tag:theconversation.com,2011:/uk/topics/private-health-4669/articlesPrivate health – The Conversation2023-09-14T11:47:05Ztag:theconversation.com,2011:article/2132702023-09-14T11:47:05Z2023-09-14T11:47:05ZWealthy but worried: why the UK’s top 10% are turning their backs on the rest of society<figure><img src="https://images.theconversation.com/files/548010/original/file-20230913-25-9kovxd.jpg?ixlib=rb-1.1.0&rect=406%2C583%2C5339%2C3253&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/flat-isometric-crowd-people-forming-silhouette-577734244">Sentavio/Shutterstock</a></span></figcaption></figure><blockquote>
<p>I feel fairly middle of the road and average, but objectively I know this is completely untrue. I am at the top of the income percentiles – though I also know I’m miles away from the very rich. Everything I earn goes at the end of the month: on school fees, holidays, and so on. I never feel cash-rich. (William, City firm director in his 50s)</p>
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<p>Recently, there seem to have been a lot of people like William, in privileged jobs and on six-figure salaries, complaining that they’re “struggling” – including to <a href="https://www.thetimes.co.uk/article/200k-a-year-and-struggling-affluence-isnt-what-it-was-6sdmx3ml8">The Times</a>, <a href="https://www.indy100.com/viral/100-grand-salary-income-wealth">The Independent</a>, the <a href="https://www.dailymail.co.uk/money/bills/article-9798509/Even-wealthy-dont-cash-rainy-day.html">Mail</a> and the <a href="https://www.telegraph.co.uk/tax/income-tax/why-125000-does-not-make-rich-britain-today/#:%7E:text=The%20Telegraph's%20analysis%20found%20that,after%20taxes%20and%20basic%20outgoings">Telegraph</a>. Perhaps you recall the <a href="https://www.independent.co.uk/news/uk/home-news/question-time-video-man-top-earners-tax-percent-80000-explained-a9213351.html">BBC Question Time</a> audience member who, weeks before the 2019 general election, couldn’t believe that his salary of over £80,000 made him part of the top 5% of UK earners – despite the UK being a country where <a href="https://www.jrf.org.uk/sites/default/files/jrf/uk_poverty_2023_-_the_essential_guide_to_understanding_poverty_in_the_uk_0_0.pdf">almost a third of children live in poverty</a>.</p>
<p>You may instinctively feel little sympathy for these high earners, but don’t let that stop you reading on. Their views and actions should matter to us all. Like it or not, they have disproportionate political influence – representing a large proportion of key decision-makers in business, the media, political parties and academia, not to mention most senior doctors, lawyers and judges.</p>
<p>And in their private lives and behaviour, more and more of this group appear to be turning their backs on the rest of society. When interviewing them for our book <a href="https://policy.bristoluniversitypress.co.uk/uncomfortably-off">Uncomfortably Off: Why the top 10% of Earners Should Care About Inequality</a> (co-authored by <a href="https://feps-europe.eu/person/gerry-mitchell/">Gerry Mitchell</a>), we heard repeated concerns about the threats now posed to their lifestyle and status. This is from people who, while a long way from the UK’s “super-rich”, enjoy far more wealth and privilege than the majority of the country.</p>
<p>We also found misperceptions about wider UK society were common among this group – for example, that state social spending is higher than in other countries, that people in poverty and receiving the most from the state are largely out of work, and that they, as high earners, do not benefit as much from the state as those on lower incomes, forgetting how much <a href="https://www.dannydorling.org/wp-content/files/dannydorling_publication_id4277.pdf">they rely on the state over their lifetimes</a>.</p>
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<p>And we often saw a distance between the worldviews expressed by many in the top 10% and their own actions. For instance, many say they have strong meritocratic beliefs, yet are increasingly reliant on their assets and wealth to secure advantages for themselves and their children, meaning inequalities among millennials and younger generations will become more dependent on inheritance. Such thinking was captured by <a href="https://www.telegraph.co.uk/money/consumer-affairs/millennials-generation-x-inherit-twice-much-baby-boomers/">a recent Telegraph</a> article that declared: “No more rags to riches – family money will be the key to getting wealthy.”</p>
<p>The environment is another area where thoughts and actions often diverge among this high-earning group. While worrying about the environment is positively correlated with income and education, research also shows that the higher your income, <a href="https://wid.world/news-article/climate-change-the-global-inequality-of-carbon-emissions/">the higher your carbon footprint</a>.</p>
<p>One potential endpoint is a world of bunkers, without trust or a functioning public realm, where we all declare one thing and do another without much heed to the common good. But increasing inequality doesn’t just threaten those in poverty – it <a href="https://www.theguardian.com/inequality/2018/sep/18/kate-pickett-richard-wilkinson-mental-wellbeing-inequality-the-spirit-level">negatively affects</a> the whole of society. It means higher imprisonment rates and more expense devoted to security, more mistrust in everyday interactions, worse health outcomes, less social mobility and more political polarisation, to mention just a few of these effects.</p>
<p>This is the road we are on, with UK inequality levels projected to reach a <a href="https://www.resolutionfoundation.org/publications/the-living-standards-outlook-2023/#:%7E:text=Although%20income%20inequality%20across%20the,per%20cent%20in%202027%2D28.">record high</a> in 2027-28. Can anything be done to encourage the UK’s highest earners to recognise that their best hope of a happier, healthier, more secure future – including for future generations of their families – is by working with society as a whole, not turning their backs on it? Or is it already too late?</p>
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<figcaption><span class="caption">Launch video for the book Uncomfortably Off.</span></figcaption>
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<h2>Who’s in the top 10%?</h2>
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<p>If you’re in a privileged position, and all your friends are from a similar background, then you don’t think about inequality on a day-to-day basis. (Luke, young strategy consultant for a Big Four accounting firm)</p>
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<p>In the UK, the threshold for the top 10% of personal income before tax is £59,200, according to the <a href="https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax">HMRC’s latest statistics</a>. This is over twice the median wage, which is generally under £30,000.</p>
<p>But the top 10% incorporates a wide range of incomes. Accountants, academics, doctors, civil servants and IT specialists are still typically much closer to the UK’s median wage than the poorest members of the top 1%, who earn upwards of £180,000. The higher you climb up the distribution ladder, the larger the distance between the steps becomes, which is perhaps why a 2020 <a href="https://trustforlondon.org.uk/research/can-public-consensus-identify-a-riches-line/">Trust for London</a> report found little agreement on where the “riches line” is – defining who, exactly, is rich and who isn’t.</p>
<p>The way we think of richness is generally absolute rather than relative. Images of Lord Sugar, Donald Trump and the characters of Succession come to mind – along with Ferraris, caviar and private jets. Such thinking may explain why some in the top 10% agree with the principle that the <a href="https://www.ft.com/content/9d528ae9-ac82-44f1-84a8-36a2c0bf1ab7">rich need to pay more tax</a>, but do not think it includes them.</p>
<p>And while this is a diverse group, they still <a href="https://www.tasc.ie/publications/inequality-and-the-top-10-in-europe-full-report/">share many characteristics</a>. The majority are men, middle-aged, southern, white and married. Members of the top 10% are more likely to own their home or have a mortgage. More than 80% are professionals and managers, and over 75% hold a university degree.</p>
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<p><strong><em>This article is part of Conversation Insights</em></strong>
<br><em>The Insights team generates <a href="https://theconversation.com/uk/topics/insights-series-71218">long-form journalism</a> derived from interdisciplinary research. The team is working with academics from different backgrounds who have been engaged in projects aimed at tackling societal and scientific challenges.</em></p>
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<p>Just as they’re sociologically characterised by their education and occupation, high earners usually define themselves by hard work. After telling us they “didn’t feel rich”, most would admit they were in some way “privileged” – then follow that with a declaration of having “worked hard” to get there. Most clearly feel they’ve earned their privileged position, and that “life is fair”.</p>
<p>At the same time, even though they define themselves through their graft, many high earners don’t think <a href="https://www.vox.com/2018/5/8/17308744/bullshit-jobs-book-david-graeber-occupy-wall-street-karl-marx">their work is particularly meaningful</a>. Susannah, who is in a very senior position at a large bank, was blunt about the contribution of her work to society at large:</p>
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<p>[Laughs]: Not much really … Well, I suppose you could say that I’m helping to make sure the bank are spending efficiently. They’ve got a huge customer base globally, so we’re helping deliver products at a more affordable price and the customer service they get around that is better. But if I compare that to my husband’s contribution as a [public sector worker], his is way more.</p>
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<p>The more that someone’s position is based on being able to distinguish themselves from others – be it through the accumulation of money or “cultural capital” – the less incentive there is to socialise with others who cannot meet this criteria of what is valuable.</p>
<p>Luke spent the first part of his life in a private school, enlisted in the army, then attended Oxbridge. He was later a teacher in the Teach First programme, before starting work as a consultant. He told us that his background meant he doesn’t really think about inequality on a daily basis. He comes from a privileged upbringing and all his friends do too. He does not interact with anyone outside his socioeconomic group, although he did when he was a teacher, commenting: “It was clear I was teaching kids with very different lives.”</p>
<p>An exception among our interviewees was those who had experienced upward mobility. Many of them answered that they did know people who were significantly less wealthy, and who still lived in the place from which they had “escaped”. Gemma, a consultant with a £100,000+ income in her late 30s, moved from the north of England to London. She told us:</p>
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<p>You don’t know what people earn in London. My closest friends tend to be people I’ve worked with, that’s just how it’s turned out, so you’re meeting people at around the same economic level. At home, I know what people do and how much they earn.</p>
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<h2>How the top 10% feel about the world today</h2>
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<p>As I’ve started to earn more and worked hard for it, I care more about the tax I pay. I didn’t think about it when I was younger … But now I’m more aware of it and how it’s helping society. (Louise, sales consultant for a global tech company in her 40s)</p>
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<p>When we asked Louise about inequality, the less well-off and whether the rich should do more, her answers were broadly the same as we would give: inequality is detrimental to society and not inevitable; those in poverty struggle because of circumstances beyond their control; the rich should make much greater efforts to address inequality. However, when asked which political party she voted for in the last election, she responded: “The Conservatives.”</p>
<p>The obvious question we should have asked next was, why? But for some reason, we let the silence linger – until Louise’s voice cracked slightly. “The tax issue,” she said. “Protecting high earners.”</p>
<p>Like so many of the “uncomfortably off” we interviewed – including members of the top 10% by income in Ireland, Spain and Sweden – Louise did not think of herself as rich. She agreed there should be more redistribution and more help for those worse-off in society, but she didn’t agree it should come out of her taxes. This was not an uncommon view among our interviewees:</p>
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<p>If I’m contributing to people who are below the poverty line, fine. But if I’m funding people who are sitting at home and don’t want to work, then I’m not happy about it. Do I want taxes to go up for higher earners? No, I pay more than enough. (Sean, small business owner in his 40s with a top 1% income)</p>
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<p>Our interviewees often don’t think of themselves as beneficiaries of public policy, and tend to think state action is, almost by definition, overweening and invasive – forgetting the myriad ways that all of us depend on public infrastructure and on underpaid <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/coronavirusandkeyworkersintheuk/2020-05-15">key workers</a>. This even applies to those who, like Sean, do not come from wealthy families themselves. </p>
<p>Whenever they can afford it through their own spending or as a perk from employment, high earners in the UK are increasingly <a href="https://www.bbc.co.uk/news/uk-northern-ireland-64971161">relying on the private sector</a>, especially as they see the public sector as <a href="https://theconversation.com/school-concrete-crisis-how-raac-has-been-used-well-beyond-its-expiry-date-212893">crumbling</a> and <a href="https://theconversation.com/strikes-why-refusing-public-sector-pay-rises-wont-help-reduce-inflation-198333">inefficient</a>. The more they do so, the less likely they are to associate paying tax with something that benefits them directly and to trust public solutions to public problems.</p>
<p>Sometimes, this withdrawal into the private realm is justified as a progressive stance to protect others. Maria, a marketing director in her 40s, told us, regarding her recent decision to use private education and healthcare for her family:</p>
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<p>I’ve decided to go private to give my space to someone else. The government wants us to do that – why else would they be advertising that there are no doctors?</p>
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<img alt="Two men in suits with very different piles of cash" src="https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/548014/original/file-20230913-17-imqte4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/pay-gap-between-men-two-businessmen-1933629035">Overearth/Shutterstock</a></span>
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<h2>Cracks in the narrative</h2>
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<p>I worry about my kids. I don’t know what they’re going to do because of all the jobs – and I say this from a financial services background – a lot of the entry-level jobs have been moved offshore. The job where I started [at an accountancy firm] is now done in India, and has been done in India for some years … So it’s harder to break into those industries. (Susannah, works in an international bank with a top 1% income, in her 40s)</p>
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<p>As a rule, the UK’s highest earners appear relatively pessimistic about their country’s future, but quite optimistic about their own. This signals a tacit distance between how they see their lives and the fate of the rest. However menacing and huge the challenges of climate change and inequality might be, many are confident they will still manage to do well. Politics, as terrible as it is at the moment, mostly happens to others.</p>
<p>However, cracks are starting to appear in this narrative. We conducted a first round of interviews between 2018 and 2019, and a second in early 2022. During the first round, many in the top 10% said they worried that their children would not be able to climb the professional ladder as they did. They had seen a decline in the status of hitherto solidly middle-class professions that now appear in turmoil, such as <a href="https://www.lawsociety.org.uk/topics/legal-aid/bar-strike-what-you-need-to-know">barristers</a>, <a href="https://www.theguardian.com/society/2023/aug/31/junior-doctors-nhs-england-vote-to-continue-strikes-through-winter#:%7E:text=Junior%20doctors%20went%20on%20strike,fell%20by%2026.2%25%20since%202008.">doctors</a>, and <a href="https://www.ucu.org.uk/article/13171/Start-of-university-term-to-be-hit-with-five-days-of-UK-wide-strikes">academics</a>. Respondents such as Susannah were starting to observe that the link between hard work, education and pay might be weakening as middle-class jobs are being hollowed out, threatened by automation, offshoring and <a href="https://precaritypilot.net/precarisation-and-self-precarisation/#:%7E:text=Precarisation%20denotes%20the%20decisions%20and,workers%20decide%20to%20precarise%20themselves.">precarisation</a>.</p>
<p>During the second round, the cracks appeared even wider. Amid the Ukraine invasion and with inflation rising sharply, many told us they had started feeling the pinch themselves – especially those who relied more on their income than on savings and assets. For some, the private fees required to remain in the same circles as the UK’s wealthiest, and for their children to have a fighting chance of the best jobs of the future, appeared at risk of falling out of reach. </p>
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Read more:
<a href="https://theconversation.com/london-is-a-major-reason-for-the-uks-inequality-problem-unfortunately-city-leaders-dont-want-to-talk-about-it-212762">London is a major reason for the UK's inequality problem. Unfortunately, City leaders don't want to talk about it</a>
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<p>According to the <a href="https://www.resolutionfoundation.org/publications/living-standards-outlook-summer-2023/#:%7E:text=Key%20findings,income%20fall%20in%202022%2D23.">Resolution Foundation</a>, UK citizens are living through the worst parliament on record for household income growth. Meanwhile, as the economist <a href="https://blogs.lse.ac.uk/europpblog/2020/02/21/thomas-piketty-the-current-economic-system-is-not-working-when-it-comes-to-solving-inequality/">Thomas Piketty</a> has long argued, the preeminence of capital over wages is only becoming starker. </p>
<p>In such circumstances, what should high-income earners do? The most obvious answer is to turn as much of their income as possible into assets, in an effort to insulate themselves from inequality: to move away, to hoard, to guarantee advantages for their children. In the pursuit of all of that, tax is just a burden, rather than a potentially progressive tool for the benefit of society as a whole. This is in some sense rational. High earners can see that income from assets is not taxed in the same way, and fear the impact of redistribution on the capacity to pass on privileges to their children.</p>
<p>The top 10% may be floating away in their own socio-economic bubble, but this strategy of social distancing may ultimately prove ineffectual. Inequality doesn’t just threaten those in poverty but <a href="https://www.theguardian.com/inequality/2018/sep/18/kate-pickett-richard-wilkinson-mental-wellbeing-inequality-the-spirit-level">affects the whole of society</a>, whether through an increase in, for example, imprisonment rates, a greater burden on the health service (including higher levels of mental illness), or living in less functional and cohesive communities.</p>
<p>Even those who recognise the dangers – and long-term unsustainability – of isolating and insulating themselves from wider society struggle to find a palatable alternative. Having been raised to see individual hard work as the solution to most things, the combined challenges of AI, global warming and the gig economy – coupled with increasing concentration of wealth at the very top – makes the world a confusing place for many high earners.</p>
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<figcaption><span class="caption">Danny Dorling, professor of geography at the University of Oxford, discusses the global super-rich.</span></figcaption>
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<h2>‘Everyone became polarised’</h2>
<p>The austerity measures adopted by the UK government since 2010 have done very little to increase investment and economic growth. According to inequality expert <a href="https://repositorio.cepal.org/server/api/core/bitstreams/f5af8bf4-18a6-4bca-8000-e95b09ef04bb/content">Gabriel Palma</a>, the UK, like many other rich economies, is undergoing a process of “Latinamericanisation” – of “relentless inequality and perennial underperformance”.</p>
<p>Despite this, the UK’s relatively high earners have, until recently, been mostly insulated from the worst effects of inequality. Their share of national income has grown in the past few years <a href="https://blogs.lse.ac.uk/politicsandpolicy/to-grasp-the-extent-of-inequality-look-at-the-relatively-well-off/">while that of most people has declined</a>. Yet some we interviewed said they were feeling the political effects of a more unequal and polarised society, describing politics today as “extreme” and appearing nostalgic for a lost “centre ground”. Tony, a senior IT manager told us:</p>
<blockquote>
<p>Everything now is ‘far’ [left or right] – what’s happened to the centre group? It’s not just in politics, it’s in every area of life. There’s nowhere everyone can meet … The age of debate is disappearing. The age where you could persuade people of your opinion has gone. I don’t know when it happened – everyone became polarised.</p>
</blockquote>
<p>Yet the reality is their policy preferences still tend to coincide with policy outcomes <a href="https://press.princeton.edu/books/paperback/9780691162423/affluence-and-influence">much more closely than other income groups</a>. We summarise these preferences as “small ‘l’ liberal” in two key aspects.</p>
<p>First, we found that most high earners intuitively hold an individualised worldview in which everyone is responsible for his or her own actions, and should be left alone as long as they don’t hurt anyone else and can prove that they can support themselves and their families. Through their educational and professional successes, they have managed to attain such a position for themselves so it follows that they should have the prerogative to be left mostly alone. This is seen as simply common sense.</p>
<p>Second, while this group is more likely than the rest to be relatively liberal on issues such as same-sex marriage, abortion and immigration, their views on the economy are not so left-of-centre. High earners are the most likely income group to oppose tax increases. According to both surveys and our interviews, a majority were against redistributive policies or raising taxes. <a href="https://www.tasc.ie/publications/inequality-and-the-top-10-in-europe-policy-recomme/">Comparatively</a>, the anti-welfare inclination of the UK’s top 10% is noticeable, along with its stronger support of meritocratic beliefs.</p>
<p>Michael Sandel, a professor of government at Harvard Business School, has studied the negative societal effects of <a href="https://news.harvard.edu/gazette/story/2021/01/the-myth-of-meritocracy-according-to-michael-sandel/">belief in meritocracy in the US</a>. For example, many young Americans are sold the message that they have won college places or landed desirable jobs on their own merit – ignoring the social and economic advantages that have helped along the way. This, Sandel observes, can corrode social cohesion because:</p>
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<p>The more we think of ourselves as self-made and self-sufficient, the harder it is to learn gratitude and humility. And without these sentiments, it is hard to care for the common good.</p>
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<figcaption><span class="caption">Michael Sandel on mistaken ideas of meritocracy.</span></figcaption>
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<h2>What can be done to change this mindset?</h2>
<p>Any organisation (political or third-sector) arguing for a more liveable and equal society than the UK has now must be able to include at least some of the relatively well-off, by convincing them that greater public investment – and thus higher levels of taxation of one form or another – will benefit them too.</p>
<p>This demands more <a href="https://en.wikipedia.org/wiki/Sociological_imagination">sociological imagination</a> on the part of the UK’s high earners – a greater understanding both of their own position, and that the circumstances that allowed them to become high earners in the first place are not available to all.</p>
<p>However, appealing to any social group at a cognitive level is unlikely to work on its own, especially as the way they have carried out their lives until now, has, in their own minds, been proved correct. Most think they’re taxed enough already, that they aren’t rich and therefore the welfare state is a burden on them, and will increasingly go private.</p>
<p>Whether their position is based on their bottom line or their educational credentials, many have been socialised to create a distance between themselves and “others”. Yet the evidence we see of their mounting anxiety about simply remaining where they are suggests the material interests of many high earners may be changing. </p>
<p>The strategies they have used to propel their, until now, upward trajectories may be becoming less effective – while policies that would benefit the majority would also benefit them. These could include strengthening the welfare state, destigmatising the use of public services, demanding more from the private sector, favouring investment in public infrastructure, and taxing the wealthiest in society. However, none of these policies are currently being championed, either by the government or opposition.</p>
<p>To encourage greater acceptance among high earners, one framing of such policies is to envision a future in which being part of the 90% doesn’t seem so terrible after all. Writing about the US, <a href="https://www.brookings.edu/books/dream-hoarders/">Richard Reeves</a> has argued that high-income earners should be OK with the idea of their children falling down the income ladder. One strand of a more cohesive future is that this prospect shouldn’t be immediately horrifying to them.</p>
<p>While members of the UK’s top 10% often work for and with the very highest earners in industries such as finance and management consultancy, the interests of these two groups increasingly look quite different. It is certainly unhelpful to demonise the top 10% as the main culprits for the UK’s social and economic ills.</p>
<p>Instead, we urgently need to encourage their greater participation in society for the future common good. As the social scientist <a href="https://www.theguardian.com/society/2021/jan/04/sir-john-hills-obituary">Sir John Hills</a> put it in his 2014 defence of the welfare state, <a href="https://policy.bristoluniversitypress.co.uk/good-times-bad-times-1">Good Times, Bad Times</a>:</p>
<blockquote>
<p>When we pay in more than we get out, we are helping our parents, our children, ourselves at another time – and ourselves as we might have been, had life not turned out quite so well. In that sense, we are all – nearly all – in it together.</p>
</blockquote>
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<img alt="" src="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=112&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=112&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=112&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=140&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=140&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=140&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://howthelightgetsin.org/festivals/london?utm_source=MP+L23+Conversation&utm_medium=Article+feature&utm_campaign=HTLGI+London+2023&utm_id=The+Conversation">HowTheLightGetsIn</a>’s theme for London 2023 is <a href="https://howthelightgetsin.org/festivals/london/the-big-ideas">Dangers, Desire and Destiny</a>. The two-day festival on September 23-24 covers everything from politics, science, philosophy and the arts and attracts a host of speakers including Nobel Laureates, Pulitzer prize-winners, political activists and world leading thinkers.</em></p>
<p><em>Alongside the Conversation’s curated event <a href="https://howthelightgetsin.org/events/the-common-good-16017">The Common Good</a>, expect to see Alastair Campbell, Rory Stewart, Ruby Wax, Michio Kaku, David Baddiel, Carol Gilligan, Martin Wolf and more lock horns over a packed weekend of debates, talks and performances. <a href="https://howthelightgetsin.org/festivals/london/programme?utm_source=MP+L23+Conversation&utm_medium=Article+feature&utm_campaign=HTLGI+London+2023&utm_id=The+Conversation">Explore the full programme here</a> and don’t miss out on <a href="https://howthelightgetsin.org/festivals/london/festival-passes?utm_source=MP+L23+Conversation&utm_medium=Article+feature&utm_campaign=HTLGI+London+2023&utm_id=The+Conversation">20% off tickets using code CONVO23</a>.</em></p><img src="https://counter.theconversation.com/content/213270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marcos Gonzalez Hernando receives funding from the Agencia Nacional de Investigación y Desarrollo and from the Centro de Estudios del Conflicto y Cohesión Social. This research was initially sponsored by the Foundation of European Progressive Studies and the Think-tank for Action on Social Change. His book, Uncomfortably Off: Why the Top 10% of Earners Should Care about Inequality, co-authored by Gerry Mitchell, is published by Policy Press (May 2023).
</span></em></p>You may feel little sympathy for people in the top bracket of earnings, but don’t let that stop you reading. Like it or not, their views and actions matter to everyoneMarcos Gonzalez Hernando, Honorary Research Fellow, UCL Social Research Institute, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2004272023-03-01T19:15:03Z2023-03-01T19:15:03ZFirst Nations are using ‘creative disruption’ to foster economic growth in their communities<figure><img src="https://images.theconversation.com/files/512515/original/file-20230227-2379-atkjkh.JPG?ixlib=rb-1.1.0&rect=194%2C389%2C6149%2C4057&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Prime Minister Justin Trudeau and Squamish Nation councillor Khelsilem hold a ceremonial paddle after a groundbreaking ceremony at the First Nation's Sen̓áḵw housing development site in Vancouver in September 2022.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Darryl Dyck</span></span></figcaption></figure><p>First Nations have been resisting the <a href="https://doi.org/10.1177/2158244019879137">historic and ongoing impacts of Canada’s extractive economy</a> on their communities by exercising <a href="https://www.rcaanc-cirnac.gc.ca/eng/1100100032275/1529354547314">their right to self-governance</a> and taking control of their economic futures.</p>
<p>Creative disruption stands in contrast to <a href="https://www.econlib.org/library/Enc/bios/Schumpeter.html">creative <em>destruction</em></a>, a term coined by Austrian political economist Joseph Schumpeter. Schumpeter argued that capitalism causes old ideas and technology to quickly become obsolete through the process of innovation. In the pursuit of profit, capitalism ruthlessly and relentlessly eliminates old ideas and installs new ones.</p>
<p>Creative disruption, on the other hand, aims to make space for new ideas by forcing the old ways to adapt and adopt. First Nations communities are doing this in a number of ways.</p>
<p>As an academic with a background in urban land economics, I have studied how First Nations are using creative disruption to shape businesses, urban communities and the health-care system in Canada.</p>
<h2>Sen̓áḵw development project</h2>
<p>One of the ironies of modern Indigenous land law is how the reserve system defined by the Indian Act, originally <a href="https://indigenousfoundations.arts.ubc.ca/the_indian_act">designed to assimilate Indigenous nations and communities into mainstream Canadian culture</a>, has morphed into a strategic asset for First Nations.</p>
<p>As author Bob Joseph notes in <a href="https://www.cbc.ca/books/21-things-you-may-not-know-about-the-indian-act-1.4635204"><em>21 Things You May Not Know About the Indian Act</em></a>, the Squamish Nation lost 14 acres (about 0.05 square kilometres) of their territory in Vancouver to a lumber company through expropriation in 1904.</p>
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<img alt="A man in a suit speaks from behind a podium that says 'Building More Homes' on the front of it. In the background a group of people wearing fluorescent vests and hard hats stand in front of an excavator." src="https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/512516/original/file-20230227-194-6o080d.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Prime Minister Justin Trudeau speaks during an announcement and groundbreaking ceremony at the Squamish Nation’s Sen̓áḵw housing development site in Vancouver in September 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Darryl Dyck</span></span>
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<p>After a century of litigation, the <a href="https://www.cbc.ca/news/canada/british-columbia/little-known-history-of-squamish-nation-land-in-vancouver-1.5104584">Squamish Nation recovered some of the lost land</a> and <a href="https://globalnews.ca/news/9109033/squamish-nation-breaks-ground-housing-development/">is now in the process of building Sen̓áḵw</a>, a massive economic development project in Kits Point, Vancouver.</p>
<p>Sen̓áḵw is the largest Indigenous-led housing retail development in Canadian history and will add much-needed housing supply <a href="https://theconversation.com/new-study-reveals-intensified-housing-inequality-in-canada-from-1981-to-2016-173633">to a market that has become unaffordable</a> for most. The development plans to build <a href="https://www.theglobeandmail.com/canada/british-columbia/article-squamish-nations-planned-development-on-reserve-land-in-vancouver/">11 towers and 6,000 housing units</a>.</p>
<h2>Naawi-Oodena urban reserve</h2>
<p>A second example of creative disruption is the creation of the <a href="https://www.aptnnews.ca/national-news/naaawi-oodena-now-official-urban-reserve-in-winnipeg/">Naawi-Oodena urban reserve</a> in Winnipeg. It’s <a href="https://www.cbc.ca/news/canada/manitoba/naawi-oodena-repatriation-winnipeg-largest-urban-reserve-1.6691359">the largest urban reserve in Canada</a>, covering 64 hectares. </p>
<p>Naawi-Oodena was officially established after the land the reserve sits on — the former Kapyong Barracks — was recently repatriated to <a href="https://treaty1.ca/treaty-one-nation/">the seven Treaty One First Nations</a>.</p>
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Read more:
<a href="https://theconversation.com/urban-reserves-are-tests-of-reconciliation-114472">Urban reserves are tests of reconciliation</a>
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<p>Treaty One Nation <a href="https://www.cbc.ca/news/canada/manitoba/first-nations-file-lawsuit-over-kapyong-land-1.695601">fought to have the land returned to them</a> under the provisions of the <a href="http://www.tlec.ca/framework-agreement/">Treaty Land Entitlement Framework Agreement</a> after the Canadian government tried to transfer the land to a Crown corporation years ago.</p>
<p>After a prolonged legal process, a judge ruled the <a href="https://www.cbc.ca/news/canada/manitoba/first-nations-not-consulted-on-kapyong-barracks-sale-court-rules-1.3192485">federal government failed to adequately consult with Treaty One Nation</a> and the land transfer was ruled illegitimate in 2015.</p>
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<p>An incorporated consortium run by the Treaty One Nation, called <a href="https://lpband.ca/treaty-one-development-corporation/">the Treaty One Development Corporation</a>, will oversee developments on Naawi-Oodena.</p>
<p>As a self-governing nation, Treaty One will set its own land management policies, potentially in contrast to the zoning and building codes of Winnipeg. In reality, it’s likely to gently push or disrupt urban development, rather than outright destroy current practices since its goal is to attract tenants, the majority of which will be non-Indigenous.</p>
<h2>First Nations health care</h2>
<p>First Nations entrepreneurs are also seeking out ways to revolutionize the Canadian health-care system. Enoch Cree Nation in Alberta entered into an agreement with contractors to <a href="https://www.cbc.ca/news/canada/edmonton/private-orthopedic-surgical-facility-coming-to-enoch-cree-nation-next-year-1.6474534">create a private health clinic</a> offering simple hip and knee surgeries. </p>
<p>The provincial government will fund the procedures through medicare and publicly funded hospitals will still handle more complicated surgeries. </p>
<p>Enoch Cree Nation joins a growing number of private health clinics in Canada forming public-private partnerships. They are not the first First Nation to get involved with health care, either. </p>
<p>In 2012, Westbank First Nation <a href="https://www.cbc.ca/news/canada/british-columbia/b-c-first-nation-plans-private-hospital-1.1298463">announced a plan to build a private, for-profit hospital</a>. Some constitutional experts <a href="https://www.cbc.ca/news/canada/british-columbia/westbank-first-nation-hospital-likely-unconstitutional-says-expert-1.1288670">warned that Westbank First Nation was violating the Canada Health Act</a>, but <a href="https://infotel.ca/newsitem/westbank-first-nations-private-hospital-still-on-shaky-legal-ground/it22697">the nation responded by arguing</a> that, as a self-governing nation, it was not bound by federal laws.</p>
<p>Enoch Cree Nation’s private clinic will face other challenges. While COVID-19 has shaken the faith Canadians have in our health-care system, and <a href="https://globalnews.ca/news/9458260/health-care-private-options-majority-canadians-support-poll">receptivity to private health care may be growing</a>, the affinity for public health care remains strong.</p>
<h2>Legal redress</h2>
<p>First Nations have also become creative disrupters by pursuing legal redress for past injustices. The courts have reached back through treaties all the way back to <a href="https://indigenousfoundations.arts.ubc.ca/royal_proclamation_1763/">the Royal Proclamation of 1763</a> to widen Canada’s constitution beyond the formal acts to include treaties with First Nations.</p>
<p>Institutional changes supporting disruption include <a href="https://laws.justice.gc.ca/eng/const/Const_index.html">Article 35 of the 1982 Constitution Act</a> that recognizes the “existing aboriginal and treaty rights of the aboriginal peoples of Canada.” This clause is widely interpreted as creating a nation-to-nation relationship between First Nations and Canada.</p>
<p>Equally important for commercial ventures is <a href="https://laws-lois.justice.gc.ca/eng/acts/i-5/">Article 87 of the Indian Act</a> which exempts First Nations land from taxation by any order of government. This means an urban reserve does not pay property tax to a municipality.</p>
<p>Despite <a href="https://www.thestar.com/news/canada/2021/02/06/bob-joseph-why-the-indian-act-must-go-and-canada-will-be-better-for-it.html">criticism of the Indian Act by authors like Joseph</a>, Article 87 offers a major fiscal benefit for First Nations individuals and businesses on reserve. Although a complex area of law, this tax exemption is an important reason why First Nations may prefer to add land to existing reserves or to create new reserves, rather than owning land conventionally like corporations.</p>
<h2>Furthering reconciliation</h2>
<p>Despite some First Nations regaining rights and titles to their lands, Indigenous communities in Canada still <a href="https://www.ourcommons.ca/Content/Committee/441/INAN/Reports/RP11714230/inanrp02/inanrp02-e.pdf">face many barriers to economic participation</a>. By engaging in the examples of creative disruption here, First Nations are working toward economic prosperity for their communities and, in the process, are also working toward reconciliation.</p>
<p>The <a href="https://www.un.org/development/desa/indigenouspeoples/wp-content/uploads/sites/19/2018/11/UNDRIP_E_web.pdf">United Nations Declaration on the Rights of Indigenous Peoples</a> — <a href="https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/indigenous-people/aboriginal-peoples-documents/calls_to_action_english2.pdf">the framework for reconciliation according to the Truth and Reconciliation Commission of Canada</a> — states Indigenous people have the right to pursue their own means of economic development. By starting their own entrepreneurial and developmental projects, First Nations are engaging in their inherent “right to maintain and develop their political, economic and social systems or institutions.”</p>
<p>Reconciliation also works best when all parties involved benefit from changes. These examples of creative disruption will benefit non-Indigenous Canadians as well as Indigenous people by increasing the housing supply in Vancouver and Winnipeg, bringing remote First Nations into the economic orbit of cities and offering increased health treatment options.</p><img src="https://counter.theconversation.com/content/200427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory C Mason receives funding from The University of Manitoba and the Thorlakson Family Foundation Fund (Health related research).
</span></em></p>By starting their own entrepreneurial and developmental projects, First Nations are working toward economic prosperity for their communities and furthering reconciliation.Gregory C Mason, Associate Professor of Economics, University of ManitobaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1752332022-01-20T04:06:41Z2022-01-20T04:06:41ZOmicron is overwhelming Australia’s hospital system. 3 emergency measures aim to ease the burden<p>Public hospitals – never with much spare capacity – have been severely stressed by the latest COVID wave.</p>
<p>The current Omicron outbreak has loaded even heavier demands on hospital beds, both for those who need oxygen and for the severely ill in intensive care wards, as well as those who cannot be cared for at home or in an aged-care facility.</p>
<p>Shortages of beds and hospital equipment are matched by staffing problems as front-line workers <a href="https://www.theguardian.com/australia-news/2022/jan/03/covid-positive-nurses-are-working-in-nsw-hospitals-due-to-severe-staffing-shortages">catch COVID</a>, are contacts of cases, or are emotionally and physically <a href="https://7news.com.au/lifestyle/health-wellbeing/nsw-records-17-deaths-29504-covid-cases-c-5336468">exhausted</a>.</p>
<p>Staff are angry having to provide intensive care beds for people who choose not to be vaccinated and then get seriously ill. </p>
<p>Intensive care nurses in Sydney <a href="https://www.news.com.au/national/new-south-wales-icu-nurses-strike/video/3d88eba2d883e3b3462171a950bcd5b0">began strike action</a> outside Westmead Hospital on Wednesday to protest dangerous work conditions and low staffing levels.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1482494995634753544"}"></div></p>
<p>Many of our hospitals were not equipped to face an enemy like COVID.</p>
<p>Now, three emergency measures will help us muddle through the crisis, caused in part by the removal of public health controls just before the social festive season which commentators have referred to as “letting it rip”.</p>
<p>The combined effects of these short-term measures should enable us to cope with the pressures of increased numbers of patients requiring care.</p>
<p>But the sheer number of cases of Omicron, even if is milder than the Delta variant and assuming case numbers decline, will test these arrangements to the limit.</p>
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<strong>
Read more:
<a href="https://theconversation.com/from-covid-control-to-chaos-what-now-for-australia-two-pathways-lie-before-us-174325">From COVID control to chaos – what now for Australia? Two pathways lie before us</a>
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<h2>1. Reinforcing the front line</h2>
<p>In Victoria, a “<a href="https://www.abc.net.au/news/2022-01-19/what-is-code-brown-emergency-in-victorian-hospitals/100765890">Code Brown</a>” has been implemented across the hospital system.</p>
<p>It means staff of major city and regional public hospitals may have their leave cancelled and be allocated to work where needs are greatest. Non-urgent care may be postponed.</p>
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<p>It’s designed to allow the hospitals to compensate for thousands more patients and several thousand fewer staff, off work because of COVID.</p>
<p>This is the first time the code has been used statewide.</p>
<p>It’s designed to respond to an emergency, such as a road accident, bushfire or other natural disaster.</p>
<h2>2. Recruiting the private sector</h2>
<p>The federal government has agreed <a href="https://www.abc.net.au/news/2022-01-18/private-hospitals-take-public-patients-omicron-covid-pressure/100764512">private hospitals should work with public hospitals</a> to care for COVID patients.</p>
<p>During the pandemic, most COVID patients have been treated in the public sector.</p>
<p>Health minister Greg Hunt said this week up to 57,000 nurses and thousands of support staff from private hospitals would be available to work in public hospitals.</p>
<p>This contingency plan was enacted in 2020 and held in reserve. Now it’s needed because of short staffing in the public sector because of the load and absenteeism of staff.</p>
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<p>The details – including wages – would be left to the states to determine. </p>
<p>This move should ease the pressure on public hospitals. But a nurse or other health worker from a private hospital working in a public hospital environment encounters yet more stress. It’s rather like moving between countries – language and customs vary, and in the strict, protocol-driven environment of the modern hospital, these differences can be dangerous.</p>
<p>The workers to be drawn from the private sector were not idle before the call-up. It is not clear who, if anyone, will do the work these people did previously in the private sector, which provides much elective surgery. Further delays and cancellations of surgery may result.</p>
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Read more:
<a href="https://theconversation.com/were-two-frontline-covid-doctors-heres-what-we-see-as-case-numbers-rise-167195">We're two frontline COVID doctors. Here's what we see as case numbers rise</a>
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<h2>3. Elective surgeries postponed</h2>
<p>Elective surgery – that is, non-urgent surgery – will be reduced in public hospitals across many parts of the country, if not completely cancelled. This includes hip and knee replacements and surgery for many problems other than emergencies.</p>
<p>This action has been taken at several stress points in the past two years.</p>
<p>For those people depending on Medicare and public hospitals for hip surgery, for example, this will mean further delays.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1483953254690336769"}"></div></p>
<p>There’s much to be learned from the experience in all sectors of the health enterprise – hospitals, general practice, public health, and health service management – from the successes and mistakes in how we’ve managed COVID. </p>
<p>When the COVID war is over, it will be time for forensic soul searching to enable us to build a modern and better health system.</p>
<p>We have done well, but not as well as we might.</p><img src="https://counter.theconversation.com/content/175233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Leeder does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A public health expert explains emergency measures recently brought in to manage the impact of Omicron on our stressed health system.Stephen Leeder, Emeritus Professor, Menzies Centre for Health Policy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1481912020-10-21T19:00:16Z2020-10-21T19:00:16ZThinking of ditching private health insurance in the pandemic? Here’s how to calculate if it’s worth it for you<figure><img src="https://images.theconversation.com/files/364635/original/file-20201021-13-51vuek.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7360%2C4912&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><a href="https://thenewdaily.com.au/finance/your-budget/2020/09/28/private-health-premium-rise/">Almost all</a> private health insurers increased their premiums in October, and have scheduled another price rise for April 2021. As many people <a href="https://melbourneinstitute.unimelb.edu.au/data/covid-19-tracker">struggle financially amid the pandemic</a>, you may be wondering whether you should drop your private health insurance altogether. </p>
<p>Before you do, bear in mind some government policies affect the cost of your insurance, and sometimes dropping it may even cost you more.</p>
<h2>Here’s the bottom line</h2>
<p>For singles with an income above A$105,000, and for families with an income above $180,000, it’s worth buying private hospital cover even if you don’t think you’ll use it. I’ll explain why in a moment.</p>
<p>People with incomes below these levels need to compare value and costs. The decision varies a lot depending on your age.</p>
<p>Three key polices affect your premium costs: the <a href="https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/">Medicare levy surcharge</a>, government <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/insurance_rebate.htm">rebates</a>, and discounts for <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/discount_age.htm#:%7E:text=Age%2Dbased%20Discount-,Age%2Dbased%20Discount,will%20be%20gradually%20phased%20out.">younger people</a>.</p>
<p>Throughout this article, we’re talking about hospital cover, not “extras” like dental, optical or physio, which aren’t affected by these policies. You can buy extras cover separately without hospital cover. Extras cover is much cheaper than hospital cover, and an easier decision overall — you can readily compare how much you stand to gain from extras cover (based on how often you’re expecting to visit a physiotherapist, for instance) and then weigh that against how much it will cost you.</p>
<p>Here are the main things you should factor in when deciding on hospital cover.</p>
<h2>There’s the Medicare levy, and then there’s the surcharge</h2>
<p><a href="https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-exemption/category-1--medical-exemption-from-medicare-levy/">Almost all</a> Australians pay 2% of their taxable income as the <a href="https://www.ato.gov.au/Individuals/Medicare-levy/">Medicare levy</a>. This money goes towards funding parts of the public health-care system. It pays for Australians to get free (or much cheaper) GP visits and care in public hospitals.</p>
<p>If you earn above a certain income and don’t have private hospital cover (extras cover does not apply), you have to pay an extra 1-1.5% of your taxable income, called the <a href="https://privatehealth.gov.au/health_insurance/surcharges_incentives/medicare_levy.htm">Medicare levy surcharge</a>.</p>
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<p>For example, if John Citizen has a total taxable income of $150,000, he must pay $2,250 in additional tax (the Medicare levy surcharge), on top of the $3,000 he already pays as the Medicare levy. If he buys an appropriate level of private hospital cover, he can waive this extra tax and just pay the $3,000.</p>
<h2>Keep an eye on government rebates</h2>
<p>Singles with an income below $140,000, and families with an income below $280,000, can get government rebates on their private health insurance — that is, a partial refund. The level of this rebate <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/insurance_rebate.htm">varies by income and age</a>.</p>
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<h2>Discounts for the young</h2>
<p>Since April 2019, people aged 18–29 have been able to get discounts of up to 10% of their <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/discount_age.htm">private hospital premiums</a>. The allowable discounts are 2% for people aged 29, 4% for 28, 6% for 27, 8% for 26, and 10% for 18-25. People will retain that discount until they turn 41, then the discount gradually decreases by 2% per year.</p>
<p><a href="http://www.yutingzhang.com/phi.html">Factoring the above policies in</a>, for singles with an income above $105,000 and families with an income above $180,000, it makes sense to buy private hospital insurance even if you won’t use it. That’s because you can find hospital cover cheaper than the Medicare levy surcharge.</p>
<p>For those with an income below these levels, you need to compare <a href="http://www.yutingzhang.com/phi.html">whether the value is more than the cost</a>. Value consists of two components: protection from unexpected catastrophic risk, and your expected use of private hospital care.</p>
<p>First, value from risk protection is highly subjective, depending on your level of tolerance for potentially catastrophic uncertainties. Some people might naturally be more anxious about risks, but others less so. For example, people buy home and contents insurance to cover unexpected natural or accidental catastrophes, or burglary. But arguably, this component of value is small in the health insurance market because all Australians are insured by Medicare to cover their health needs in public hospitals, and are therefore protected from the financial risk of catastrophic health problems. </p>
<p>Second, there is value in buying private health insurance if you anticipate using private care, which can reduce your waiting time for certain elective surgeries, or give you a choice of doctors. This goes to the second part of value: expected use. </p>
<p>Take a look at the table below for the national averages for your age regarding your expected use of private hospital care. Basically, the older you are, the more you’re likely to use it, and the greater the expected benefit.</p>
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<p>Here’s an example. If you are single, 24 years old, are comfortable taking risks, have an income below $90,000, and your expected use of private hospital care is in line with the national average, your value from buying private hospital insurance is about $550 a year. As per the above graph, for people 20-24 years old, $550 was the national average of benefits actually paid by private insurance companies between July 2019 and June 2020.</p>
<p>Meanwhile, your median premium cost is $1,457 <a href="http://www.yutingzhang.com/phi.html">after rebates and discounts</a>, and you are exempt from the Medicare levy surcharge. So it may not be worth buying private hospital insurance in this set of circumstances.</p>
<p>When <a href="http://www.yutingzhang.com/phi.html">comparing value and costs</a>, you are most likely better off buying private hospital insurance given the current government policies for the following scenarios: </p>
<ul>
<li><p>family cover: family income above $180,000; family income below $180,000 if older than 44 or with special needs for private hospital care (such as childbirth in private hospitals). </p></li>
<li><p>single cover: income above $105,001; income below $90,000 and older than 54; income between $90,000 and $105,001 and older than 24.</p></li>
</ul>
<h2>And don’t forget</h2>
<p>There are a few final things you should keep in mind. When you use your insurance for a stay in hospital, there will be out-of-pocket, or “gap”, costs. So you’ll still have to pay extra even with private hospital insurance.</p>
<p>Then there is the Lifetime Health Cover loading, which adds 2% to your insurance premiums <a href="https://www.ato.gov.au/individuals/medicare-levy/private-health-insurance-rebate/lifetime-health-cover/">for every year you are over 30</a> if you don’t have hospital cover by 1 July following your 31st birthday.</p>
<p>For example, if you wait until you’re 40 to buy private hospital insurance for the first time, you could pay an extra 20% on hospital premiums. The loading is removed once you’ve held appropriate private hospital cover for ten consecutive years.</p>
<p>More generous coverage requires higher premiums. What’s more, even for the same coverage, premiums may vary substantially across insurers. So, shop around and use free resources to <a href="https://www.privatehealth.gov.au/dynamic/search/start">compare health insurance policies</a>.</p>
<p>Finally, it’s a good idea to re-evaluate your options every year or every other year as your situation or government policy changes.</p><img src="https://counter.theconversation.com/content/148191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Professor Yuting Zhang receives funding from Australian Research Council Future Fellowship and National Health and Medical Research Council's Medical Research Future Fund. </span></em></p>It can be hard to work out what calculations to make when deciding on private health. So we asked a health economist to break it down.Yuting Zhang, Professor of Health Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1444432020-08-25T15:56:12Z2020-08-25T15:56:12ZUnhealthy reforms: The dangers of Alberta’s plan to further privatize health-care delivery<figure><img src="https://images.theconversation.com/files/354138/original/file-20200821-16-rf2jrf.jpg?ixlib=rb-1.1.0&rect=41%2C8%2C2556%2C1881&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alberta Minister of Health Tyler Shandro speaks during a press conference in Calgary on May 29, 2020. The Alberta government is proposing legislation to accelerate approvals of private clinics in order to get more surgeries done.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span></figcaption></figure><p>The Alberta government recently passed <a href="https://docs.assembly.ab.ca/LADDAR_files/docs/bills/bill/legislature_30/session_2/20200225_bill-030.pdf">legislation</a> to increase the role of corporations in the health-care system and facilitate the government’s goal of having <a href="https://www.theglobeandmail.com/canada/alberta/article-alberta-to-use-rural-hospital-private-clinics-for-minor-surgeries/">30 per cent of the province’s surgeries performed in private facilities</a>. </p>
<p>These changes risk undermining the public health-care system, increasing costs and decreasing quality. <a href="https://edmontonjournal.com/news/politics/proposed-200-million-private-health-facility-a-huge-concern-critics-say">Media reports</a> about a proposed private surgical facility suggest that the government may be putting profits over the public good in implementing the reforms.</p>
<h2>Corporatization of health delivery</h2>
<p>The legislative changes allow corporations to make financial arrangements with the government to provide health services, and to contract with physicians to deliver those services. </p>
<p>This is a departure from the current system in which only physicians (either directly or through their professional corporations) could bill the government for providing health services. Unlike physicians, who must place the interests of their patients above their own personal and financial interests, corporations owe financial obligations to their shareholders that may conflict with the interests of patients.</p>
<h2>Privatization of health delivery</h2>
<figure class="align-center ">
<img alt="Close-up of a male surgeon's face looking down, wearing a surgical mask and cap, glasses and a forehead-mounted light." src="https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/354136/original/file-20200821-18-1of5rrs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">With the expansion of private delivery, a larger variety of surgical procedures will be performed in private clinics.</span>
<span class="attribution"><span class="source">(Unsplash/National Cancer Institute)</span></span>
</figcaption>
</figure>
<p>The new legislation also facilitates the private delivery of publicly funded surgeries. Although some services are already <a href="https://www.albertahealthservices.ca/about/Page3172.aspx">delivered privately</a> (most commonly cataract surgery), many more surgeries and a <a href="https://www.cbc.ca/news/canada/edmonton/mastectomies-hernias-possibilities-for-private-surgical-delivery-1.5448131">larger variety of procedures</a> will now be performed in private, for-profit, facilities. </p>
<p>For-profit delivery <a href="https://www.policyalternatives.ca/sites/default/files/uploads/publications/BC%20Office/2016/04/CCPA-BC-Reducing-Surgical-Wait-Times.pdf">tends to cost more</a> than non-profit delivery, given the need to deliver returns to investors. In a <a href="https://s3-us-west-2.amazonaws.com/parkland-research-pdfs/deliverymatters2.pdf">previous experiment with privatization</a>, surgeries cost more in the private facility than in the public system, and Albertan taxpayers bailed out the facility when it ran into financial difficulties. Evidence also suggests that <a href="https://www.cmaj.ca/content/166/11/1399?ijkey=7977d3b90df49620fcd42cd7a14f9c8895cd1139&keytype2=tf_ipsecsha">for-profit facilities tend to deliver lower quality care</a> than non-profit facilities.</p>
<p>The government’s stated rationale for increased private delivery is to reduce wait times. This claim <a href="https://www.longwoods.com/content/26228//commentary-the-consequences-of-private-involvement-in-healthcare-the-australian-experience">runs contrary to evidence</a> that indicates that reallocating finite health professional hours to the private system increases wait times in the public system. </p>
<p>Because private facilities generally <a href="https://doi.org/10.1002/hpm.2502">prefer healthier patients with less complex medical needs</a>, those with more complex needs will be left waiting longer for care in public hospitals. Recruiting additional staff to address these issues would be difficult, given the government’s <a href="https://www.cbc.ca/news/canada/calgary/alberta-kenney-doctors-government-1.5653948">strained relationship</a> with physicians. </p>
<h2>Centralization of government control</h2>
<p>Perhaps in a bid to minimize opposition to its controversial reforms, the government is also <a href="https://healthydebate.ca/opinions/alberta-key-health-institutions">asserting control over key health institutions</a>. For example, the new legislation shrinks the responsibilities of Alberta Health Services (AHS), the entity responsible for contracting with private providers, and allows the government to impose an accountability framework on AHS.</p>
<figure class="align-center ">
<img alt="View of Alberta legislature from above, in winter." src="https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=525&fit=crop&dpr=1 754w, https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=525&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/354139/original/file-20200821-20-ejt11a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=525&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">View of the Alberta Legislature in Edmonton on March 28, 2014. A recent proposal by the Alberta government could increase its control over institutions that regulate health professionals.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jason Franson</span></span>
</figcaption>
</figure>
<p>The government recently <a href="https://www.albertadoctors.org/services/media-publications/presidents-letter/pl-archive/possible-changes-hpa-self-regulation-concerns">circulated a proposal</a> that could increase its control over the key functions of institutions that regulate health professionals. Because one of these institutions, the College of Physicians and Surgeons, is responsible for accrediting and setting standards for private surgical facilities, the proposal could be a way of influencing that process. </p>
<p>The government has also <a href="https://www.longwoods.com/content/26298//proposed-legislation-erodes-independence-and-expertise-of-alberta-s-healthcare-institutions">increased the number of public members on self-regulatory bodies</a>. Given the government’s influence on the appointment process, this may also be a means of increasing its control over these bodies.</p>
<h2>Implementing private delivery</h2>
<p>Details have emerged about <a href="https://www.cbc.ca/news/canada/edmonton/private-orthopedic-surgical-alberta-health-1.5678883">discussions between Ministry of Health officials and a group of surgeons, developers and lobbyists</a> regarding a proposed $200-million facility that would perform most orthopedic surgeries in the Edmonton region. These discussions illustrate how private delivery can prioritize profits over the public interest. </p>
<p>This facility is likely to benefit from public subsidies. For example, if procedures performed in private facilities result in serious complications, or if patients require readmission to hospital, public hospitals will likely be responsible for treating these patients. </p>
<p>In addition, acquiring land and constructing the facility will require public investment, whether by way of direct funds, tax credits or by allowing the facility to recoup its costs through service contracts negotiated with the government. Furthermore, the investors are reportedly insisting on contractual terms that will make their contract with the government <a href="https://www.cbc.ca/news/canada/edmonton/experts-raise-alarm-about-proposed-largest-private-surgical-facility-in-alberta-history-1.5679074">expensive to cancel and binding on future governments</a>, placing financial risks on taxpayers. </p>
<p>There are also transparency problems with the project. Lobbyists had access to high-level government officials, raising concerns that lobbying efforts rather than public interest will influence who receives private contracts, the terms of those contracts and how these facilities will be regulated. </p>
<p>The opposition party has <a href="https://www.cbc.ca/news/canada/edmonton/alberta-auditor-general-review-requested-in-private-orthopedic-surgical-facility-1.5683305">asked the auditor general to investigate</a>, alleging political interference in the procurement process. AHS was <a href="https://www.cbc.ca/news/canada/edmonton/experts-raise-alarm-about-proposed-largest-private-surgical-facility-in-alberta-history-1.5679074">excluded from the discussions</a> and will reportedly be pressured to accept the initiative. </p>
<p>Recent reforms embracing the corporatization and privatization of health services undermine the public health-care system and risk prioritizing profits over patients and taxpayers. However, challenges to public health care are not limited to Alberta. </p>
<p>For example, <a href="https://www.huffingtonpost.ca/colleen-m-flood/public-vs-private-healthcare-canada_b_7136996.html">ongoing litigation in British Columbia</a> threatens laws limiting private finance, and Saskatchewan has been engaged in a lengthy <a href="https://www.cbc.ca/news/canada/saskatchewan/sask-mri-federal-money-1.5483849">dispute with the federal government over private MRIs</a>. </p>
<p>These privatization efforts threaten the basic tenet of the Canadian health-care system: access based on need rather than ability to pay.</p><img src="https://counter.theconversation.com/content/144443/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Recent Alberta legislation increasing privatization in the health sector risks undermining the public health-care system, and will likely put profits over the public interest.Lorian Hardcastle, Associate Professor, Faculty of Law and Cumming School of Medicine; Member, AMR One Health Consortium, University of CalgaryUbaka Ogbogu, Associate Professor, Faculty of Law and Faculty of Pharmacy and Pharmaceutical Sciences, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1320042020-02-18T19:02:04Z2020-02-18T19:02:04ZYoung people dropping private health hurts insurers most, not public hospitals<figure><img src="https://images.theconversation.com/files/315858/original/file-20200218-10995-63wavc.jpg?ixlib=rb-1.1.0&rect=49%2C16%2C5453%2C3646&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/family-budget-finances-young-woman-doing-546537382">Shutterstock</a></span></figcaption></figure><p>Young Australians are abandoning private health insurance in droves. And the overall decline in the percentage of the population with private coverage is continuing.</p>
<p><a href="https://www.apra.gov.au/quarterly-private-health-insurance-statistics">New data</a> for the three months to the end of 2019, released yesterday by the private health insurance regulator, show that compared with the same time a year ago, 44,000 fewer young people (aged 25 to 34) have private health insurance. </p>
<p>The percentage of the population with some form of private hospital insurance is down 0.7 percentage points compared to the December quarter in 2018 and now stands at 44.0%.</p>
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<p>The private health insurance industry is in a dire predicament, and people who remain in private health insurance also stand to lose out.</p>
<p>But the industry’s argument a youth exodus will put massive amounts of additional pressure on public hospitals doesn’t stack up. The industry’s self-serving claims are simply designed to bolster its case for yet more government handouts.</p>
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Read more:
<a href="https://theconversation.com/youth-discounts-fail-to-keep-young-people-in-private-health-insurance-121803">Youth discounts fail to keep young people in private health insurance</a>
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<h2>Why is the industry worried?</h2>
<p>The proportion of the population with any form of private hospital insurance is <a href="https://www.apra.gov.au/sites/default/files/2020-02/Quarterly%20private%20health%20insurance%20statistics%20December%202019.pdf">now around 44%</a>. </p>
<p>While the number of young people has fallen, there are 60,000 more people 70 and older than a year ago. The average age of a person with private health insurance continues to creep upwards.</p>
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<p>Changes in the composition of the insured population affects different stakeholders – such as the insured, the insurers and the public hospital system – differently.</p>
<p>The more young people drop out, the more the “risk pool” of the insured population worsens, because young people use health care less than older people. </p>
<p>This causes the price of insurance to go up for everyone, which leads to still more young people dropping out. This creates a death spiral for the industry. </p>
<p>Insurers lose out because fewer people are paying insurance premiums. </p>
<p>And those who remain in private insurance lose out because they have to pay higher premiums.</p>
<h2>Little impact on the public hospital system</h2>
<p>A critical issue is what happens to demand on the public system as the proportion of people who are privately insured declines. </p>
<p>The people who are most likely to drop out are younger people and people who don’t expect to use hospitals much. So logically, this is not likely to have much impact on demand for public care.</p>
<p>Private health insurance is now differentiated into Gold, Silver, Bronze, and Basic products, with “+” designations on the last three of these. Typically debates about private health insurance only focus on the number of people insured not the level of cover they have. </p>
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Read more:
<a href="https://theconversation.com/premiums-up-rebates-down-and-a-new-tiered-system-what-the-private-health-insurance-changes-mean-114086">Premiums up, rebates down, and a new tiered system – what the private health insurance changes mean</a>
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<p><a href="https://www.apra.gov.au/quarterly-private-health-insurance-statistics">About 41% of those insured</a> have coverage with “no exclusions”, the equivalent of Gold.</p>
<p>This means less than 20% of the total population has insurance coverage for all conditions. So many people with private health insurance already rely on the public system for those procedures not covered in their insurance package.</p>
<p>Maternity care, for example, is usually only covered at the <a href="https://www1.health.gov.au/internet/main/publishing.nsf/Content/89DCC17F86C24B4ACA2581BA007A2DC7/$File/20181010%20-%20GSBB%20fact%20sheet%20w%20tiers%20table.pdf">Gold tier</a>. Presumably, people with Silver, Bronze, or Basic products were always going to have their baby in a public hospital. So a reduction in the number of people with those products will have no impact on demand for maternity care in public hospitals. </p>
<p>Joint replacements, such as hips and knees, are also normally covered only in Gold products, so the same arguments apply.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=340&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=340&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=340&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=428&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=428&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315860/original/file-20200218-10985-zm2zlh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=428&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">People with lower levels of private health insurance already use the public system.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/empty-hospital-hallway-611606933">Shutterstock</a></span>
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<p>There has been extensive research trying to predict the impact of a decline in private insurance on public hospitals. Researchers have found consumers are relatively slow to respond to changes in the price of insurance. Private health insurance is therefore said to be “sticky”. </p>
<p>Once insured, people, especially older people, tend to stay insured, and respond to premium increases by downgrading their cover, either in terms of what they are covered for (dropping from Gold to Silver, for example), or taking on a higher excess they have to pay if they go to hospital. But a higher excess is unlikely to make them choose a public hospital.</p>
<p>The big changes in terms of dropping out are happening in the group which is new to private health insurance – the young – who have not established a history with insurance. </p>
<p>But young people use health care infrequently, meaning only a small number of hospital admissions would be expected to move from the private to the public system.</p>
<h2>A slow death</h2>
<p><a href="https://grattan.edu.au/report/saving-private-health-2/">Our own modelling</a> at the Grattan Institute suggests the death spiral is real, but is slow. People over 70 will probably still be insured at much the same rate they are now over the next ten years, but people under 70 will drop out, with people under 55 dropping out more rapidly.</p>
<p>Young people receive a bad deal from private health insurance. The premium they pay – which is essentially the same as the premium everyone else pays under Australia’s system of “community rating” – is much greater than the costs of their expected use of health care. </p>
<p>The gap between what they pay and expected benefit is getting worse. That’s why they are leaving in droves. </p>
<p>But this decline is a bigger problem for the private insurers than it will be for the public health system.</p>
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<strong>
Read more:
<a href="https://theconversation.com/how-do-you-stop-the-youth-exodus-from-private-health-insurance-cut-premiums-for-under-55s-128101">How do you stop the youth exodus from private health insurance? Cut premiums for under-55s</a>
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<img src="https://counter.theconversation.com/content/132004/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website. Medibank Private is an Affiliate partner of Grattan Institute. Stephen Duckett has private health insurance.</span></em></p>New private health insurance data show young people are continuing to drop their cover. But the industry’s argument a youth exodus will put pressure on public hospitals isn’t necessarily right.Stephen Duckett, Director, Health Program, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1283112019-12-10T19:05:12Z2019-12-10T19:05:12ZPrivate health premium increases might be the lowest in years, but that doesn’t mean they’re justified<figure><img src="https://images.theconversation.com/files/306011/original/file-20191210-95120-1rbv0mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Those facing large price increases might drop or downgrade their cover.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-stressed-caucasian-couple-facing-financials-556308208?src=-1-5&studio=1">Wayhome studio/Shutterstock</a></span></figcaption></figure><p>Every year private health insurers raise premiums and every year we rue the hit to our hip pocket. This cycle is heavily regulated: insurers apply to the health minister who must approve premium hikes unless deemed contrary to the public interest. Premiums then change on April 1. </p>
<p>This time the federal health minister, Greg Hunt, has managed to keep <a href="https://www.greghunt.com.au/the-lowest-private-health-insurance-premium-change-in-19-years/">average premium growth to 2.92%</a> – the lowest in 19 years. This news comes two weeks after he <a href="https://www.canberratimes.com.au/story/6507690/hunt-rejects-health-premium-rise-paper/?cs=14231">rejected an industry proposal</a> to increase premiums by 3.5%. </p>
<p>While the government celebrates this apparently modest price rise, consumers are right to point out that premium growth continues to outstrip inflation and wage growth. How do insurers justify this?</p>
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Read more:
<a href="https://theconversation.com/premiums-up-rebates-down-and-a-new-tiered-system-what-the-private-health-insurance-changes-mean-114086">Premiums up, rebates down, and a new tiered system – what the private health insurance changes mean</a>
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<h2>The case for higher premiums</h2>
<p>Australians have come to expect that come April 1 each year, their private health insurance costs will go up – often by a lot. </p>
<p>These increases have been substantially more than wage growth or inflation. Between 2011 and 2019, the <a href="https://www1.health.gov.au/internet/main/publishing.nsf/Content/privatehealth-average-premium-round">cumulative growth</a> in nominal premiums (before rebates) was 49%. Over the same period <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0">wages grew</a> by 21% and <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0">CPI</a> by 16%. </p>
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<p>Insurers have justified the growth in premiums by pointing out that benefits – the money private health insurers pay out when we go to hospital or have treatment – have also grown substantially. </p>
<p><a href="https://www.apra.gov.au/operations-of-private-health-insurers-annual-report">Benefits grew</a> on average 5.3% per year between 2014-2019. However, while earlier this decade <a href="https://theconversation.com/can-private-health-insurers-justify-a-6-2-premium-increase-38390">benefit growth consistently outpaced premiums</a>, this is no longer the case. </p>
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<p>Growth in benefits is due to both higher medical costs and more claims. In fact, <a href="https://www.apra.gov.au/operations-of-private-health-insurers-annual-report">benefits per service</a> have hardly changed since 2014 and have actually fallen for prostheses (such as hip and knee replacements), which highlights the importance of growth in number of claims.</p>
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<p>Insurers are also facing growing cost pressure due to the exodus of young people from insurance and an ageing insurance pool. </p>
<p>Traditionally young people have cross-subsidised the higher expenses of older people, but increasingly they are deciding that private insurance is a bad deal. In the past 12 months, the number of people aged 20-34 with private hospital cover <a href="https://www.apra.gov.au/quarterly-private-health-insurance-statistics">has declined</a> by almost 50,000. </p>
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<strong>
Read more:
<a href="https://theconversation.com/how-do-you-stop-the-youth-exodus-from-private-health-insurance-cut-premiums-for-under-55s-128101">How do you stop the youth exodus from private health insurance? Cut premiums for under-55s</a>
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<h2>Are insurers’ profits too high?</h2>
<p>Insurers can point out that their profit margins are not unusually high compared to other forms of insurance. Figures from the <a href="https://www.apra.gov.au/quarterly-general-insurance-statistics">Australian Prudential Regulation Authority show</a> that in 2019 after-tax profits were 9.5% of premium revenue for general insurers. Meanwhile, after-tax profits for private health insurers were 5.6% (6.4% for for-profit funds).</p>
<p>Insurers can also point out that their net margins and benefits-to-premiums revenue ratios have been relatively stable over the past decade. Against this, growth in premiums has mostly acted to sustain profit margins rather than extend them.</p>
<p>But does this really matter for assessing price hikes? While shareholders would like to maintain the margins they’re accustomed to, there’s nothing intrinsically meaningful about historical figures. </p>
<p>The profits in one sector also don’t entitle insurers to the same profit in a different sector. </p>
<p>Ultimately, it’s hard to know what the “right” level of profit is. For now, private health insurance remains a relatively profitable industry.</p>
<h2>What will the price increase mean for you?</h2>
<p>Forty-four percent of Australians <a href="https://www.apra.gov.au/sites/default/files/Quarterly%20Private%20Health%20Insurance%20Statistics%20September%202019.pdf">have private hospital cover</a> and 53% have general treatment cover for things like dental and optical. For these Australians, the <a href="https://www.greghunt.com.au/the-lowest-private-health-insurance-premium-change-in-19-years/">health minister estimates</a> singles will pay an average of A$35 more per year (A$0.68 per week) and families A$103 more per year (A$1.99 per week).</p>
<p>It’s important to recognise that the 2.92% figure is a <a href="https://www1.health.gov.au/internet/main/publishing.nsf/Content/0B815BFEB8EDECA7CA257BF000195929/$File/Premium-Round-Individual-Insurer-Average-Premium-Increases%E2%80%931997-to-2020.pdf">weighted industry average</a>. Some policies will increase by more (and less) than 2.92%. You will find out by how much your plan is increasing early next year. </p>
<p>Those facing large price increases might downgrade their cover and some may drop it altogether. If healthier people drop out of insurance, that will put upward pressure on premiums in the future.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306014/original/file-20191210-95149-m0va2b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Australia’s private health insurance system relies on young people who don’t use their insurance to subsidise older Australians who do.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/fit-people-jogging-on-treadmills-gym-329554319">wavebreakmedia/Shutterstock</a></span>
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</figure>
<h2>So, is the 2020 premium increase justified?</h2>
<p>With the information at hand, 2.92% seems reasonable by historical standards. Growth in benefits has been declining since 2017 and this should flow to premiums.</p>
<p>Going forward, the government will need to do more than crack down on premium-setting if it wants to arrest growing costs. The biggest pressures are from rising hospital and medical fees and an ageing insurance pool. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/greedy-doctors-make-private-health-insurance-more-painful-heres-a-way-to-end-bill-shock-127227">Greedy doctors make private health insurance more painful – here's a way to end bill shock</a>
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<p>Recent attempts to reduce costs by negotiating a better deal with medical device manufacturers was a good move, although <a href="https://www.privatehealthcareaustralia.org.au/medical-devices-companies-continue-to-drive-up-premiums-for-consumers/">insurers claim it failed to meaningfully lower their costs</a> because manufacturers increased the volume of devices sold. </p>
<p>Higher premium rebates for young people are more dubious since rebates are only <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-8462.2004.00327.x">cost-effective</a> if they cause lots of people to take up insurance who wouldn’t otherwise.</p>
<p>It’s been 21 years since the <a href="https://www.pc.gov.au/inquiries/completed/private-health-insurance">last Productivity Commission inquiry into the private health insurance industry</a>. Perhaps it’s time for another one.</p><img src="https://counter.theconversation.com/content/128311/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathan Kettlewell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In April, private health insurance premiums will increase by an average of 2.92%. It’s the lowest rise in 19 years but still much higher than wages growth. And insurers still make a healthy profit.Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1253802019-10-31T14:45:11Z2019-10-31T14:45:11ZHow a lack of competition in South Africa’s private health sector hurts consumers<figure><img src="https://images.theconversation.com/files/297309/original/file-20191016-98678-1gqympv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Netcare is one of three hospital groups found to dominated the facilities market.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>An extensive inquiry <a href="http://www.compcom.co.za/healthcare-inquiry/">into South Africa’s health market</a> was recently concluded – the first ever process in the country that involved gathering evidence and then studying the private healthcare market from the perspective of competition and competition law. </p>
<p>The investigation ran over five years and included over 43 million individual patient records, 11 million admissions, specifically commissioned <a href="http://www.compcom.co.za/healthcare-inquiry/">studies</a>, written submissions, public hearings and seminars. The investigation focused on hospitals, doctors, and funders. Funders include the medical schemes who purchase healthcare on behalf of members, and the administrators and managed care organisations that medical schemes contract with.</p>
<p>South Africa’s Competition Commission set up the inquiry in response to prices in the private healthcare sector which, it said, only a minority of South Africans could afford. The country has a two-tiered health system. About <a href="http://www.statssa.gov.za/publications/P0318/P03182018.pdf#page=37">71%</a> of the population uses public sector, while the private sector serves around <a href="http://www.statssa.gov.za/publications/P0318/P03182018.pdf#page=37">27%</a>. </p>
<p>Ideally competition should translate into lower costs and prices, better quality, and generally more value for money for consumers. In its final report, which was <a href="http://www.compcom.co.za/wp-content/uploads/2014/09/HMI-Executive-Summary.pdf">released recently</a>, the inquiry found that competition wasn’t working as it should in private healthcare. The sector was characterised by high and rising costs, significant overuse, and no discernible improvements in health outcome. </p>
<h2>Lack of competition</h2>
<p>There were a number of factors that – alone or in combination – led to a lack of competition in the sector. </p>
<p>One factor is that three hospital groups dominated the facilities market: Netcare, Mediclinic and Life. They accounted for more than 80% of the hospital beds and 90% of all the admissions. These three hospital groups, both individually and collectively, were able to secure steady and significant profits year-on-year. A few firms owning the majority of the market is an indication that competition may not be working effectively. </p>
<p>Hospitals don’t attract patients, they compete for doctors who admit patients. Most doctors had contracts with the big three. Successful entry by new hospital owners is very difficult as they cannot attract doctors as easily. </p>
<p>Hospital groups are also able to build additional hospitals where they aren’t needed, resulting in an oversupply of beds and ultimately overuse of services. </p>
<p>In South Africa more people are admitted to ICU compared to eight other countries with comparable <a href="http://www.compcom.co.za/wp-content/uploads/2014/09/Health-Market-Inquiry-Report.pdf">published data</a>. The inquiry panel estimated that the country could save more than R2.7 billion – or 2% of its current private health care spend – if it halved the number of people admitted to ICUs and improved the care for patients in wards. Only the critically ill should be admitted to ICU. But the inquiry found that some of the patients who were in ICU could have been treated in wards.</p>
<p>There are no measures of quality of care in the public domain. This means that members of medical schemes and funders (who purchase healthcare on behalf of medical scheme members) weren’t able to judge if the care provided by doctors and specialists was effective.</p>
<p>The entire premise of effective competition is that purchasing healthcare services should be based on value – a combination of price and quality. This isn’t possible in South Africa. </p>
<p>There’s no way to assess if the care provided was improving health outcome. This is particularly problematic as the inquiry found significant over-servicing by doctors which cannot be explained by their patients’ level of illness. Doctors use a fee-for-service billing model. This means they bill patients for each service they perform during a consultation. In this system, the more you do the more you earn. This is called a perverse incentive and without knowing the impact of health outcomes neither doctors nor patients know if the extra tests or interventions are worth the cost. They also don’t know if it is improving health outcomes.</p>
<p>The inquiry also found doctors and specialists worked as individuals -– not as a team. There is growing <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5403641/">evidence</a> and acceptance internationally that team-based care is better and more cost effective. </p>
<p>Medical schemes compete for younger and healthier individuals. To do this, schemes have created numerous benefit packages. But these packages aren’t comparable. Medical schemes have done this in response to the absence of a mechanism for equalising risk between medical schemes. Medical scheme members do not know what they are paying for. Neither are they able to judge the quality of care. </p>
<h2>Recommendations</h2>
<p>The recommendations are aimed at creating greater competition, transparency, and accountability on how medical scheme member’s money is spent. They also aim to increase competition on the supply side (hospitals, doctors, and specialists) and on the demand side where funders represent the consumer. </p>
<p>Recommendations include a supply side regulator, whose job will be to:</p>
<ul>
<li><p>assist provinces in issuing licenses for hospitals;</p></li>
<li><p>assist with a process and a platform for price setting for doctors;</p></li>
<li><p>conduct or contract out research looking at cost-effective healthcare interventions, including technology; and</p></li>
<li><p>facilitate access to reliable information on quality of health and health outcomes measurement.</p></li>
</ul>
<p>To increase competition on the funder’s side, and to improve transparency for the consumer, the recommendations include that all medical schemes offer one comparable insurance package. In addition, government should introduce a mechanism to equalise risk between medical schemes so that they compete on the merits – not on risk or age selection.</p>
<h2>What next</h2>
<p>The recommendations have implications for the South African governments plan to introduce a National Health Insurance in a bid to level out the playing field between the public and private health care sectors. The plan is that the National Health Insurance will operate as a funding mechanism to move South Africa closer to universal health coverage. </p>
<p>Implementing the recommendations set out in the inquiry report is an essential step towards creating an environment where the purchaser – the National Health Insurance fund – will purchase from a private healthcare market that is competitive with lower costs and prices, and more value for money for consumers.</p>
<p>The National Health Insurance bill talks about strategic purchasing or value based purchasing which refers to using the capacity in the private sector to relieve the public sector. This aligns with the health market inquiry recommendations.</p>
<p>But it needs an independent supply side regulator to enable competitive price setting and coding mechanisms. Codes form the basis on which prices are determined – which is necessary for the National Health Insurance fund to reimburse providers. Value based purchasing also requires implementation of performance and outcomes reporting and monitoring. </p>
<p><em>Dr Lungiswa Nkonki was a panel member of the Health Market Inquiry.</em></p><img src="https://counter.theconversation.com/content/125380/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lungiswa Nkonki does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The entire premise of effective competition is that purchasing of health services should be based on value - a combination of price and quality.Lungiswa Nkonki, Senior Lecturer, Department of Global Health, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1228062019-09-11T13:41:52Z2019-09-11T13:41:52ZRebuilding health systems from the bottom up: a South African case study<figure><img src="https://images.theconversation.com/files/291505/original/file-20190909-109962-1hazous.jpg?ixlib=rb-1.1.0&rect=15%2C26%2C2533%2C1594&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A community care worker providing treatment to a TB patient at her home. </span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:DOT_administering_treatment.jpg">Wikkicommons/Stherere23</a></span></figcaption></figure><p>The recent publication of the <a href="https://www.gov.za/sites/default/files/gcis_document/201908/national-health-insurance-bill-b-11-2019.pdf">National Health Insurance Bill</a> in South Africa has provoked <a href="https://theconversation.com/why-south-africas-plans-for-universal-healthcare-are-pie-in-the-sky-121992">vigorous debate</a>. Many question whether the proposed reforms contained in the Bill offer meaningful solutions to the <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-signing-presidential-health-compact-25-jul-2019-0000">well-documented</a> <a href="https://www.hqsscommission.org/">crisis</a> in South Africa’s health system. </p>
<p>This crisis is two-fold. On the one hand is the lack of access and poor quality in the public health system which serves around <a href="https://www.dailymaverick.co.za/article/2019-08-20-is-the-national-health-insurance-bill-open-to-a-constitutional-challenge/">85%</a> of the population. On the other hand is an expensive and inefficient private health sector for the remaining minority. There are massive inequities in the distribution of resources between the two sectors. </p>
<p>There is widespread recognition that health system legislation alone will not address the deep seated problems in both sectors. Top-down reforms like those proposed in the NHI Bill need to be complemented by a bottom-up process of strengthening health systems. This must be focused on the most decentralised level of the health system, the district health system. South Africa’s public health system is organised into 52 health districts. </p>
<p>My colleagues and I at the University of the Western Cape believe that this sort of strengthening is not only possible – it’s already happening in pockets. We have <a href="https://doi.org/10.1093/heapol/czz060">engaged</a> with district, provincial and national government players to document the potential of such bottom-up initiatives. </p>
<p>Our recently published <a href="https://doi.org/10.1093/heapol/czz060">research</a> showed how coordinated action by local, provincial and national government players, working with existing resources, can create a fairly rapid turn-around in the performance of health districts. The case study we focused on could provide valuable lessons as South Africa prepares to introduce the NHI. </p>
<h2>Gert Sibande District</h2>
<p>Gert Sibande is a health district in the largely rural province of Mpumalanga. In 2014, this district had the highest death rate from severe acute malnutrition in the country: <a href="https://doi.org/10.1093/heapol/czz060">28%</a> of children younger than five who were admitted to hospital with the condition died during their stay. </p>
<p>But there was a dramatic decline in deaths in Gert Sibande over the three years that followed. The number of children who died from severe acute malnutrition dropped to one-third of the previous levels <a href="https://doi.org/10.1093/heapol/czz060">9%</a>. This decline in deaths was associated with a <a href="https://doi.org/10.1093/heapol/czz060">59%</a> drop in admissions. </p>
<p>In other words, children with severe acute malnutrition weren’t only receiving more effective treatment, cases were being prevented from occurring in the first place. </p>
<p>Severe malnutrition has been a major contributor to child deaths in South Africa, along with causes such as pneumonia and <a href="http://www.samj.org.za/index.php/samj/article/view/12238">diarrhoea</a>. Despite South Africa’s wealth, child malnutrition remains unacceptably <a href="https://foodsecurity.ac.za/wp-content/uploads/2018/04/Final_Devereux-Waidler-2017-Social-grants-and-food-security-in-SA-25-Jan-17.pdf">high</a>. Addressing this is a national priority. </p>
<p>Our research team conducted in-depth interviews with healthcare providers and their managers, to identify how the rapid improvements in acute malnutrition outcomes in Gert Sibande District were made possible. </p>
<p>Interviewees reported widespread shifts in mindsets and practices over the three years. These included improved quality of hospital care for children with severe acute malnutrition and more rigorous identification of children at risk of malnutrition in primary health care facilities. Better referral systems and household follow-up of children by community health workers were also key. </p>
<p>We were particularly interested in understanding how these shifts were triggered in a public health system that is frequently regarded as being trapped in a culture of poor <a href="https://www.hqsscommission.org/">performance</a> and low accountability. </p>
<h2>Key health system interventions</h2>
<p>Changes were initially prompted by consensus in Gert Sibande District that there was a problem to be addressed. This was followed by a series of health system strengthening interventions. These included:</p>
<ul>
<li><p>the appointment of a recently retired, senior public sector manager from another province to visit the district once a month; </p></li>
<li><p>a system of reporting deaths to senior district clinicians and programme managers within 24-hours; </p></li>
<li><p>regular processes of problem analysis and response in district and sub-district structures involving managers, clinicians and information officers;</p></li>
<li><p>empowering dietitians, who were previously marginal actors, to play a central role in steering the response; </p></li>
<li><p>a system of reciprocal accountability where expectations of performance were matched by the provision of support and resources; </p></li>
<li><p>improved supply chains through the provincial office; and,</p></li>
<li><p>building capacity for connected systems thinking. </p></li>
</ul>
<p>Apart from the appointment of the part-time facilitator, no external donor resources were sourced or deployed to the district.</p>
<p>We characterised these interventions as producing three kinds of system-level change. One was “ways of thinking” (knowledge and the use of evidence). The second was “ways of governing” (leadership, participation and coordination). The third was “ways of resourcing” (inputs and capacity). </p>
<h2>Way forward</h2>
<p>The experience of Gert Sibande District is not unusual. There are several “pockets of effectiveness” in South Africa’s public health <a href="https://www.spotlightnsp.co.za/2018/09/21/building-public-health-system-capacity-for-nhi-learning-from-disease-specific-successes-for-system-development/">system</a>. This points to the latent capabilities available in this system. </p>
<p>We believe that unlocking this latent capability needs the kind of deliberate actions seen in Gert Sibande. The system-level changes and health outcomes achieved through such actions will, in turn, only be sustainable in the long run if they are enabled by higher levels of the system. </p>
<p>This entails, firstly, a recognition that change at the frontline won’t be engineered by a stroke of the legislative pen. Meaningful change requires systematic approaches to strengthening, working directly at base of the health system. Gert Sibande’s experience suggests that this does not necessarily have to cost more. </p>
<p>Secondly, national leaders are the best placed to steer a wider consensus on the need to separate political from administrative decision-making in the health system, especially at provincial level. Meritocratic appointment of district and provincial managers, accompanied by more decentralised decision-making on appointments of staff and use of funds, would be an important first step. </p>
<p>A third supportive action would be to invest heavily in developing distributed leadership and management capacity, oriented to public value, as part of a reinvigorated focus on human resources for health.</p>
<p>These approaches could lay the groundwork for a successful NHI that genuinely addresses systemic problems from the bottom up rather than imposing solutions from the top down. </p>
<p><em>Maria van der Merwe and Beauty Marutla from the Mpumalanga department of health, and Joey Cupido and Shuaib Kauchali from the National department of health contributed to this article.</em></p><img src="https://counter.theconversation.com/content/122806/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Schneider is a professor in the School of Public Health, at the University of the Western Cape. She holds a South African Research Chair in Health Systems Governance and receives funding from the South African Medical Research Council and the South African National Research Foundation. </span></em></p>Top-down reforms like those proposed in the NHI Bill need to be complemented by a bottom-up process of health system strengthening.Helen Schneider, Professor, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1219922019-08-19T08:11:39Z2019-08-19T08:11:39ZWhy South Africa’s plans for universal healthcare are pie in the sky<figure><img src="https://images.theconversation.com/files/288366/original/file-20190816-192219-jswkjy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa has a skewed healthcare system with an under-funded public sector and an expensive private sector.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Performance in South Africa’s two tier health system – the public and the private – has been worsening for some time. Politicians have attempted to attribute the decline in the public sector to a myriad of ills, none of their making. These include migrants; insufficient funds; insufficient staff; medical schemes; lawyers suing them for medical negligence; the existence of two tiers and even the middle class. </p>
<p>However, the real reasons place the blame firmly at their door. They are also largely responsible for the problems in the private sector. </p>
<p>In the face of these manifest failures, and to address the weaknesses in South Africa’s universal health coverage framework, the government has proposed an overtly political way forward – the <a href="http://www.health.gov.za/index.php/nhi">National Health Insurance Fund</a> (NHI). </p>
<p>Through this proposal the framers seek to collapse both the public and private systems into a single organisation. The proposers have done little more than outline enabling legislation for a new state-owned enterprise. It remains a mystery as to what this proposal has to do with the system-wide crises in the public sector, or the market failures in the private sector. </p>
<h2>Public health care failures</h2>
<p>Institutionalised patronage within provincial and national government has destroyed the capabilities of public health organisations – both national and provincial.</p>
<p>The country’s Health Ombudsman has also stated that the <a href="https://www.dailymaverick.co.za/article/2018-06-06-healthcare-rsa-is-still-afloat-maintains-minister-aaron-motsoaledi-while-it-sinks-around-him/">public health system is in a state of crisis</a>. And the Auditor General last year bluntly pointed out the country’s health services are in crisis.</p>
<p>This view is widely shared by civil society groups working in the health sector. </p>
<p>Evidence of the crisis can be seen in the mounting contingent liabilities for medico legal claims due to admitted medical negligence. These are now adding up to <a href="https://www.medicalbrief.co.za/archives/provincial-health-services-risk-r80-4bn-medical-negligence-claims/">more than a third</a> of the national health budget and growing.</p>
<p>A close look at the cases points to major failures in the system. For example, the bulk of claims are related to cerebral palsy cases. This is because sub-standard maternity services are being provided to mothers in the public health services. This has led to avoidable brain damage to children at birth.</p>
<p>These failures are matched by maternal mortality ratios at public facilities. The numbers are staggering, and place South Africa as an outlier for a country of its level of development. In 2017 the maternal mortality ratio in South Africa’s public sector was 135 deaths for every <a href="https://www.who.int/reproductivehealth/publications/monitoring/maternal-mortality-2015/en/">100,000 live births</a> in comparison to a benchmark for <a href="https://www.who.int/reproductivehealth/publications/monitoring/maternal-mortality-2015/en/">peer countries of around 42</a>. </p>
<p>The cerebral palsy cases as well as the maternal deaths are indicative of institutionalised mismanagement resulting from system-wide governance failures. </p>
<p>The picture isn’t universally bad. Public health services have been maintained in the Western Cape where irregular expenditure is much lower than in the country’s other eight provinces. The Western Cape’s lower maternal mortality ratio and almost non-existent medico legal cases are also testament to a much more efficiently run system which includes stronger governance regimes.</p>
<h2>Private sector failures</h2>
<p>South Africa has very high private health care costs, putting it out of reach for most people in the country.</p>
<p>The high costs have been a major point of contention for decades. In a bid to address the issue the country’s Competition Commission launched a health market inquiry five years ago. Its report, released earlier this year, highlighted a number of major market failures. These included a lack of transparency in the way health policies are sold, as well as a lack of competition between private health care providers.</p>
<p>The <a href="http://www.compcom.co.za/wp-content/uploads/2018/07/Health-Market-Inquiry-1.pdf">health market inquiry</a> has made a series of recommendations to fix the problems.</p>
<p>The former Minister of Health <a href="http://www.compcom.co.za/wp-content/uploads/2014/09/Speech-by-Dr-A-Motsoaledi-Minister-of-Health-to-the-Competition-Law-Conference-06-07-September-2012.pdf">sought to blame</a> the failures of the public health sector on the high costs of the private sector. But no evidence has been marshalled to demonstrate how this could rationally occur. </p>
<p>As the inquiry pointed out, market failures have resulted in higher costs for medical schemes members. And it blames the government for these market failures, pointing out that they can only be addressed by coherent and well governed government regulation. </p>
<p>The question is whether the government will listen to the health market inquiry. </p>
<h2>Universal healthcare</h2>
<p>The planned NHI in South Africa has no equivalent in any setting in the world. It’s deeply flawed on a number of fronts.</p>
<p>Firstly, in other countries systems of universal health coverage seek to cover people and groups who have inadequate healthcare coverage. But the public scheme South Africa is proposing goes much further than this. It’s designed to include people who already have cover through their own private contributions.</p>
<p>Secondly, it’s unaffordable. The proposal envisages raising tax revenue upward of 3% of Gross Domestic Product to cover medical scheme members through a public scheme. This would be equivalent to a 31% increase in personal income tax or a 63% increase in corporate taxes. </p>
<p>Thirdly, the legislation and supporting policy framework is short of any meaningful content. There have been no institutional or financial feasibility studies done. This is despite the fact that the NHI has been on the policy agenda for the past 10 years. </p>
<p>Fourthly, the department of health has shown that it’s incapable of coping with the current health system. It would therefore clearly not be able to take on something as complex as what’s envisaged.</p>
<p>Fifthly, the only analysis on the proposed NHI is from a failed set of <a href="https://www.businesslive.co.za/bd/national/2019-07-28-nhi-pilot-projects-reveal-deep-problems/">pilot projects</a>. The government’s own <a href="https://www.businesslive.co.za/bd/national/2019-07-28-nhi-pilot-projects-reveal-deep-problems/">evaluations</a> of these pilots provide no evidence for the proposed framework. </p>
<p>And lastly, a particularly fatal aspect of the proposed NHI is that it fails to address a model that’s allowed patronage to flourish and that has served South Africa so poorly. At the heart of the problem is the fact that the proposed new Fund would give the Minister of Health full discretion over all senior appointments. He would also be able to ensure political control over procurement of R450 billion in services and the accreditation of all public and private health establishments </p>
<p>The only conclusion that can be drawn from this state of affairs is that the NHI proposals are yet another symptom of the health crisis. Only a failing health department could generate a proposal like this and take it seriously – let alone expect everyone else to join them in their fantasy.</p>
<h2>So, what should happen?</h2>
<p>The reforms required to put South Africa’s health system on a better footing have been glaringly obvious for some time. </p>
<p>The public health system can only be turned around by a combination of governance reforms and decentralisation. This requires the implementation of supervisory structures, such as boards for hospitals, district authorities and statutory councils that are insulated from political appointments and interference. Politicians should be entirely separated from the operational aspects of health service delivery. </p>
<p>For its part, the private sector requires the implementation of the health market inquiry recommendations. Some of these include setting up a pricing regulator to manage annual price negotiations for hospitals and doctors and the establishment of an information regulator to bring quality of care information on private and public health services to the surface. </p>
<p>What South Africans don’t need is another five years of pretence that this team can create a brand new health system out of the ashes of the two existing systems. Unfortunately all we can be certain of are the ashes.</p><img src="https://counter.theconversation.com/content/121992/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex van den Heever is affiliated with: the Helen Suzman Foundation as an unremunerated Fellow; and was a lead economist on the Health Market Inquiry until the end of 2017.</span></em></p>South Africa’s planned NHI has no equivalent in any setting in the world. It’s deeply flawed on a number of fronts.Alex van den Heever, Chair of Social Security Systems Administration and Management Studies, Adjunct Professor in the School of Governance, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1109292019-02-04T13:41:19Z2019-02-04T13:41:19ZWhy delays to fixing health care are bad news for South Africans<figure><img src="https://images.theconversation.com/files/256828/original/file-20190201-75085-1u55v1t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Over 80% of South Africans rely on state facilities like Chris Hani Baragwanath, the third largest hospital in the world.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The release of a final report about the state of competition in South Africa’s private health sector has been <a href="https://www.businesslive.co.za/bd/national/2019-01-24-competition-commission-cuts-back-probes-due-to-lack-of-funds/">delayed again</a>. It was compiled by an <a href="http://www.compcom.co.za/panel-members/">inquiry panel</a> made up of medical, legal and economic experts. The panel heard submissions from a range of stakeholders including members of the public, civil society organisations as well as private hospital groups. </p>
<p>The inquiry was <a href="https://theconversation.com/explainer-how-competitive-is-south-africas-private-health-care-sector-99799">set up</a> under the auspices of the country’s competition authority in 2013. It’s <a href="http://www.compcom.co.za/wp-content/uploads/2014/09/Amended-Terms-of-Reference-for-Market-Inquiry-Private-Healthcare-Sector.pdf">remit</a> was to investigate characteristics of the private health sector that may prevent, distort or restrict competition. Its <a href="http://www.compcom.co.za/provisional-findings-and-recommendations-report/">preliminary report</a>, released in July 2018, concluded, among other things that the sector was highly concentrated in the hands of a few major players. The final leg of work was to get inputs from various players on the initial findings before concluding the inquiry. The inquiry has cost tax payers <a href="https://www.businesslive.co.za/bd/national/2019-01-02-market-inquiry-into-private-health-care-cost-r197m-says-ebrahim-patel/">R197 million</a> so far. </p>
<p>Another delay of the report – which should have been released in March 2019 –is therefore bad news. The sooner South African authorities deal with the issues of anti-competitive behaviour in the private sector, the more likely access to quality health care will improve. </p>
<p>South Africa has a two-tiered health care system. The public sector is under-resourced and stretched while the private sector is highly sophisticated and expensive. Even though only <a href="http://www.compcom.co.za/wp-content/uploads/2016/08/WHOOECD_HMIsubmission2_30Aug16-FINAL.pdf">16%</a> of the country’s population uses private health care, it nevertheless gets a large portion of the government’s health expenditure in subsidies. </p>
<p>At the same time, private health costs continue to balloon and fewer people can afford it.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/explainer-how-competitive-is-south-africas-private-health-care-sector-99799">Explainer: how competitive is South Africa's private health care sector</a>
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<p>The inquiry’s preliminary recommendations offered a clear agenda for how the private sector can become an integral part of the current national health system. There must be no more delays: if South Africa is to reach its lofty goal of universal health coverage, the report must be released and those recommendations adopted.</p>
<h2>Key findings and recommendations</h2>
<p>The inquiry examined three aspects of the private sector.</p>
<ul>
<li><p>Medical schemes through which people pay for private health services and the administrators who run them. </p></li>
<li><p>Private facilities, such as hospitals and clinics. </p></li>
<li><p>Medical doctors and specialists in the private sector. </p></li>
</ul>
<p>The key preliminary <a href="http://www.compcom.co.za/provisional-findings-and-recommendations-report/">findings and recommendations</a> were:</p>
<ul>
<li><p>Medical schemes provide multiple plan options for cover without providing adequate information to understand what they cover, how the plans compare and what value the patients receive. As a result, consumers aren’t able to compare what schemes offer or choose plan options on the basis of value for money.</p></li>
<li><p>There is a lack of transparency on the pricing of health care goods and services, standardised reporting of health outcomes and implementation of evidence-based guidelines and treatment protocols. </p></li>
<li><p>Medical practitioners and specialists are concentrated in the private sector. As a consequence, there is time to over-service and inefficient use of expertise and time. </p></li>
</ul>
<p>In light of these and other findings, the inquiry made a number of recommendations to remedy the situation.</p>
<p>These included putting measures in place to enable the Council for Medical Schemes, which regulates medical aids, to exercise more effective oversight.</p>
<p>In addition, to ensure that people who belong to medical aids get more comprehensive cover, the inquiry proposed that all medical schemes also offer a standalone standardised obligatory basic benefit option. The basic option would include a standard basket of goods and services and be comparable among schemes. This option would include cover for the prescribed minimum benefits, make provision for the treatment of these prescribed minimum benefits outside of hospital settings and add primary and preventive care. </p>
<p>And the inquiry recommended tighter regulation of the sector through the establishment of a dedicated health care regulatory authority. This would govern the number and distribution of doctors and hospitals to meet current and future needs. And it would ensure the development of clinical protocols as well as shape the structure of payment systems. </p>
<p>The inquiry also recommended that a centralised national licensing framework be introduced. This would accredit all health facilities including clinics, hospitals and GPs’ rooms. Another recommendation was to establish a price-setting mechanism. </p>
<h2>Important</h2>
<p>The recommendations are innovative and would go a long way toward making health care in the country more equitable. But South Africans will have to keep waiting to see if they actually bear fruit. </p>
<p>The latest development is that, due to a lack of funds, all the inquiry’s work has been suspended until the end of the financial year in March after which a new date for the release of the final report will be published in the Government Gazette.</p>
<p>It’s important that the inquiry is allowed to complete its task sooner rather than later. This is because its findings could have a bearing on a piece of legislation currently making its way through parliament – the <a href="https://pmg.org.za/call-for-comment/691/">Medical Schemes Amendment Bill</a>. The bill proposes changes to medical scheme governance and benefit options. Reports suggested that the department of health <a href="https://www.businesslive.co.za/bd/national/health/2018-12-13-medical-schemes-amendment-bill-waiting-for-outcome-of-health-inquiry/">wanted to wait for the outcome</a> of the inquiry before finalising the bill.</p>
<p>The inquiry could also affect the <a href="http://www.health.gov.za/index.php/gf-tb-program/398-national-health-insurance-bill-2018">National Health Insurance Bill</a> which is meant to herald in universal health care. But the bill is mired in controversy. The most recent version was recently rejected by the country’s cabinet which instructed the national department of health department to review what’s been proposed. </p>
<p>Until the final report is released, South Africans must contend with a fragmented, poorly regulated and expensive health care delivery system.</p><img src="https://counter.theconversation.com/content/110929/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wezile Chitha currently heads an oncology service funded through a tender from the KwaZulu Natal Department of Health. He is an ANC member, member of South African Committee of Medical Deans.</span></em></p>South Africa’s Competition Commission has delayed the release of the final report of an inquiry into the private healthcare again.Wezile Chitha, Assistant Dean: Strategic Affairs, Faculty of Health Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/973722018-05-30T20:01:26Z2018-05-30T20:01:26ZSpecialists are free to set their fees, but there are ways to ensure patients don’t get ripped off<figure><img src="https://images.theconversation.com/files/220904/original/file-20180530-120514-ekemsu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Specialists making their fees publicly available is one way to rein in rogue practices.</span> <span class="attribution"><span class="source">from shutterstock.com</span></span></figcaption></figure><p>Monday’s <a href="http://www.abc.net.au/4corners/mind-the-gap/9809314">Four Corners program</a> drew attention to the issue of high fees charged by some specialist doctors, causing large out-of-pocket expenses for Australian patients. The program included examples of patients paying out-of-pocket fees totalling in the tens of thousands for hip replacements, prostate and breast cancer surgery. </p>
<p>While the ABC made the problem of specialist overcharging seem huge, the program did rely mostly on anecdotal evidence for the claims it made.</p>
<p>So, how big is this problem really, and what can we do about it?</p>
<h2>How specialist fees work</h2>
<p>Firstly we have to understand how specialist fees work and why this can lead to large out-of-pocket costs. </p>
<p>The Australian government funds consultations with, and procedures carried out by specialist doctors – outside public hospitals – through the <a href="http://www.mbsonline.gov.au/internet/mbsonline/publishing.nsf/Content/Home">Medicare Benefits Schedule</a>. Medicare sets a schedule fee for such consultations and procedures. The fee is indexed to rise each year, apart from <a href="http://www.abc.net.au/news/2016-05-30/medicare-rebate-freeze-what-you-need-to-know/7458796">the past five years</a> where these fees have been frozen. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1130&fit=crop&dpr=1 754w, https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1130&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/220909/original/file-20180530-120511-1eqqg1f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1130&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Medicare subsidises specialist doctor’s fees up to a point, but the gap the patient pays depends on what fee the doctor sets.</span>
<span class="attribution"><span class="source">from shutterstock.com</span></span>
</figcaption>
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<p>The Medicare rebate is a percentage of the schedule fee; for instance 75% for specialist items, 100% for certain GP items. But the schedule fee doesn’t restrict doctors from charging a higher fee (the gap), which may or may not be covered by health insurance for in-hospital items. </p>
<p>Health insurance in Australia can’t cover doctors’ fees for out-of-hospital consultations. Doctors are free to charge whatever fee they like; there is no restriction on their pricing.</p>
<p>Medicare <a href="http://www.health.gov.au/internet/main/publishing.nsf/content/annual-medicare-statistics">publishes some data</a> about bulk-billing rates and out-of-pocket costs. From this, we know only around 35% of specialists observe the schedule fee with an average out-of-pocket of A$75 in 2016/17. Worryingly, this average fee grew by nearly 6% from the previous financial year. But, these figures are nowhere near the extreme cases highlighted on Four Corners.</p>
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Read more:
<a href="https://theconversation.com/why-do-specialists-get-paid-so-much-and-does-something-need-to-be-done-about-it-74066">Why do specialists get paid so much and does something need to be done about it?</a>
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<p>Relatively little is published about the highest fees. One <a href="https://www.mja.com.au/system/files/issues/206_04/10.5694mja16.00653.pdf">recent study</a> with access to data on the distribution of fees for specialist consultations showed that at the 90th percentile, out-of-pocket costs were between A$85-$212, across all specialties. This is just for initial consultations – total costs for operations (which may include anaesthetist’s fees and other costs) are substantially higher. </p>
<p>So while we know the cases highlighted on Four Corners are not representative of the average specialist, or even of the some of the higher-charging doctors, out-of-pocket costs for private specialists are still high and rising at twice the rate of inflation. </p>
<p>So, what can be done to keep a lid on these price rises?</p>
<h2>Transparency and incentives</h2>
<p>The first potential solution is price transparency. Hopefully the government is seriously contemplating a system that would mandate all doctors publish their fees on a publicly accessible website. </p>
<p>On Four Corners, the Chief Medical Officer, Brendan Murphy, indicated this step is seriously being considered by the <a href="http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2018-hunt002.htm">advisory committee on out-of-pocket costs</a> that he is leading. It would be reassuring to see statements from ministers and the Australian Medical Association (AMA) to give this idea some real traction.</p>
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Read more:
<a href="https://theconversation.com/many-australians-pay-too-much-for-health-care-heres-what-the-government-needs-to-do-61859">Many Australians pay too much for health care – here's what the government needs to do</a>
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<p>And while transparency would be a good step, it still ignores the fact Australia is an outlier in allowing doctors such unfettered freedom to set prices as they see fit. </p>
<p>Other comparable systems where doctors receive fee-for-service payments such as France and Canada, don’t allow their doctors freedom to charge as they like. In 2010, Australia was <a href="https://www.oecd-ilibrary.org/docserver/5kmfxfq9qbnr-en.pdf?expires=1527645664&id=id&accname=guest&checksum=DBD13F453B4AB88AAC0D90081B5A1D93">identified as the only country</a> in the OECD that allowed doctors complete price freedom. </p>
<p>While a complete overhaul of our health system is unlikely in the short-term, we could still make progress in the existing system. A radical solution could use some of the power of the Medicare Benefits Schedule to give specialists financial incentives to keep their prices low. </p>
<p>This might seem like a tricky concept to implement, but it’s actually been done before, and successfully, with the so-called “bulk-billing incentives” for GP consultations. Introduced in the mid 2000s, these incentives pay an extra rebate of A$6-$9 to GPs for each bulk-billed consultation where patients pay no out-of-pocket fee. </p>
<p>These incentives seem to be at least partly responsible for a large increase in the bulk-billing rate <a href="https://theconversation.com/factcheck-were-just-67-of-gp-visits-bulk-billed-when-tony-abbott-was-health-minister-17652">over the past 15 years</a>. </p>
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<a href="https://theconversation.com/factcheck-are-bulk-billing-rates-falling-or-at-record-levels-72278">FactCheck: are bulk-billing rates falling, or at record levels?</a>
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<p>Similar “schedule fee incentives” could be introduced for specialists, which pay an extra Medicare rebate if the total fee is within some acceptable range. For example, specialists could be paid an extra incentive of A$10 if their total fee is no more than 10% higher than the schedule fee.</p>
<p>The amounts and conditions could be changed over time in response to how the market reacts to these changes. As shown by the impact of the bulk-billing incentives, the incentive amount might not have to be high to have a substantial impact in keeping prices low.</p>
<p>While not a silver bullet, radical reforms should be considered to mitigate the rise in specialist out-of-pocket fees before a full-blown crisis emerges.</p><img src="https://counter.theconversation.com/content/97372/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Sivey receives funding from the Australian Research Council.</span></em></p>Australia is the only country in the OECD that allows specialists complete freedom to set their own fees. This puts patients at risk – but the government can help protect them.Peter Sivey, Associate Professor, School of Economics, Finance and Marketing, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/392492015-04-01T19:11:22Z2015-04-01T19:11:22ZThe debate we’re yet to have about private health insurance<p><em>In the final instalment of our series <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">Private health insurance in Australia</a>, Lesley Russell asks whether Australians need private health insurance, and what a two-tiered system means for quality, access and equity.</em></p>
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<p>The <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">six previous papers in this series</a> highlight the poorly defined role private health insurance plays in the funding and delivery of Australian health care, and how the Abbott government might allow this role to expand.</p>
<p>But major changes to Australia’s iconic Medicare system should not happen by stealth. They require full analysis and debate about whether a more integrated public-private system is a feasible option that fits with Australian values and can improve efficiency in health care financing. </p>
<p>Successive governments of both persuasions have failed to convincingly articulate why Australians need what is increasingly a duplicate health care system – with duplicate costs for many – and why the federal financial contribution to private health insurance should be so substantial. The <a href="http://www.budget.gov.au/2014-15/content/bp1/html/index.htm">2014-15 Budget Papers</a> show the cost of the private health insurance rebate will grow from A$5.997 billion in 2013-14 to A$7.187 billion by 2017-18. </p>
<p>Private health insurance is variously seen as an essential feature of a “balanced” health care system comprising both publicly and privately funded and provided health care, or as an instrument of patient choice and responsibility that relieves the pressures in increasingly strained public services. </p>
<p>Most recently, the <a href="http://www.ncoa.gov.au/report/phase-one/recommendations.html">National Commission of Audit</a> (NOCA) has raised the possibility of requiring higher-income earners to take out private health insurance for basic health services in place of Medicare. Both the NCOA and the <a href="http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf">Harper Competition Policy Review</a> advocate an expanded role and less regulation for the private health insurance sector.</p>
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Read more:
<a href="https://theconversation.com/allow-aussies-to-opt-out-of-medicare-and-rely-on-private-health-insurance-38647">Allow Aussies to opt out of Medicare and rely on private health insurance</a>
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<p>These are ideological arguments and much of the dilemma facing those who would work to implement effective policy in this area is the dearth of information about what drives people to purchase health insurance and to use it.</p>
<p>Since 1999 a <a href="http://theconversation.com/private-health-insurance-means-test-passes-what-now-5356">raft of government initiatives</a> – financial carrots and sticks – have aimed to encourage more Australians, especially those who are better off, to purchase private health insurance. </p>
<p>For the most part, these were not evidence-based and consequently have had little or no impact. Only the Lifetime Health Cover Loading and the “run for cover” campaign <a href="http://www.researchgate.net/publication/4998560_Response_Run_for_Cover_Now_or_LaterThe_impact_of_premiums_threats_and_deadlines_on_supplementary_private_health_insurance_in_Australia">had an impact</a> and this has been interpreted as a response to a deadline and an advertising blitz, rather than a pure price response. </p>
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Read more:
<a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">Private health insurance 'carrot and stick' reforms have failed – here's why</a>
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<p>University of Adelaide economist Terence Cheng has <a href="https://www.melbourneinstitute.com/downloads/policy_briefs_series/pb2013n03.pdf">estimated</a> the price elasticity of demand and found that a 10% increase in premiums would result in a reduction in private health insurance coverage of less than 2%. So most Australians who have private health insurance would retain it even if the rebate was completely dropped.</p>
<p>The prevailing wisdom is that people purchase private health insurance to have their choice of doctor and hospital facilities, but as <a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">researcher Sophie Lewis and her colleagues at the University of Sydney</a> have found, it is really more about shorter wait times for hospital procedures, perceived quality of care and “peace of mind”. </p>
<p>Having private health insurance provides the ability to “jump the queue” to access a range of elective procedures in private hospitals. But this comes at a price for all patients. </p>
<p>People with private health insurance are likely getting services ahead of people without insurance but with greater need. The private patient who gets their orthopedic or cataract surgery within weeks rather than months will very often end up with substantial, unexpected out-of-pocket costs. </p>
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Read more:
<a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">Explainer: why do Australians have private health insurance?</a>
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<p>Contrary to government claims, the increase in services delivered in private hospitals has <a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">done nothing to ease</a> the pressure on public hospitals and in fact waiting times for urgent procedures in public hospitals has increased. </p>
<p>Private health insurance does not buy extra quality and safety either. The <a href="http://www.pc.gov.au/inquiries/completed/hospitals/report/hospitals-report.pdf">Productivity Commission</a> found that the larger, most comparable public and private hospitals have similar adjusted premature death ratios. And team-based care in large public hospitals means better care coordination.</p>
<p>The peace of mind that private health insurance is supposed to bring is very often illusionary. Sometimes it’s the realisation that certain procedures or prostheses are not covered; more often it’s the shock of unexpected out-of-pocket costs. More than 20% of private care is paid for by <a href="http://phiac.gov.au/wp-content/uploads/2014/10/PHIAC-Annual-Report-2013-14.pdf">patients’ out-of-pocket costs</a>, which in 2014 averaged A$285 per hospital episode.</p>
<p>The mix of levies, surcharges and rebates – and funds that constantly change their policies – make it difficult for even astute consumers to judge the true cost and value of their private health insurance. </p>
<p>In fact, many people <a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">know little</a> about the policy they purchase – what it covers, how much it covers, whether it is good value and suited to their needs. </p>
<p>The Commonwealth government’s decision to subsidise private health insurance means it has a substantial financial stake in the private sector alongside its existing stake in the public sector. However, while there are incentives to encourage the purchase of private health insurance, there is no requirement for it to be used. </p>
<p>About a quarter of people with private health insurance choose to <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/4839.0.55.0012009">use the public system</a>. Therefore, a significant proportion of the private health insurance rebate is effectively wasted as people purchase cover for financial rather than health reasons.</p>
<p>Public policy experts <a href="https://cpd.org.au/wp-content/uploads/2012/01/CPD_DP_Menadue_McAuley_PHI_2012.pdf">Ian McAuley and John Menadue</a> have made the case that private health insurance is an expensive and clumsy way to do what the tax system and Medicare does better: distribute funds to those who need health care and the effective management of health care costs. </p>
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Read more:
<a href="https://theconversation.com/if-the-government-wants-price-signals-it-should-stop-supporting-health-insurance-38389">If the government wants price signals, it should stop supporting health insurance</a>
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<p><a href="http://www.oecd.org/els/health-systems/33698043.pdf">International evidence</a> shows that private health insurance decreases cost controls and it <a href="http://johnmenadue.com/blog/?p=2884">has been argued</a> that gap insurance has underwritten the dramatic growth in specialist fees. Further, pushing higher income earners (who generally have better health) to take out private health insurance, and then increasingly prejudicing access to services in their favour ensures a <a href="http://www.euro.who.int/__data/assets/pdf_file/0007/96433/E89731.pdf">widening of existing health disparities</a>.</p>
<p>In the absence of a clearly stated and managed role for private health insurance – either as competitor or collaborator – it is effectively undermining the power of Medicare as a single payer and the role of Medicare as a universal provider. This situation is predicted to unravel further, as the Abbott government <a href="http://www.news.com.au/national/private-health-insurers-set-to-manage-patients-gp-care/story-fncynjr2-1227031109206">signaled</a> its agenda to allow private health insurance to play an expanded role in primary care. </p>
<p>Some of larger funds are already expanding their activities in this sector, but with little oversight. </p>
<p>Last year Medibank Private began a program in Queensland that guarantees Medibank members same day GP appointments, fee-free care, after-hours GP visits and a range of health assessments. Medibank <a href="http://www.smh.com.au/business/medibanks-first-numbers-from-gp-trial-20141016-1175sp.html">claims</a> the trial is operating within the bounds of the law because it pays only for administrative costs, as opposed to funding the doctors directly. </p>
<p>The concerns this raises about the generation of a two-tiered health system are further fuelled by the possibility that private health insurance funds were <a href="http://www.news.com.au/national/private-health-insurers-set-to-manage-patients-gp-care/story-fncynjr2-1227031109206">eligible to tender</a> to run the new Primary Health Networks.</p>
<p>It’s an indictment of the passivity of federal government policymakers that private health insurance funds are more willing to kick start the innovative initiatives that are needed to deliver more proactive preventive care, better care coordination and a greater focus in health outcomes. </p>
<p>It’s more troubling that these initiatives are currently occurring in a policy vacuum with a narrow focus on solutions led by the funds for the benefit of their members. This will not assist the millions of Australians who don’t have private health insurance and could have a major impact on the equity and efficiency of the health care system and the budget bottom line.</p>
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<p><em>If you missed any <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">Private Health insurance in Australia</a> articles or our <a href="https://theconversation.com/infographic-a-snapshot-of-private-health-insurance-in-australia-39237">infographic</a>, visit the <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">series page</a>.</em></p><img src="https://counter.theconversation.com/content/39249/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lesley Russell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the final instalment of our series, Lesley Russell asks whether Australians need private health insurance, and what a two-tiered systems means for quality, access and equity.Lesley Russell, Adjunct Associate Professor, Menzies Centre for Health Policy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/386472015-03-31T19:06:54Z2015-03-31T19:06:54ZAllow Aussies to opt out of Medicare and rely on private health insurance<figure><img src="https://images.theconversation.com/files/76505/original/image-20150330-1229-1c1gs7a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Medicare and private health insurance partly overlap for hospital entitlements. But nobody can purchase full coverage for health-care costs.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-172174124/stock-photo-side-view-of-medical-team-and-man-using-staircase-in-hospital.html?src=mCMExOTXOnVDqrAEYkstyA-2-87">Tyler Olson/Shutterstock</a></span></figcaption></figure><p>Most experts agree Australia’s health financing system needs a reboot to reduce the <a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">distortions and inefficiencies</a> created by the overlapping coverage between Medicare and private health insurance.</p>
<p>Any new such financing system would need to carefully balance competition and choice, with affordability of coverage and equal access to quality care. It also needs the flexibility to respond to changing health-care needs. </p>
<p>One solution is to allow individuals to opt out of Medicare and require them to buy private health insurance. This voluntary opt-out model, with risk-based government subsidies, would make private cover fully substitutable for Medicare. </p>
<h2>Fragmentation and overlap</h2>
<p>A striking paradox in the current public/private mix in health care financing in Australia is that <a href="https://theconversation.com/infographic-a-snapshot-of-private-health-insurance-in-australia-39237">almost 50% of Australians</a> have two insurances: Medicare and private health insurance. </p>
<p>These insurances partly overlap for hospital entitlements. But nobody can purchase full coverage for health-care costs. General practice care is funded by Medicare, but because GP fees are virtually uncapped and private health insurance is <a href="http://www.afr.com/business/health/pharmaceuticals/two-tier-usstyle-health-system-claim-20140605-ivz38">legally precluded</a> from paying for these services, individuals may face high out-of-pocket costs at the point of service. </p>
<p>Insurers aren’t involved in coordinating effective and efficient primary care interventions for patients – particularly those with chronic diseases – to benefit from care as a continuum. And because patients with private health insurance can go on to choose their doctor and hospital, GPs can’t fully exercise their gate-keeping functions.</p>
<p>Another quirk of the current system is that private patients admitted to public or private hospitals face <a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">gaps in payments</a> covered by private health insurance doctors’ fees, hospital stays and equipment. These gaps are not fully “known” before the treatment occurs are on top of other out-of pockets payments structural to the insurance policy, such as premiums and excesses. </p>
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<img alt="" src="https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76507/original/image-20150331-1245-1dr2kwg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Private health insurance cannot provide coverage for primary care serices.</span>
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<p>Of course, there are sound arguments for not having full coverage of all potential health-care costs. The “moral hazard” of using more or more expensive services when someone else is paying the bill can be mitigated by making consumers responsible for part of their health care bills. </p>
<p>But such design is questionable on both equity and efficiency grounds. People on low-incomes, for instance, might forgo necessary care, like going to the GP today, which might result in more costly treatment at hospital later on. </p>
<p>Others might decide not to use private health insurance and join the queue in the public hospital system to avoid the risk associated with “unknown” gaps. But in so doing they will affect overall waiting times and quality by delaying treatment.</p>
<p>The present design <a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">hasn’t (yet) shown to be effective</a> in reducing the pressure on public finances or in providing stakeholders with the right incentives to maintain a stable and reasonable waiting times in the public sector. </p>
<p>In addition, it hasn’t structurally dealt with the problems of stability in the private health insurance industry and the long-term scenario of a two-tier system, where the wealthy have stronger incentives than the less well off to take out private health insurance. </p>
<p>This problem wasn’t addressed by the <a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">Howard-era changes</a> to the private health insurance rebate and the Medicare Levy Surcharge. Nor has it been mitigated by the recent introduction of means-testing. And it will potentially be reinforced as publicly participated funds (such as Medibank) have been privatised, increasing competition in the market. </p>
<h2>Opting out of Medicare</h2>
<p>Allowing individuals to voluntarily opt out of Medicare and require them to buy – and solely rely on – private health insurance is one way to address the above distortions. It would also encourage efficiency and choice, while keeping up standards of care and guaranteeing affordability. </p>
<p>Australians would be given the opportunity to choose between public or private insurers, with Medicare acting as the default fund. Those choosing to opt out would receive a risk-adjusted subsidy towards the cost of their premium. </p>
<p>Risk-adjusted subsidies would reflect the expected costs of health services contained in the statutory benefits package that are standard and compulsory for all operating funds to provide, including Medicare. As a result, high-risk individuals would receive larger subsidies than people who are low-risk. </p>
<p>Risk-adjusted subsidy schemes have been in place in various forms in Switzerland, <a href="https://theconversation.com/creating-a-better-health-system-lessons-from-the-netherlands-30270">the Netherlands</a> and Germany since the 1990s. These programs have delivered universal access while maintaining high-quality health-care services, even during the global financial crisis.</p>
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<span class="caption">Risk-adjusted subsidies would reflect the expected costs of health services.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-153098018/stock-photo-team-of-surgeon-in-uniform-perform-operation-on-a-patient-at-cardiac-surgery-clinic.html?src=pp-photo-191473340-FzgFfngPbAUyP8qYlXA2gg-5&ws=1">Dmitry Kalinovsky/Shutterstock</a></span>
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<p>In Australia, such a scheme would provide stronger incentives for efficiency, a more stable private health insurance market with affordable premiums, and a reduction in waiting lists in the public sector. Under the new scheme, public and private services would be substitutable by both Medicare and private health insurance holders. </p>
<p>The scheme would require open enrolment, meaning Medicare and private health insurers must accept applicants without any discrimination. And, importantly, private health insurers would have to cover all types of health services specified in a nationally defined statutory benefits package (identical to Medicare’s) and cover all related expenses. </p>
<p>The current <a href="https://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">regulatory restrictions and subsidies</a> for private health insurance would be replaced by risk-adjusted subsidies and, if necessary, by mandatory reinsurance and premium bands constraining the allowable variation in premiums. </p>
<p>Australian health-care system faces many real challenges. We need a coherent vision followed by consistent action to design and implement the policy changes necessary to guarantee a modern, sustainable and durable health-care financing system capable of responding efficiently and equitably to the evolving needs of Australians. </p>
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<p><em><strong>Click on the links below to read the other instalments of <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">Private Health Insurance in Australia</a>:</strong></em></p>
<p><a href="http://theconversation.com/can-private-health-insurers-justify-a-6-2-premium-increase-38390">Can private health insurers justify a 6.2% premium increase?</a> </p>
<p><a href="https://theconversation.com/infographic-a-snapshot-of-private-health-insurance-in-australia-39237">INFOGRAPHIC: A snapshot of private health insurance in Australia</a> </p>
<p><a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">Explainer: why do Australians have private health insurance?</a> </p>
<p><a href="http://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">Private health insurance ‘carrot and stick’ reforms have failed – here’s why</a> </p>
<p><a href="https://theconversation.com/if-the-government-wants-price-signals-it-should-stop-supporting-health-insurance-38389">If the government wants price signals, it should stop supporting health insurance</a></p>
<p><a href="https://theconversation.com/the-debate-were-yet-to-have-about-private-health-insurance-39249">The debate we’re yet to have about private health insurance</a></p><img src="https://counter.theconversation.com/content/38647/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francesco Paolucci received funding from Medibank Private in 2008 for project work with Concept Economics consultancy. He is currently working in a project funded by the Mitchell Institute at Victoria University. </span></em></p>Any new such financing system would need to carefully balance competition and choice, with affordability of coverage and equal access to quality care.Francesco Paolucci, Associate Professor; Head of Health Policy Program, Sir Walter Murdoch School of Public Policy and International Affairs, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/383892015-03-31T19:05:22Z2015-03-31T19:05:22ZIf the government wants price signals, it should stop supporting health insurance<figure><img src="https://images.theconversation.com/files/76514/original/image-20150331-1259-z9035z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Private health insurance is an expensive way to fund health care. </span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-173814836/stock-photo-coprology-test.html?src=pp-same_model-173816189-7&ws=1">Image Point Fr/Flickr</a></span></figcaption></figure><p>Prime Minister Tony Abbott has declared the Medicare co-payment proposals “<a href="http://www.abc.net.au/news/2015-03-03/tony-abbott-declares-gp-co-payment-dead-buried-and-cremated/6275912">dead, buried and cremated</a>”, but two related ideas behind it live on: Medicare is becoming “unaffordable” and our universal health system should morph into a program reserved for the poor.</p>
<p>The government’s original justification for the co-payment was to bring more “price signals” into Medicare. In itself the idea has merit, but the government has been going about it in a ham-fisted way.</p>
<p>Whether by design or accident, the government seems to be undermining the principle of Medicare as a universal tax-funded program, paving the way for private health insurance to <a href="https://theconversation.com/balancing-public-and-private-as-health-insurers-move-into-primary-care-21995">play a role</a> in funding primary care.</p>
<p>But private insurance, by its very nature, suppresses price signals and encourages over-servicing and cost escalation. It is an expensive way to fund health care. </p>
<p>If the government wants more price signals in health care, it can start by standardising the mess of arbitrary co-payments in health care. If those co-payments can be re-designed to carry meaningful price signals, they will guide wise choice and contribute to efficient resource allocation.</p>
<p>The government should also consider requiring those better-off Australians, who have much more liquid savings than in times past, to contribute more to their own health care from their own pockets rather than assuming that someone else – Medicare or private insurance — will cover the minor outlays they could easily afford themselves. </p>
<h2>The unaffordability myth</h2>
<p>It’s easy to panic about the looming cost of health care as Australia ages. That has been the message of successive Intergenerational Reports, the latest of which <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">suggests</a> that under “previous policy” (Labor government) setting, Commonwealth health expenditure would rise from 4.4% to 7.1% of GDP by 2054, but would be contained to 5.7% of GDP under the government’s “proposed policy”.</p>
<p>The sensible response to these projections is to ask “so what?”. As the population ages, Australians will indeed spend more on health care. </p>
<p>But simply shifting costs off-budget and on to individuals, or to private insurance mechanisms is an <a href="http://cpd.org.au/2012/02/ian-mcauley-and-john-menadue-are-private-health-subsidies-worth-it/">expensive and clumsy way</a> to fund health care. It does not make health care more “affordable” – we still have to pay for it. </p>
<p>As John Deeble, one of Medicare’s original designers, pointed out, the simple solution to fiscal pressures on the Commonwealth’s health budget is to <a href="http://www.smh.com.au/national/raising-medicare-levy-the-solution-to-health-costs-says-architect-20140131-31shn.html">raise the Medicare Levy</a>. </p>
<p>The government said that imposing a co-payment and reducing bulk-billing would result in reduced use of Medicare services, which have risen from 11 to 15 a head over the last ten years. </p>
<p>That idea would be sound if Medicare services were stand-alone, but any reduction in demand would most probably be among those in most need of care, particularly early intervention to stave off costly episodes of hospitalisation and chronic disease. And there would be a shift of demand on to hospital emergency services. </p>
<p>The costs to health budgets and to the whole economy (in terms of lost workforce participation resulting from chronic illness), could well be far greater than any saving in Medicare.</p>
<p>But, as the Public Service Commission’s <a href="http://www.apsc.gov.au/publications-and-media/current-publications/capability-review-health">capability review</a> of the health department points out, the department tends to work in “silos”, and seems to lack the capability of considering “whole-of-health-system policy”. </p>
<p>Under pressure to cut expenditure, Medicare is the easy target. Costs outside the “Medicare” silo are not their concern, and if they can move some load on to individuals, private insurers or state government hospitals, that’s clever cost-shifting. That’s not so much a “policy”, which would be concerned with the public interest, as an attempt to contain outlays within an arbitrary fiscal limit.</p>
<h2>Exempting the rich from price signals</h2>
<p>The specific co-payment idea came from the government’s <a href="http://www.ncoa.gov.au/report/phase-one/part-b/7-3-a-pathway-to-reforming-health-care.html">Commission of Audit</a>, which saw it as a first step in a stealthy but radical transformation of health services away from universalism, towards a US-style system with “an expanded role for private insurance” to “cover all services covered by Medicare and public hospitals”. </p>
<p>Medicare would be reduced to a service for the “indigent” (to use the US term).</p>
<p>Despite dumping the co-payment, health minister Sussan Ley still <a href="http://www.abc.net.au/radionational/programs/breakfast/sussan-ley/6278872">wants to</a> “reduce the number of bulk billed consultations to people who can afford to pay something”. This suggests she sees Medicare as a charity or distributive welfare system, not a universal system as it was originally envisaged.</p>
<p>As the freeze on Medicare reimbursements bites harder, bulk-billing will probably fall (as intended), resulting in mounting pressure on the government to change the legislation and permit private health insurance to cover the gap. </p>
<p>The Commission hypocritically calls for people with means to take “individual responsibility for their health care”, but to be guided by “price signals” while they are herded into private health insurance. </p>
<p>But private insurance is no more about “individual responsibility” than Medicare is: it’s still about handing over responsibility to a third party. Far from incorporating “price signals”, it simply changes the message from “Medicare will pay for it” to “HCF/BUPA/Medibank Private will pay for it”. This incentive for over-use is known as “moral hazard”. </p>
<h2>Co-payments and personal savings</h2>
<p>It’s easy to forget that we already have co-payments in health care. Out-of-pocket expenses, not covered by public or private insurance, account for <a href="http://www.aihw.gov.au/health-expenditure/">18%</a> of health care expenditure, <a href="http://www.oecd.org/els/health-systems/health-data.htm">in line</a> with other prosperous countries. </p>
<p>But the breakdown of out-of-pocket expenses is messy and haphazard; a reflection of the “silo” arrangements in the health department. Expenses fall heavily on dentistry, specialist services and non-prescription medications. Many are uncapped, meaning the consumer is left bearing open-ended risk.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74995/original/image-20150316-9184-1ihtbex.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>It’s also easy to forget that Australians, on average, have enough liquidity to cope with modest co-payments when a need arises. <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6554.02011%E2%80%9312?OpenDocument">Australian Bureau of Statistics</a> data show that on average, households have A$37,000 in available funds. </p>
<p>If we want price signals in health care, then there is a good case for requiring personal payments for those with means, without the moral hazard of third party payment.</p>
<p>Some commentators suggest we should go down the path of <a href="https://theconversation.com/creating-a-better-health-system-lessons-from-singapore-30607">health savings accounts</a>, whereby people are required to set aside funds in personal accounts to be drawn on only for health care needs. Only when a person’s health savings account is depleted does the state cover additional expenses. </p>
<p>Health savings accounts certainly have advantages over private insurance, in that they retain a measure of individual responsibility, and they tend to accumulate with age. </p>
<p>But they have their own problems, in that when someone’s HSA reaches a high level there is a “use it or lose it” form of moral hazard. And in economic terms, they tend to privilege health spending over other consumption, thus distorting consumer choice.</p>
<p>In any event, Australia’s compulsory superannuation is already serving some of the same purpose as health savings accounts. Once Australians retire, their superannuation balances become accessible as personal accounts (apart from those whose superannuation is in annuity form). Including superannuation, singles over 65 have <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6554.02011%E2%80%9312?OpenDocument">on average</a> A$170,000 in reasonably liquid assets, while couples have A$430,000.</p>
<p>We could be served well by a requirement that all with means pay for their health care up to a limit before Medicare kicks in to cover high costs. That’s essentially the policy the Coalition took to the 1987 election, when it proposed that all who could afford it should contribute the first A$250 a year to their health costs (equivalent to about A$800 now), without the support of insurance. </p>
<p>That would mean most people make no call on public funds in any one year, while preserving the universality of Medicare as a single national insurer, covering those with high needs or limited means. </p>
<p>That’s essentially the <a href="http://theconversation.com/creating-a-better-health-system-lessons-from-norway-and-sweden-30366">Nordic model</a>. It combines the best or market price signals and the power of a government insurer, without the distortion and high cost of private health insurance or fiddly and paternalistic measures such as health savings accounts. </p>
<hr>
<p><em><strong>Click on the links below to read the other instalments of <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">Private Health Insurance in Australia</a>:</strong></em></p>
<p><a href="http://theconversation.com/can-private-health-insurers-justify-a-6-2-premium-increase-38390">Can private health insurers justify a 6.2% premium increase?</a> </p>
<p><a href="https://theconversation.com/infographic-a-snapshot-of-private-health-insurance-in-australia-39237">INFOGRAPHIC: A snapshot of private health insurance in Australia</a> </p>
<p><a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">Explainer: why do Australians have private health insurance?</a> </p>
<p><a href="http://theconversation.com/private-health-insurance-carrot-and-stick-reforms-have-failed-heres-why-38501">Private health insurance ‘carrot and stick’ reforms have failed – here’s why</a> </p>
<p><a href="https://theconversation.com/allow-aussies-to-opt-out-of-medicare-and-rely-on-private-health-insurance-38647">Allow Aussies to opt out of Medicare and rely on private health insurance</a> </p>
<p><a href="https://theconversation.com/the-debate-were-yet-to-have-about-private-health-insurance-39249">The debate we’re yet to have about private health insurance</a></p><img src="https://counter.theconversation.com/content/38389/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian McAuley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Private insurance, by its very nature, suppresses price signals and encourages over-servicing and cost escalation.Ian McAuley, Lecturer, Public Sector Finance , University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/385012015-03-30T18:59:49Z2015-03-30T18:59:49ZPrivate health insurance ‘carrot and stick’ reforms have failed – here’s why<figure><img src="https://images.theconversation.com/files/75892/original/image-20150325-4209-gvf8xy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The relationship between private health insurance and Medicare has been a problem since the Whitlam government introduced universal health care. </span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-187694114/stock-photo-empty-modern-hospital-bed-in-a-sunny-room-with-a-clean-blue-floor.html?src=mCMExOTXOnVDqrAEYkstyA-1-25">Hadrian/Shutterstock</a></span></figcaption></figure><p>If your workplace is anything like mine, this week’s private health insurance <a href="https://theconversation.com/can-private-health-insurers-justify-a-6-2-premium-increase-38390">premium increases</a> might prompt conversations that go something like this:</p>
<blockquote>
<p>Can you believe our private health insurance costs $421 a month – and we are all really healthy!</p>
</blockquote>
<p>Some people baulk at the cost of private insurance – especially the relatively young and healthy – because they don’t see the value of it when they are already covered under Medicare. </p>
<p>Others see a struggling public hospital system and wonder whether private health insurance is alleviating much of the burden. </p>
<p>The challenge of sustaining a viable private insurance sector alongside Medicare is not a new one. Successive governments have largely ignored the issue, vainly hoping that strengthening either Medicare or private health insurance will be enough to solve the problem. It won’t be.</p>
<h2>Howard’s ‘carrot and stick’ reforms</h2>
<p>The last major attempt to address the role of private health insurance in the context of Medicare occurred during the Howard years. </p>
<p>When John Howard was elected prime minister in 1996, private health insurance membership rates had <a href="http://phiac.gov.au/industry/industry-statistics/">fallen</a> to a low of 34%, down from 48% in 1985, the year after Medicare was introduced. The government quickly embarked upon a series of reforms designed to boost flailing membership rates. </p>
<p>It began in 1997 by introducing the <a href="https://digitalcollections.anu.edu.au/bitstream/1885/41231/3/WP47.pdf">Private Health Insurance Incentive Scheme</a> and the <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/mls.htm">Medicare Levy Surcharge</a>. The incentive scheme encouraged people earning below a threshold amount to purchase private health insurance. The surcharge penalised people earning above a threshold amount if they chose not to purchase a plan. </p>
<p>Because these initiatives did not have the desired impact on membership, in 1999 the government introduced a 30% subsidy for which all Australians were eligible, regardless of income.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=509&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=509&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=509&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=640&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=640&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76204/original/image-20150327-4802-8rvaks.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=640&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Admitting doctors often prefer to use public hospitals for more complex procedures.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/compacflt/7317984550/in/photolist-c9EzRq-aqyjcD-arzgMW-8aSdFt-6v8Xj7-aGGLHc-6Xcp9Z-6tpUJv-6KCEK4-cGoQiY-9aRGDU-aapP1P-83zrvk-aizEuc-6rXkq4-9Nu7Y9-aYbQ94-9m812X-c9Eyuh-apfaAN-7dx4Gk-7dAt5f-74KN7i-7ZHnco-fkq64z-4D2uyf-gEGZv6-8m68d5-faUNgK-8pR3yn-9XF7nR-3oYCgF-86z4df-4pam2U-boFsuo-4JmkMy-4D2xm1-7ekVTK-8qzxoc-8qzdut-9o6urd-crVR4Y-8VDi9S-77DF2S-4Gaub8-4zagLY-75Xh84-5wrZLn-aaWEpz-aaWefz">U.S. Pacific Fleet/Flickr</a></span>
</figcaption>
</figure>
<p>This too failed to boost membership to the desired level, so in 2000 the government introduced its <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htm">Lifetime Health Cover</a> scheme. Under it, funds were required to set different premium levels according to the age at which enrolees first took out cover. Higher premiums were charged for each year insurance cover was not held beyond the age of 30 years. </p>
<p>The intention was to discourage “hit and run” behaviour and improve the stability of the industry by restraining pressures for premium increases. </p>
<h2>Assessing Howard’s reforms</h2>
<p>If private health insurance membership rates are used as the measure of success, the Howard government’s reforms achieved what they set out to do. <a href="http://phiac.gov.au/industry/industry-statistics/">Membership rates</a> rose to 46% by September 2000 after the Lifetime Health Cover scheme came into operation, and stabilised around this level. </p>
<p>However, the Coalition’s reforms also aimed to restore the “balance” between Medicare and private health insurance. In 1997, for example, the health minister at the time, Michael Wooldridge, <a href="http://www.tandfonline.com/toc/rhsr20/15/2#.VQkLfuHQj8M">said</a>:</p>
<blockquote>
<p>A strong public and private health sector standing side by side is vital to the future of the health system for all Australians. I want to keep Medicare in place as it is today… This can only be done if the drop-out rate from health insurance is stopped, and the balance between the public and private systems is restored.</p>
</blockquote>
<p>The rhetoric is strikingly similar to that used by the current government.</p>
<p>Assessing the balance between the public and private sectors in Australia is a more complex task. </p>
<p>Activity in the private hospital sector has definitely increased alongside increases in private health insurance rates. Between 2000-01 and 2004-05, for example, the <a href="http://www.aihw.gov.au/publication-detail/?id=6442467847">growth</a> in separations from private hospitals outpaced that in public hospitals (4.8% versus 2.4%). This trend <a href="http://www.aihw.gov.au/publication-detail/?id=60129546922">continued</a> to 2012-13, the latest available data. </p>
<p>But has the extra activity in the private sector reduced pressure on the public system? </p>
<p>A report from researchers at the <a href="https://melbourneinstitute.com/downloads/reports/phi2004.pdf">Melbourne Institute</a> in 2004 found that the increase in private health insurance membership during the Howard years was matched by an increase in hospital use overall, rather than a substitution of private for public care. </p>
<p>The authors noted one of the reasons was that admitting doctors often prefer to use public hospitals for more complex procedures and private hospitals for non-urgent elective surgery and other low-intensity interventions. As a result, waiting times for urgent cases in the public sector increased rather than decreased in response to the Coalition’s reforms. </p>
<p>In 2005, health economist Stephen Duckett, former secretary of the federal Department of Health, published a <a href="http://www.publish.csiro.au/nid/271/issue/5687.htm">study</a> that confirmed these results. He found that increasing activity in the private sector led to increases in waiting times in public hospitals in some medical areas. </p>
<p>Waiting times in the public sector, however, cannot simply be correlated with private health insurance membership rates and private hospital activity. <a href="http://www.federalfinancialrelations.gov.au/content/npa/health_reform/national-workforce-reform/national_partnership.pdf">Investment in public hospitals</a> also helps reduce waiting times, regardless of what is happening in the private sector. </p>
<p>To complicate the analysis even further, in states such as <a href="https://theconversation.com/does-contracting-public-care-to-private-hospitals-save-money-23910">Queensland</a>, there has been a growing trend towards “outsourcing” or contracting public hospital care to the private sector, in the elective surgery area in particular. </p>
<p>Although the Howard government succeeded in reviving the private health insurance sector by boosting membership, it failed to find a sustainable way of balancing the private health insurance system and Medicare. The cost of private health insurance rebates <a href="http://www.smh.com.au/federal-politics/political-news/abolishing-health-insurance-rebate-would-save-3b-analysis-20140109-30kkc.html">ballooned</a> to A$5.5 billion by 2012-13, prompting Labor, under Gillard, to means-test the rebate. </p>
<h2>Time to reconceptualise the debate</h2>
<p>The uneasy relationship between private health insurance and Medicare has been an ongoing stimulus for reform ever since the Whitlam government introduced Medibank (the precursor to Medibank) in 1975, while also leaving the existing private health insurance scheme in place. </p>
<p>The Hawke-Keating government progressively withdrew subsidies to the private insurance industry during the late 1980s, which contributed to a <a href="http://www.pc.gov.au/__data/assets/pdf_file/0006/156678/57privatehealth.pdf">30% increase</a> in the costs of premiums during that period.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76208/original/image-20150327-4772-19om0nf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Successive governments have largely ignored the issue, vainly hoping that strengthening either Medicare, or private health insurance, will be enough to solve the problem.</span>
<span class="attribution"><a class="source" href="http://one.aap.com.au/#/search/medicare%20protest?q=%7B%22pageSize%22:25,%22pageNumber%22:2%7D">Peter Boyle/AAP</a></span>
</figcaption>
</figure>
<p>So, what are the possible solutions? </p>
<p>Various <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/0809/HealthReform">options for reform</a> of Australia’s health insurance arrangements have been proposed over the years, including: </p>
<ul>
<li>setting private and public insurance up in competition with one another</li>
<li>restricting the role of private health insurance to providing top-up or supplementary coverage </li>
<li>moving away from the insurance model to one where individuals self-manage funds set aside for purchasing health care.</li>
</ul>
<p>Each of these options requires fairly large-scale reform of the health system, which might be achievable over time through incremental reform or, alternatively, through a concerted “big-bang” reform effort. </p>
<h2>Filling the policy gap</h2>
<p>Because both sides of politics have for so long been studiously avoiding the big issue in health insurance – the challenging of operating a <a href="https://theconversation.com/medicare-turns-30-and-begins-to-show-signs-of-ageing-22390">mixed insurance system</a> where private health insurance sometimes functions as a top-up to Medicare and sometimes as a substitute – the private health insurance sector has begun to take the policy lead. </p>
<p>Private health insurance funds, such as Medibank Private and BUPA, have been <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2015/February/private_health_insurance_and_primary_care">experimenting</a> with reforms in primary care that, if implemented on a large scale, will have a major bearing on the equity and efficiency of our health system. </p>
<p>While private sector innovation is a good thing, it is the responsibility of governments, and oppositions, to shape the direction of reform and ensure that they lead to better health outcomes for all Australians. </p>
<p>At the moment, neither major party seems to have a clear vision for a sustainable and equitable health system that includes both Medicare and private health insurance. </p>
<hr>
<p><em><strong>Click on the links below to read the other instalments of <a href="https://theconversation.com/au/topics/private-health-insurance-in-australia">Private Health Insurance in Australia</a>:</strong></em></p>
<p><a href="http://theconversation.com/can-private-health-insurers-justify-a-6-2-premium-increase-38390">Can private health insurers justify a 6.2% premium increase?</a> </p>
<p><a href="https://theconversation.com/infographic-a-snapshot-of-private-health-insurance-in-australia-39237">INFOGRAPHIC: A snapshot of private health insurance in Australia</a> </p>
<p><a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">Explainer: why do Australians have private health insurance?</a> </p>
<p><a href="https://theconversation.com/if-the-government-wants-price-signals-it-should-stop-supporting-health-insurance-38389">If the government wants price signals, it should stop supporting health insurance</a></p>
<p><a href="https://theconversation.com/allow-aussies-to-opt-out-of-medicare-and-rely-on-private-health-insurance-38647">Allow Aussies to opt out of Medicare and rely on private health insurance</a> </p>
<p><a href="https://theconversation.com/the-debate-were-yet-to-have-about-private-health-insurance-39249">The debate we’re yet to have about private health insurance</a></p><img src="https://counter.theconversation.com/content/38501/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne-marie Boxall is an employee of the National Rural Health Alliance</span></em></p>Some people balk at the cost of private insurance – especially the relatively young and healthy – because they don’t see the value of it when they are already covered under Medicare.Anne-marie Boxall, Senior Policy Adviser, National Rural Health Alliance; Adjunct Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/392372015-03-29T19:12:40Z2015-03-29T19:12:40ZINFOGRAPHIC: A snapshot of private health insurance in Australia<figure><img src="https://images.theconversation.com/files/79418/original/image-20150427-18126-pqzdlb.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"> </span> </figcaption></figure><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=5736&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=5736&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=5736&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=7208&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=7208&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76062/original/image-20150326-12270-1afelca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=7208&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure><img src="https://counter.theconversation.com/content/39237/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Terence Cheng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How much do Australians pay for private health insurance?Fron Jackson-Webb, Deputy Editor and Senior Health EditorEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/323222014-10-23T03:34:07Z2014-10-23T03:34:07ZKeeping people healthy is good for insurers’ bottom line<figure><img src="https://images.theconversation.com/files/62582/original/g96tyy2y-1414026307.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Several private health insurers are trailing schemes to prevent their members' health deteriorating.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/diacimages/5566454501">DIBP images</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Australia’s population is in the midst of considerable demographic change, with a proportional rise in older age groups. Medical successes can now save the lives of those who would have died from illnesses such as heart attacks and cancer. In doing so, the ranks of those with an ongoing and complex health problem have swollen. </p>
<p>Meeting the needs of these people will require a change in the way we deliver health service. Australia’s current health services are provided episodically, when someone gets sick; we need to move towards a system of continuing care, involving a mix of hospital and community support.</p>
<p>Acknowledging the financial benefits of keeping people healthy, several large Australian private health insurers are <a href="https://theconversation.com/balancing-public-and-private-as-health-insurers-move-into-primary-care-21995">trialling schemes</a> to provide additional services, such as telephone-based coaching, to encourage healthy lifestyle choices for members at risk of chronic diseases. </p>
<p>But so far their efforts have been limited and haphazard. While the United States system of managed care has been criticised in the past as being too prescriptive, it offers some important lessons for Australian insurers. </p>
<h2>Australia’s fragmented system</h2>
<p>All health-care providers – public and private – are increasingly investing in ways to better care for people with chronic conditions. We know that good primary care helps patients keep their illnesses under control. But when conditions go unmanaged, and the patient’s health deteriorates, they’re more likely to require costly hospital care. </p>
<p>However, Australia has a split health care system, where the Commonwealth manages primary care and the states manage hospitals. This funding system rewards cost-shifting from the Commonwealth to the states and back; the exact opposite of much-needed service shifting on behalf of the patient. It also stops investment following value. </p>
<p>Although hospital is the best place to be if your long-standing condition deteriorates, admission can be highly disruptive for both patients and carers. Picture this scenario: a patient with chronic lung disease with sudden severe breathlessness ends up in the emergency department. Two weeks and tens of thousands of dollars later he returns home. </p>
<p>This hospital visit might have been prevented with a call to his community-based general practitioner, who has been managing the patient’s bronchitis, and a follow-up consultation. It would also reduce the demands of hospitalisation on the individual, his family and the health system. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/62583/original/57sgygk7-1414026505.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Insurers aim to keep members healthy and out of hospital.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-187694114/stock-photo-empty-modern-hospital-bed-in-a-sunny-room-with-a-clean-blue-floor.html?src=mCMExOTXOnVDqrAEYkstyA-1-48">Hadrian/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Lessons from the United States</h2>
<p>The US has made progress in contemporary managed care. <a href="http://en.wikipedia.org/wiki/Kaiser_Permanente">Kaiser Permanente</a> (KP) is a health insurance and comprehensive care provider agency which has 9.3 million members (about seven million in California) and uses a system of medical centres, primary care facilities, preventive services and community-based practices. </p>
<p>You or your employer pays your premium and KP matches the type of care to your need. KP measures the outcomes of what their service provides and, in general, these are superior to those achieved in the expensive, unmanaged systems that co-exist elsewhere in the US. </p>
<p>An <a href="http://www.ncbi.nlm.nih.gov/pubmed/11799029">evaluation in 2002</a> by Richard Feachem and colleagues suggested that KP’s costs per patient per year were less than in the British National Health Service (NHS). This paper led to trans-Atlantic fury. </p>
<p>In an <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1122059/">accompanying editorial</a> in the BMJ, the editor, Richard Smith, explained:</p>
<blockquote>
<p>The authors think that Kaiser may perform better because primary and secondary care are better integrated and the whole system better managed; because it has hospital stays a third the length of those in the NHS and much better information technology; or because of competition.</p>
</blockquote>
<p>With comprehensive managed care such as at KP, the payer (the insurance company) has an interest in ensuring that you achieve the best outcome from medical or surgical care. The insurer is also keen that you, as the patient, stay well. To that end, preventive message about immunisation, exercise and diet, easy access to personal preventive services and quit-smoking classes are part of the insurer’s service to their members. </p>
<p>No-one other than the insurer pays for the health care of their members. Having one single payer means they’re interested in prevention and in the effectiveness of all forms of care they provide, and not just cure. </p>
<h2>What does this mean for Australia?</h2>
<p>Earlier models of managed care in the US were roundly criticised and disliked by the medical profession in Australia because they limited clinical freedom, requiring doctors to check with insurers before embarking on expensive diagnoses and treatments. </p>
<p>A third party was seen as intruding on the doctor-patient relationship. Resistance to early managed care programs was typified by the comment of one doctor who said: “Before I can treat my patient I have to call his or her insurer on 1800-Mother-may-I? to get permission!” Things have moved a long way. </p>
<p>It’s important to note that Australia does have an alternative system of care for patients with chronic conditions, similar to KP, and we should look at it carefully. It’s called the <a href="http://www.healthdirect.gov.au/partners/department-of-veterans-affairs">Department of Veterans Affairs</a> and it works remarkably well. </p>
<p>Veterans Affairs uses an inclusive data system for its patients that covers their treatment in different hospitals by different doctors. It can tell how patients get on and broadly what happens to them. It uses tailored programs for patients with different ailments. It supports good, quality, managed care. </p>
<p>So far in Australia, the participation of the private health insurers in managed care is limited and haphazard; they have a very long journey ahead of them to achieve the successes of the American industry. But fledgling efforts deserve more than knee-jerk criticism based on perceptions formed decades ago about what managed care can offer.</p><img src="https://counter.theconversation.com/content/32322/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Leeder does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s population is in the midst of considerable demographic change, with a proportional rise in older age groups. Medical successes can now save the lives of those who would have died from illnesses…Stephen Leeder, Emeritus Professor, Menzies Centre for Health Policy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239102014-04-07T20:10:33Z2014-04-07T20:10:33ZDoes contracting public care to private hospitals save money?<figure><img src="https://images.theconversation.com/files/45727/original/93dwrsxz-1396837836.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There is no publicly available, solid evidence to show that such outsourcing generates savings for governments. But it could.</span> <span class="attribution"><span class="source">Alexander Tihonov/Shutterstock</span></span></figcaption></figure><p>In the lead-up to the budget on May 13, the Tony Abbott government is looking for ways to make the health dollar go further. In 2011-12 the federal government <a href="http://www.aihw.gov.au/WorkArea/DownloadAsset.aspx?id=60129543830">spent</a> A$14.4 billion on public and private hospitals, and state and territory governments spent A$20.2 billion. It’s no surprise, then, that both levels of government are keen to find ways of keeping a lid on hospital costs. </p>
<p>If health minister Peter Dutton’s recent <a href="http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2013-dutton140324.htm">speech</a> to the Australian Private Hospitals Association is any indication, contracting out some public hospital services to the private sector is one option governments might consider when trying to reduce expenditure on public hospitals. </p>
<p>In the speech, Dutton drew attention to Queensland’s state-wide contracting program, <a href="http://statements.qld.gov.au/Statement/2013/11/27/better-management-helps-qh-to-connect-patients">Surgery Connect</a>. Under this program, the state government arranges for patients who have been waiting too long for elective surgery in one public hospital to be treated in any public or private hospital in the state at the government’s expense. In the original version of the scheme, patients were mostly sent to private hospitals. </p>
<p>Contracting between public and private hospitals also occurs in many other parts of Australia. Victoria, for example, allocated up to A$165 million to contract out elective surgery over the period 2013-14 to 2016-17 as part of its <a href="http://www.health.vic.gov.au/surgery/competitive.htm">Competitive Elective Surgery Initiative</a> to reduce the proportion of patients who have to wait longer than clinically necessary to access hospital care. </p>
<p>In other states and territories, contracts between public and private hospitals are negotiated between individual hospitals.</p>
<p>According to the <a href="http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2013-dutton140324.htm">health minister</a>, Surgery Connect leverages off the private sector and helps reduce costs. But there is no publicly available, solid evidence to show that such outsourcing generates savings for governments. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=283&fit=crop&dpr=1 600w, https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=283&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=283&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=356&fit=crop&dpr=1 754w, https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=356&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/45350/original/q4h4zcp5-1396402526.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=356&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Some private hospitals already treat the overflow of patients from public hospitals.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/69422935@N00/4033995773/">Flickr/painter dude</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>In fact, some of the hospital executives we interviewed for a <a href="http://ahha.asn.au/sites/default/files/publication/18847/deeble_issue_brief_no_4_boxall_a_et_al_short-term_contracting_of_inpatient_hospital_care_final.pdf">research paper</a> on hospital contracting said it is sometimes more expensive to contract out the care of public patients to private hospitals. </p>
<p>These executives, from public, private and not-for-profit hospitals, explained this is often because contracting is done in an ad hoc way, with hospitals given very short timeframes to do the additional work. And it’s also done without clear or consistent state, regional or local-level approaches to determining prices for contracted services. </p>
<p>Most of the 24 hospital executives we interviewed brought up the first problem – the ad hoc nature of contracting. Private hospital executives, for example, explained that they are sometimes asked to treat large numbers of public elective surgery patients in the final weeks of the financial year, or in the lead up to a state election. </p>
<p>With such short notice, they say it can be impossible for them to do the work – surgeons are not available, or operating theatres are already fully booked. This ad hoc approach causes enormous frustration among private hospital executives, and makes them less willing to work with the public sector in the future. </p>
<p>Sometimes private hospitals make the decision to do the public contract work at short notice, but they charge a premium. To treat the extra patients they have to pay staff overtime to work longer hours, or to do extra shifts on the weekend. Sometimes surgeons also charge higher fees when private hospitals ask them to do extra theatre sessions.</p>
<p>Paying private hospitals a premium to treat public patients raises serious questions about value for money and the underlying rationale for contracting with the private sector, which is to use the resources of public and private hospitals as efficiently as possible. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/45353/original/bch5gg42-1396405688.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Some private hospitals already treat the overflow of patients from public hospitals.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-102915128/stock-photo-hospital-ward-with-beds-and-medical-equipment.html?src=dt_last_search-6">EPSTOCK/Shutterstock</a></span>
</figcaption>
</figure>
<p>Despite the problems, most hospital executives could see merit in outsourcing public hospital care, but only if it was better organised. </p>
<p>Some interviewees suggested small-scale reforms that could be easily implemented, such as establishing contracting arrangements that run over longer periods, and setting up brokers who can help find hospitals (public or private) that are able to do the elective surgery work when it’s needed. </p>
<p>These reforms would take away the rationale for private hospitals charging a premium when treating public patients. </p>
<p>They also suggested some larger-scale reforms: </p>
<ul>
<li><p>establishing contestable funding pools where public and private hospitals compete for a certain volume of public elective surgery work</p></li>
<li><p>building more co-located public and private hospitals where co-operation is built into the operating model of both hospitals</p></li>
<li><p>implementing new health-care financing models where public and private health-care providers compete on a more equal footing for all patients. </p></li>
</ul>
<p>The challenge for policymakers in this area is to leverage off what is already happening in practice – quite extensively in some parts of the country – and find ways of making contracting work better. </p>
<p>No doubt any reforms considered will be hotly contested because they raise contentious issues, such as the use of taxpayer’s money to fund private hospitals, the legitimacy of allowing public hospitals to admit (and charge) private patients, and the role of private insurance in the context of Medicare. </p>
<p>Some people have philosophical objections to public sector hospital contracting because it means the government is using taxpayer dollars to fund private hospitals to deliver care that would otherwise have been delivered in the public system. </p>
<p>Many people forget, however, that the reverse happens too: public hospitals actively encourage people with private insurance to use it when admitted to a public hospital, even though they are entitled to receive care free-of-charge if they have a Medicare card. </p>
<p>Competition for patients between public and private hospitals is only possible because Medicare and private funds are insuring people for the same hospital services. In some countries – Canada, for example – it is unlawful for private funds to insure people for services that are funded under government schemes. </p>
<p>Resolving these contentious issues in our health system will be take time. Fortunately our research shows that in the meantime, many hospital providers are open to considering innovative ways of working around them and making the most of our public and private hospital systems. </p><img src="https://counter.theconversation.com/content/23910/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne-marie Boxall is employed by the Australian Healthcare and Hospitals Association. </span></em></p>In the lead-up to the budget on May 13, the Tony Abbott government is looking for ways to make the health dollar go further. In 2011-12 the federal government spent A$14.4 billion on public and private…Anne-marie Boxall, Director, Deeble Institute for Health Policy Research, Australian Healthcare and Hospitals Association; Adjunct Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/219952014-01-22T19:41:16Z2014-01-22T19:41:16ZBalancing public and private as health insurers move into primary care<figure><img src="https://images.theconversation.com/files/39651/original/nc4kg87g-1390365094.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some insurers are testing opportunities to expand their involvement in primary care.</span> <span class="attribution"><span class="source">AAP Image/Mick Tsikas</span></span></figcaption></figure><p>Prompted by the government’s <a href="https://theconversation.com/securing-australias-future-health-care-19765">Commission of Audit</a>, health policy analysts have spent the first weeks of the year vigorously debating ways to rein in Australia’s rising health budget and to make the system more efficient. A couple of quick-fix cost solutions have been proposed: imposing a <a href="https://theconversation.com/mind-the-gap-6-gp-visit-proposal-ignores-the-evidence-21754">A$6 co-payment on GP services</a> and abolishing the <a href="https://theconversation.com/why-its-time-to-remove-private-health-insurance-rebates-16525">private health insurance rebate</a>.</p>
<p>The debate has also flushed out some interesting possibilities in the private health insurance area. In recent years, some insurers have been quietly testing opportunities to expand their involvement in primary care, through measures that would reduce hospital admissions (and therefore, costs) by keeping their members healthier.</p>
<p>But while innovative policy solutions and better health for members sound positive, we need to question the greater role private health insurers want to play in the provision of health care in Australia. This raises the question of how Australia’s mixed public/private health system can ensure access to high-quality care is not compromised.</p>
<h2>New territory</h2>
<p>Insurers have been restricted in what they can offer in the primary care space, as they are not permitted to insure GP services. Governments have been reluctant to remove this restriction, fearing that insuring the GP fee gap would put upward pressure on GP fees.</p>
<p>Medibank Private <a href="http://www.medibank.com.au/About-Us/Media-Centre-Details.aspx?news=535">recently announced</a> an adventurous trial partnership with IPN (a corporate provider operating a network of GP practices) to fund selected practices to provide special services for their clients. The selected practices will guarantee access (an appointment within 24 hours) and will not charge out-of-pocket fees for services (including after hours home visits) for Medibank customers. </p>
<p>Medibank Private is also a provider of some <a href="http://www.medibank.com.au/About-Us/Media-Centre-Details.aspx?news=446">telephone support services</a> for the public through a Council of Australian Government initiative managed by <a href="http://www.healthdirect.org.au/">HealthDirect</a>.</p>
<p>The Medibank Private-IPN arrangement has already met with criticism from <a href="https://ama.com.au/gpnn/medibank-and-ipn-alliance">some GP groups</a> and there are suggestions that it might in fact breach the <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/hia1973164/">Health Insurance Act</a>, which prohibits insurers providing coverage for Medicare-funded GP services. But <a href="http://www.smh.com.au/federal-politics/political-news/private-insurance-for-gps-would-pose-risk-to-medicare-20140110-30mod.html">Medibank Private says</a> it is not paying for the services directly but contributing to “administrative and management costs” of the trial.</p>
<p>Incidentally, the Medibank Private initiative highlights the potential conflict of interest inherent in the government’s ownership of Medibank Private, particularly given its <a href="http://www.smh.com.au/national/audit-committee-holds-talks-with-sbs-australia-post-20140115-30va8.html">intention of selling</a> the insurer. As the owner, the government’s interest is to achieve the maximum sale price and in that context, the GP trial is likely to be seen as positive.</p>
<p>However, as the regulator, the government might also be called upon to adjudicate on the legality of the arrangement. There is separation of interest within government (the minister for finance being the owner and the minister for health being the regulator) but perceptions of bias might need to be addressed.</p>
<h2>Public-private balance</h2>
<p>The Australian health system is a unique mix of public and private, with about <a href="http://www.aihw.gov.au/WorkArea/DownloadAsset.aspx?id=60129544656">30% of health expenditure</a> coming from the private sector.
Despite this, the previous government’s <a href="http://www.health.gov.au/internet/nhhrc/publishing.nsf/content/nhhrc-report">health and hospitals reform</a> process focused on the public with little attention to the private, aside from <a href="https://theconversation.com/private-health-insurance-means-test-passes-what-now-5356">limited means testing</a> of the private health insurance rebate. </p>
<p>The current <a href="https://theconversation.com/topics/health-policy">health debate</a> provides an opportunity redress that imbalance by recognising that both sectors play a critical role in providing an equitable, sustainable and accessible health-care system that meets the health needs of Australia.</p>
<p>There is, however, a strong argument for <a href="https://theconversation.com/why-its-time-to-remove-private-health-insurance-rebates-16525">abolishing the private health insurance rebate</a> – a savings figure of A$3 billion-plus annually is very attractive. </p>
<p>The claims that abolishing the rebate would spell the death of private insurance and result in unsustainable burdens on the public system are probably exaggerated as the various tax and other penalties for not having insurance could be retained and are very strong drivers for taking out insurance. </p>
<p>Further, the rebate is an open-ended commitment: for every dollar fees increase, the taxpayer pays up to 30 cents; while the Commonwealth has to approve products and <a href="https://theconversation.com/private-health-insurance-rebates-restrict-consumer-choice-13563">fee levels</a> it does not have that much flexibility in holding fees down, especially as they are largely driven by hospital costs. </p>
<p>Inevitably, this arrangement supports inefficiencies as the fee subsidy has no productivity criterion so the least efficient are unfairly rewarded.</p>
<p>The political wisdom is that tackling the rebate issue is politically fraught. However the Gillard government managed to introduce an – admittedly modest – means test for the rebate without major political fallout. The Abbott government has <a href="http://www.theaustralian.com.au/national-affairs/means-test-pledge-swells-tony-abbotts-budget-savings-task/story-fn59niix-1226271609275">committed to</a> reinstating it at some indefinite point down the track.</p>
<p>Given that the public purse heavily subsidises the private sector (particularly private health insurance), the government has a legitimate interest in ensuring that the private sector operates as efficiently as possible.</p>
<h2>A healthy debate</h2>
<p>Public and private funders have a mutual interest in developing health-care models that tackle chronic disease and deal more effectively with the health problems associated with chronic disease and ageing. These approaches inevitably rely more on primary care.</p>
<p>Rather than a public vs private approach, we need to explore models that make effective use of both. While there is some case to argue that the present public/private arrangements provide a two-tier system for hospital care, that is no reason why a broader public/private partnership in health should embed that disparity.</p>
<hr>
<p><strong>Further reading:</strong></p>
<p><a href="https://theconversation.com/let-medicare-locals-find-their-feet-and-improve-primary-care-22008">Let Medicare Locals find their feet and improve primary care</a></p>
<p><a href="https://theconversation.com/gp-consultations-are-often-more-complicated-than-you-think-21953">GP consultations are often more complicated than you think</a></p>
<p><a href="https://theconversation.com/six-dollar-co-payment-to-see-a-doctor-a-gps-view-21915">Six dollar co-payment to see a doctor: a GP’s view</a></p>
<p><a href="https://theconversation.com/paying-doctors-to-keep-patients-healthy-if-the-price-is-right-21316">Paying doctors to keep patients healthy – if the price is right</a></p>
<p><a href="https://theconversation.com/mind-the-gap-6-gp-visit-proposal-ignores-the-evidence-21754">Mind the gap: $6 GP visit proposal ignores the evidence</a></p><img src="https://counter.theconversation.com/content/21995/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Wells has private health insurance and a small parcel of shares in a private health insurance company.</span></em></p>Prompted by the government’s Commission of Audit, health policy analysts have spent the first weeks of the year vigorously debating ways to rein in Australia’s rising health budget and to make the system…Robert Wells, Policy Head, Research Assets, Sax Institute; Co-Director, Australian Primary Health Care Research Institute, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/166682013-08-13T20:27:19Z2013-08-13T20:27:19ZFactCheck: could private lifetime health cover changes cost $1000 more a year?<figure><img src="https://images.theconversation.com/files/29111/original/2j425c5g-1376365543.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Are claims about private health costs exaggerated, or right on the money?</span> <span class="attribution"><span class="source">Health care cost image from www.shutterstock.com</span></span></figcaption></figure><blockquote>
<p><strong>“The changes to lifetime health cover will increase [private health insurance] premiums by up to a reported 27.5%. This is hitting many local residents very hard, with some struggling to find the money to pay an annual increase of more than $1000.” Liberal member for the <a href="http://www.abc.net.au/news/federal-election-2013/guide/boot/">marginal seat of Boothby in South Australia,</a> and shadow parliamentary secretary for primary health care, Andrew Southcott, <a href="http://andrewsouthcottmp.createsend1.com/t/ViewEmail/r/73A8412917400C502540EF23F30FEDED">e-newsletter</a>, 5 July.</strong></p>
</blockquote>
<p>The Lifetime Health Cover (LHC) loading is an additional charge of 2% on top of an individual’s private health insurance hospital premium for every year that an individual is aged over 30 before they take out cover. Introduced by the Howard government in 2000, it was designed to encourage younger, fitter people to take up private health insurance and to penalise them if they delayed. The maximum loading on top of their normal premium is 70%, which is removed once a person has held hospital cover and paid the loading for 10 continuous years.</p>
<p>Changes under the current Labor government have tightened up who is eligible to receive an <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/fairer-faq">up to 40% government rebate</a> towards paying for private health insurance. </p>
<p>Since 1 July 2012, the private health insurance rebate has become <a href="http://www.ato.gov.au/Individuals/Medicare-levy/In-detail/Medicare-levy-surcharge/Changes-to-private-health-insurance-rebate-and-Medicare-levy-surcharge/#Income_for_surcharge_purposes">income tested</a>. Individuals aged below 65 years with incomes below $84,000 receive a 30% rebate, rising to 35% and 40% for individuals aged over 65 and 70 years, respectively. (Click on the table of rebates by age and income below for more detail.) The rebate gradually reduces to zero for incomes above $124,000.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=201&fit=crop&dpr=1 600w, https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=201&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=201&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=252&fit=crop&dpr=1 754w, https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=252&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/28898/original/xmqf7ftf-1375930926.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=252&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Private health insurance rebates in the 2013-14 financial year.</span>
<span class="attribution"><span class="source">Department of Health and Ageing</span></span>
</figcaption>
</figure>
<p>And from 1 July this year, the government will no longer pay this rebate towards an individuals’ lifetime health cover loadings. This provides a further incentive for people to take out insurance at an earlier age. <a href="http://www.ato.gov.au/Individuals/Medicare-levy/In-detail/Medicare-levy-surcharge/Changes-to-private-health-insurance-rebate-and-Medicare-levy-surcharge/">The Australian Tax Office</a> uses this example to illustrate how the change will reduce people’s rebates:</p>
<blockquote>
<p>“On 1 July 2013, Rebecca pays a premium for two months cover under a complying health insurance policy of $220. Due to Rebecca’s circumstances, she incurs a 10% increase in her premium because of the LHC loading. The base premium for the policy is $200 and the LHC loading is $20. Rebecca’s income is $59,000 and she is eligible for the 30% rebate. Rebecca receives a rebate of $60, which is 30% of the $200 base premium. Rebecca does not receive any rebate on the $20 paid for LHC loading.”</p>
</blockquote>
<h2>What’s the source of this $1000 claim?</h2>
<p>The Conversation’s <em><a href="https://theconversation.com/au/factcheck">Election FactCheck</a></em> contacted Dr Southcott’s office to request a source for his claim about “an annual increase of more than $1000” for some residents. His communications officer replied:</p>
<blockquote>
<p>“Andrew was contacted by a married couple who had received notification from their private health provider [Medibank Private] of the increase in their premiums and were concerned about their ability to find the extra funds, on what was already an extremely tight budget.</p>
<p>"I have attached a copy of those letters for your information. As you can see, the combined increase to their premiums for the couple comes to $1,011.60 annually. (Note that due to the identical figures we were very careful to establish with them that this increase was, in fact, being borne twice by the couple and that figure did not represent a joint cover. While we have redacted the details for privacy, the membership numbers are different on each letter.)”</p>
</blockquote>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=848&fit=crop&dpr=1 600w, https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=848&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=848&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1066&fit=crop&dpr=1 754w, https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1066&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/28647/original/qg52t7xw-1375686254.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1066&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Boothby private health letter.</span>
<span class="attribution"><span class="source">Dr Andrew Southcott MP's office</span></span>
</figcaption>
</figure>
<p>A copy of one of those June 2013 letters to the couple from the southern Adelaide suburb of Aberfoyle Park (right: click to zoom in) shows that each of their old insurance premiums was $153.65 per month, but that that would increase to $195.80 following the government’s new changes to lifetime health cover. When you add that up for this couple, it comes to a combined increase of $1011.60 per year.</p>
<p>The Medibank Private letters suggest that all of that cost increase is due to the new lifetime health cover changes. </p>
<h2>Do the numbers add up?</h2>
<p>Although the details of this couple’s age and income were not available for privacy reasons, I calculated how Medibank Private came up with this figure, using the premium rates provided in these letters.</p>
<p>I found that the cost increase indicated in the letters would be correct if both individuals are aged over 70 years (and so receive a 40% rebate), they did not take out private insurance until they were aged 65 years or older (and so are subject to <a href="http://www.ato.gov.au/Individuals/Medicare-levy/In-detail/Medicare-levy-surcharge/Changes-to-private-health-insurance-rebate-and-Medicare-levy-surcharge/?default=">the maximum 70% LHC loading</a>), and they have had private insurance for less than 10 years (the LHC loading does not apply to individuals who have held private insurance continuously for 10 years or more).</p>
<p>Given these characteristics, I worked out what their full premium would have been, with no rebate at all. This worked out to be $256 for each individual a month. (40% of $256 is $102.45, which when added to their current premium of $153.65 equals $256.)</p>
<p>Then I calculated the LHC loading component of the $256 premium, which came to $105.40. (The non-LHC component is $150.60, 70% of $150.60 is $105.40, which when added together equals $256).</p>
<p>Finally, if they were getting a 40% rebate on their lifetime health cover component, then that would work out to be $42.16 a month (40% of $105.40). Multiplied by 12 months, that comes to a total increase of $505.80. For the couple, the combined increase is $1011.60.</p>
<p>This couple have very specific characteristics that mean they are subject to such a large impact of the removal of the LHC rebate. Very few individuals pay a 70% loading, whilst receiving a 40% rebate, on a hospital plus general treatment insurance policy.</p>
<p>Let’s look at a couple of other, perhaps more common scenarios. For example, an adult earning $110,000 per year, with hospital cover taken out for the first time at age 50 years, would pay an extra $20.64 per year (based on a monthly premium of $86). </p>
<p>Alternatively, a family with children with an annual income of less than $176,000, where the adults took out hospital cover for the first time at age 40 years, would be paying an extra $67 per year (based on a monthly premium of $186).</p>
<h2>Verdict</h2>
<p>Dr Southcott’s statement that “some [local residents are] struggling to find the money to pay annual increases of more than $1000” is correct. However, it is important to note that only a small number of Australians would be in the difficult position of this particular couple, given only 13% of individuals pay any lifetime health cover loading at all, let alone the maximum rate of 70%.</p>
<hr>
<h2>Review</h2>
<p>In order to check if this analysis was correct, I asked myself what would be the most extreme case of disadvantage brought about by the changed tax arrangements. I modelled a couple who took top hospital cover without excess, for the first time after age 70, and found that, as a couple, they would pay an extra $1230. So in that extreme scenario, the cost for two people would be even higher than in the case Dr Southcott has brought to our attention.</p>
<p>But such cases are outliers. As this author has pointed out, the majority of people who take out private health insurance do so when they’re much younger.</p>
<p>There is a surge of membership at age 30, when the lifetime loadings start to take effect, but there is no surge in membership at later ages. In fact, there are sharp falls in membership at ages 65 and 70, in spite of the higher rebates at those ages. Presumably this is because around those ages, people’s income falls and they are therefore no longer subject to the Medicare Levy Surcharge.</p>
<p>There are a few people who, in a calculating way, may take out cover only when they’re older, but such people tend to take only very specific cover, and are unlikely to take top cover or ancillary cover.</p>
<p>The two final scenarios modelled by this author, showing increases more in the order of $20-$67 a year, are far more typical. Without more information I cannot check them specifically, but in similar modelling I have found similar figures. <strong>- Ian McAuley</strong></p>
<hr>
<p><div class="callout">The Conversation is fact checking political statements in the lead-up to this year’s federal election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/16668/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>“The changes to lifetime health cover will increase [private health insurance] premiums by up to a reported 27.5%. This is hitting many local residents very hard, with some struggling to find the money…Jonathan Karnon, Professor of Health Economics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/109852013-02-07T03:46:55Z2013-02-07T03:46:55ZPrivate health insurance and the illusion of choice<figure><img src="https://images.theconversation.com/files/19669/original/ysp3hqwg-1359423021.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a gap between what people with private health insurance think they're paying for and what they're getting.</span> <span class="attribution"><span class="source">mvcaf/Flickr</span></span></figcaption></figure><p>The number of people with health insurance plummeted in the 1990s, but almost <a href="http://www.phiac.gov.au/resources/file/membershipdata/MC%20Sep12.pdf">half the Australian population</a> now has private hospital insurance and over half have ancillary or extras cover. But our research on <a href="http://pubs.e-contentmanagement.com/doi/abs/10.5172/hesr.2011.20.3.306">private health insurance websites</a> and <a href="http://www.tandfonline.com/doi/full/10.1080/13698570802167413">interviews with consumers</a> shows that messages about increased choice don’t always match reality.</p>
<p>Both Liberal and Labor governments have been encouraging us to purchase private health insurance since 1997. They’ve claimed that private health insurance promotes choice for the consumer and takes pressure off the public health system. </p>
<p>Private health insurers urge us to <a href="http://pubs.e-contentmanagement.com/doi/abs/10.5172/hesr.2011.20.3.306">choose their products</a> so we can take responsibility for our health and have more choice in our health-care experience – including timing, hospital and specialists. And government tax penalties, higher rebates for people over the age of 30 and subsidies encourage us to finance our health-care needs through private health insurance.</p>
<p>But our research found that private health insurance may not increase choice in health care. In birthing and maternity care, in particular, people purchase insurance because they want choice of doctor and place of birth. But in regional locations, choice is limited. Despite participants in our research mentioning choice as the reason why they had private health insurance, all babies in our regional research site were delivered at the local public hospital.</p>
<p>What people were actually buying with their health insurance was what one participant called “the luxuries” and commentators have called “hotel services” – the capacity to move to a private hospital after the birth with privacy, nicer facilities and better food, as well as the <a href="http://www.tandfonline.com/doi/full/10.1080/13698570802167413">perception of better care</a>.</p>
<p>About a <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/4839.0.55.0012009">quarter of people</a> with private health insurance use the public health system rather than the private system. This may be because the care they need is only available in the public system, or the cost.</p>
<h2>Extras surprise</h2>
<p>Many people are surprised at how much extra they have to pay when they use their private health insurance in hospital. By contrast, there are few, if any, additional costs in the public system. And many people don’t really know what they’re getting when they purchase private health insurance. </p>
<p><a href="http://www.tandfonline.com/doi/full/10.1080/13698570802167413">Our research</a> into why people take out private health insurance found that people had limited awareness of what was covered in their policies and very few had increased choice if they did use it. Most often, we found that people have little knowledge about what’s covered by their private health insurance. As one participant said, “I pay more attention to the details of my car insurance.”</p>
<p>This may, in part, be because these details are confusing. While writing this piece, we did a search on the website <a href="http://www.iselect.com.au/">iSelect</a>, which is designed to assist consumers choose their health insurance, for the cost and value of private health insurance for an older couple without children. Even with these limited parameters, the search revealed a price range between $136 and $393 a month with significant variation in what was covered for both hospital and ancillary care.</p>
<p>Further confusion arises when one tries to compare the types of therapies that may be covered. Dental care provides an excellent example of major differences between insurers. Again, using the iSelect search, we found that the monthly ancillary premium ranged from $51 and $133 per month, the annual claim limit ranged from $500 to $1200 per person, with no clear link between the cost of the premium and the available benefits.</p>
<p>This also holds in the fast-growing area of complementary and alternative therapies. Our iSelect search revealed a huge variation in type of alternative therapies (such as acupuncture, naturopathy, traditional Chinese medicine) covered by the various private health insurers and the amount that could be claimed ranged from $100 to $700 per person per year.</p>
<h2>Irrational choices</h2>
<p>While one response to all of this may be that people should ensure they’re well informed and make rational choices based on their perceived needs, our research found that the notion of choice itself is problematic. Family history was more predictive of choice of insurer than cost-benefit analyses. People were unlikely to change insurers even when concerned about the cost.</p>
<p>Indeed, people appear to be much more cost and value conscious when shopping for consumer products other than health insurance. </p>
<p>One reason for this may be that despite the rhetoric of consumer choice, Australia has a world-class public health-care system. While sometimes falling short and often getting <a href="http://www.smh.com.au/nsw/wait-for-public-hospital-surgery-expected-to-grow-20120612-208a6.html">negative publicity</a>, the principle of a health-care system based on equity and access accords well with Australian values. </p>
<p>Unlike health systems where individuals must take all responsibility for their health-care costs, Australia’s public health system provides a safety net that ensures we are not wholly dependent on health insurance. </p>
<p>But for those who do choose to pay for private health insurance, the capacity to choose their care remains unequally distributed. </p><img src="https://counter.theconversation.com/content/10985/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karen Willis and colleagues will receive funding from the ARC for a three-year study on health-care choice from 2013.</span></em></p><p class="fine-print"><em><span>Kirsten Harley and colleagues will receive funding from the ARC for a three-year study on health-care choice from 2013.</span></em></p>The number of people with health insurance plummeted in the 1990s, but almost half the Australian population now has private hospital insurance and over half have ancillary or extras cover. But our research…Karen Willis, Health sociologist, qualitative researcher, University of SydneyKirsten Harley, Health sociologist, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/118662013-02-04T19:42:46Z2013-02-04T19:42:46ZClear thinking needed on election health priorities<figure><img src="https://images.theconversation.com/files/19740/original/79wzq3xp-1359602115.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Key health policy issues that need to be addressed include co-payments, private health insurance and resource allocation.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>There was a time when health policy involved intense ideological conflict along partisan lines. In the 1940s, the Chifley government fought all the way to a constitutional referendum to introduce subsidies for pharmaceuticals. The Whitlam government got Medibank (the forerunner of Medicare) through Parliament only by way of the 1974 double dissolution.</p>
<p>But even though “ensuring the quality of Australia’s health care system” comes in just behind “management of the economy” in <a href="http://essentialvision.com.au/important-election-issues-10">public ranking of election issues</a>, health policy is unlikely be a major area of conflict in the 2013 poll. </p>
<p>Interest groups representing medical practitioners, health insurers, people with chronic illnesses and others will undoubtedly make their bids, and in response political parties will tweak their offerings, but there is unlikely to be a passionate debate.</p>
<p>It’s not that we have developed a near-perfect system. Rather, the interest groups concerned now realise there is little more to be achieved unless it’s at the expense of other groups’ interests. And those interest groups are likely to mount a strong and costly fight – a situation economists call a “Pareto equilibrium” and which we lesser mortals call an uneasy truce.</p>
<p>The deals worked out in past years have left imprints on our health care arrangements. Those imprints reflect not only the grand ideological struggles about “socialised medicine”, but also the fiscal conditions, ideas about Commonwealth-state responsibilities and general policy fashions of various times. The non-means-tested universalism of Medicare medical payments, for example, is a legacy of the Whitlam years; while later programs reflect a more targeted approach based on means. </p>
<p>Our health care arrangements are like an old country homestead which has been extended many times, sometimes in times of plenty, sometimes when conditions were tough, in designs which were contemporary at the time – all of which doesn’t really come together.</p>
<p>Indeed, it’s a misnomer to call our health care arrangements a “system”, for in spite of various good intentions, there is little integration between various programs. Nowhere is this more evident than in the mess of <a href="http://cpd.org.au/2009/07/out-of-pocket-rethinking-health-copayments/">co-payments</a> – out-of-pocket costs for health care.</p>
<h2>Co-payments</h2>
<p>On average co-payments are not high: <a href="http://www.aihw.gov.au/publication-detail/?id=10737423009">81% of funding for health care</a> comes through governments or private insurers. But they’re inconsistent and conflict with any reasonable ideas of economic efficiency or equity. A neurosurgery operation in a public hospital is free, while someone with mental illness who needs regular consultations with a psychologist can incur thousands of dollars of out-of-pocket expenses. </p>
<p>Co-payments for drugs on the Pharmaceutical Benefits Scheme are fixed (at $36.10), while the government payment for medical services is fixed, leaving the patient liable for the open-ended balance. Such inconsistencies are bound to result in resource misallocation and inequities.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=347&fit=crop&dpr=1 600w, https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=347&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=347&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=436&fit=crop&dpr=1 754w, https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=436&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/19743/original/wd4kjb97-1359602276.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=436&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Private health insurance is an inefficient way to fund health care.</span>
<span class="attribution"><span class="source">Image from shutterstock</span></span>
</figcaption>
</figure>
<h2>Private health insurance</h2>
<p>Arrangements involving private insurance are <a href="http://cpd.org.au/2012/01/private-health-insurance/">even more bizarre</a>. There are strong financial incentives for people to hold private insurance: most Australians with private insurance receive a rebate of <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/insurancerebate.htm">up to 40% </a> of the cost of premiums; while those with high incomes are encouraged via the <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/mls.htm">Medicare Levy Surcharge</a>, which imposes a penalty of up to 1.5% of income on those who don’t hold insurance. </p>
<p>Ostensibly, these subsidies for private insurance are meant to take pressure off public hospitals, but in reality they simply shuffle the queue, giving those with private insurance priority access to scarce resources – a form of subsidised queue-jumping.</p>
<p>By any reasonable criteria, private health insurance is an <a href="http://cpd.org.au/2012/01/private-health-insurance/">inefficient way</a> to fund health care. It carries a <a href="http://www.phiac.gov.au/for-industry/industry-statistics/operations-of-the-private-health-insurers-annual-report/">high administrative cost</a> (of $15.4 billion in insurers’ premium income in 2010-11, only $13.1 billion was paid in benefits). And it carries the same incentive for over-use as Medicare (known in the industry by the quaint name “moral hazard”), but without the capacity to control costs which is enjoyed by a strong single insurer. </p>
<p>Its supporters claim that those who hold private health insurance are engaged in the virtuous behaviour of “self-reliance”, but there is nothing more “self reliant” about paying BUPA or HCF to handle our hospital bills than in having the government do the same. Insurance of any kind, public or private, is a means of sharing risk and avoiding individual responsibility for contingencies. </p>
<p>Ironically, those who exercise true self-reliance, paying for private hospitalisation from their own pockets, are excluded from the rebates and tax incentives available to those who use private insurance.</p>
<h2>Resource allocation</h2>
<p>We have a mess devoid of any underlying set of principles how scarce health resources are allocated. We find a little socialism here, a little free enterprise there, and quite a lot of appeasement of vested interests. Users of health services, apart from those who have well-organised lobbies (usually based on chronic conditions), hardly have a voice at the table.</p>
<p>It would be arrogant for any academic or policy observer to suggest what principles should guide health policy, because basic questions have never been put to the people:</p>
<ul>
<li>To what extent do we want to share our health care costs with one another? </li>
<li>Do we want a “free” tax-funded system for reasons of social inclusion and solidarity?</li>
<li>Or should we come to see health care more as a normal good, paid for from our own pockets, without public or private insurance, and with safety nets for the poor and for those with high needs? (After all most Australians are much wealthier in 2013 than they were in 1953.) </li>
<li>Should those who make poor lifestyle choices pay more for their care? </li>
<li>Do we all want to use the same hospitals or do we want a hospital system segregated along income divisions?</li>
</ul>
<p>These questions should be in the political arena. They concern the values in our health care arrangements. They involve fundamental issues of libertarianism versus paternalism, and of individual versus collective interests. </p>
<p>Both the government and the opposition claim they want to focus on policy in the coming months, but for health care it looks like we will muddle along without addressing these hard questions.</p><img src="https://counter.theconversation.com/content/11866/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian McAuley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There was a time when health policy involved intense ideological conflict along partisan lines. In the 1940s, the Chifley government fought all the way to a constitutional referendum to introduce subsidies…Ian McAuley, Lecturer, Public Sector Finance , University of CanberraLicensed as Creative Commons – attribution, no derivatives.