cost to the public budget.

More importantly, reducing the number of health funders increases the potential for better and more efficient health outcomes by integrating health-care provision – a feature that is sorely lacking in our fractured health-care system.

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18 Comments sorted by

  1. Geoff Sauer

    Alumni Relations Officer

    I recently had a hip replacement - enormous cost, but not to me. I probably got all my health insurance premuims back in one go. Anthony Harris wrote: "Private health insurance and access to private hospitals are the main reasons why people who are better off wait less time for surgery." and that certainly applied in my case. One thing I noticed was the huge amount of administration associated with my time in hopsital and rehab. Nursing staff spent a vast amount of time completing paperwork, and when I moved from the hopsital to the rehab hospital (owned by the same group), a completely new case file was started. Simply transferring the original paper file would have seemed sensible, but in the days of electronic files (e.g. HP's TRIM) why aren't hospital files electronic?

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    1. Chris O'Neill

      Victim of Tony Abbotts Great Big New Tax

      In reply to Geoff Sauer

      "I probably got all my health insurance premuims back in one go."

      How many days were you in hospital?

      Our premium is $2700 pa which I guess would pay for 2 days in hospital (ignoring excess and ignoring the now abolished medical rebate). So our health insurance has cost us 2 days worth of hospital time for every year we've had it. Over the past 23 years that's 46 days worth of time in hospital paid for in health insurance premiums. Over those 23 years the two of us spent a total of 20 days in hospital (which included a hip replacement) so we're a long way behind so far.

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  2. Henry Verberne

    Former IT Professional

    I deplore the existence of private health. Fund public hospitals properly!

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  3. Colin MacGillivray

    Architect, retired, Sarawak

    Why have private health insurance at all? Indeed.
    Acute care is well handled by the public system in Australia. Those that can afford insurance would get better value for money if they saved their premiums and had their elective surgery done in SE Asia.
    Private hospitals thrive here in Kuching, Sarawak a small city with four. They are used by middle class locals and some visiting Indonesians and retirees like me- double inguinal hernia- day surgery AUD1,100.

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  4. Mitchell Lawlor

    Honorary Associate at the Centre for Values, Ethics and the Law and Medicine at University of Sydney

    Your arguments against a benefit of increased insurance rates all relate to hospital admissions. Do you have any data on elective procedures done as outpatients - colonoscopy, arthroscopy, cataracts etc.

    I suspect there would be a net cost saving to government by patients using private cover in these cases but would like to see some data.

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  5. Chris Cole

    Emergency Medicine Registrar

    The existence of private medical practice in Australia achieves the following:

    - A two-tiered system which differentially benefits those who are already socioeconomically better off. The incidence of poor health is well established to be proportional to socioeconomic disadvantage, and this two-tiered / class / financial caste system serves to amplify difference in health outcomes between the affluent and the poor.

    - Timely access to "elective" surgery for those who can afford it. It's worth…

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    1. Mitchell Lawlor

      Honorary Associate at the Centre for Values, Ethics and the Law and Medicine at University of Sydney

      In reply to Chris Cole

      Hi Chris - I'm not sure if your objection is ideologically against private medicine of any type, or whether it is a more pragmatic objection over the extent to which government is subsidising/nudging policy levers to encourage private cover.

      Here in the UK, access to private care is subsidised very little by government, is much more expensive than Oz, and unsurprisingly has a lower coverage rate. I can't see how having such a private system causes disadvantage to those with no cover.

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    2. Chris Cole

      Emergency Medicine Registrar

      In reply to Mitchell Lawlor

      A bit of both.

      My concern stems from the existence of, as a simple example, the following scenario:

      Patient: "So I need [procedure XYZ], doc?"

      Doctor: "Yes, you do."

      Patient: "When can I get it done?"

      Doctor: "Well, we'll put you on the waiting list as a Cat (x) and the way things are at the moment, I would guess it will probably be between 6 and 18 months."

      [pause]

      Doctor: "But if you want to go privately, I can do it, oh, late next week?"

      -----

      Healthcare is not a commodity to be supplied to the highest bidder, and anyone who fails to see the inequity in the above example needs to think a little harder about what medicine is meant to be about.

      And so yes, I do think that it is inappropriate for government to be carrot-and-sticking people into paying to support an inefficient, needlessly expensive, and unfair system of health care provision, when the funding would be better utilised increasing resources in the public system.

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    3. Mitchell Lawlor

      Honorary Associate at the Centre for Values, Ethics and the Law and Medicine at University of Sydney

      In reply to Chris Cole

      Health care services are a finite resource and so have to be rationed in some form - waiting lists are therefore inevitable in public systems.

      With the caveat that public waiting lists should not be onerously long (and this is definitely not the case in many places in Australia), I think that individuals should have the choice to spend their own money on expediting elective surgery for themselves.

      While one person may wish to have an extra holiday, another may prefer to forego the holiday a wait less time for their next (elective) procedure.

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    4. Chris O'Neill

      Victim of Tony Abbotts Great Big New Tax

      In reply to Mitchell Lawlor

      "Health care services are a finite resource and so have to be rationed in some form - waiting lists are therefore inevitable in public systems."

      That statement implies that waiting lists are not inevitable in private systems. Did you intend that implication?

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    5. Chris Cole

      Emergency Medicine Registrar

      In reply to Mitchell Lawlor

      Private medicine as a parallel system, such as it is in Australia, is problematic precisely because healthcare services are a finite resource.

      I take your point that there is a hefty chunk of the middle class who can divert disposable income to expediting elective medical/surgical care, and I strongly advocate people taking a much greater interest, both logistically and financially, in their own health care (the extent to which otherwise competent, functional adults have to be "looked after" and…

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    6. Mitchell Lawlor

      Honorary Associate at the Centre for Values, Ethics and the Law and Medicine at University of Sydney

      In reply to Chris O'Neill

      I think they are much less inevitable. When a list starts to build up in private, the profit motive ensures there is constant review and adjusting of resources to ensure that waiting time is minimised, as this is one of the primary benefits of private care.

      In public, the mechanisms to review this are much slower. Once a waiting list extends, a decision has to be made about whether resources should be redeployed to that area, and then if more resources are given, the physical process of increasing capacity is much more constrained.

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    7. Mitchell Lawlor

      Honorary Associate at the Centre for Values, Ethics and the Law and Medicine at University of Sydney

      In reply to Chris Cole

      "Private medicine as a parallel system, such as it is in Australia, is problematic precisely because healthcare services are a finite resource."

      Healthcare resources are finite in the public system, but not in the private. Public = government deciding what % of revenue goes to health which is a fixed amount.

      Private = individuals are able to decide if they wish to increase the % of their disposable income on health - this is only limited by the amount of disposable income and is therefore much less finite.

      Of course there are caveats about efficiency, as the author of this article points out regarding private hospitals, but that then comes back to my original question about whether there is data showing that private medicine has taken the burden of outpatient procedures.

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    8. Chris O'Neill

      Victim of Tony Abbotts Great Big New Tax

      In reply to Mitchell Lawlor

      "the profit motive ensures there is constant review and adjusting of resources"

      which are available from and consequently come from the public system. i.e. while there is a large pool of resources available at short notice from the public system, it is very unlikely that the private system will ever be short of resources.

      That doesn't do much for the public system of course.

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    9. Chris Cole

      Emergency Medicine Registrar

      In reply to Mitchell Lawlor

      "Healthcare resources are finite in the public system, but not in the private. Public = government deciding what % of revenue goes to health which is a fixed amount. Private = individuals are able to decide if they wish to increase the % of their disposable income on health - this is only limited by the amount of disposable income and is therefore much less finite."

      No. This is incorrect.

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  6. Peter Dawson

    Gap Decade

    It's ironic that John Howard got so much mileage out of haranguing the left for wanting to build an economy which is "distorted by ideology," when the "private" health care system he created would collapse overnight if the government subsidies were taken away.

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  7. Chris O'Neill

    Victim of Tony Abbotts Great Big New Tax

    I should point out that our health insurance premium has gone from $58.15 per month in 2000 to $225 per month now. Almost quadruple in 13 years or 11% growth per annum average.

    The growth rate in premiums cannot continue at this rate indefinitely without a financial and economic disaster.

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