tag:theconversation.com,2011:/au/topics/private-health-insurance-rebates-5515/articlesPrivate health insurance rebates – The Conversation2023-10-06T00:43:44Ztag:theconversation.com,2011:article/2127872023-10-06T00:43:44Z2023-10-06T00:43:44ZPeople with private health insurance save the government $550 a year, on average<figure><img src="https://images.theconversation.com/files/551923/original/file-20231003-21-e4wvn4.jpg?ixlib=rb-1.1.0&rect=505%2C18%2C3608%2C2732&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.pexels.com/photo/photo-of-woman-lying-in-hospital-bed-3769151/">Pexels/Andrea Piacquadio</a></span></figcaption></figure><p>The federal government has, for a long time, <a href="https://www.aph.gov.au/parliamentary_business/committees/senate/community_affairs/completed_inquiries/1999-02/pubhosp/report/c05">encouraged Australians</a> to get private health insurance, in an attempt to reduce the financial burden on the public health system.</p>
<p>To make private health insurance more attractive, the government has a strategy of carrots and sticks. Low-income and older people receive subsidies through “<a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/insurance_rebate.htm">premium rebates</a>”. High-income earners without the right policy face the Medicare Levy Surcharge, ranging from <a href="https://privatehealth.gov.au/health_insurance/surcharges_incentives/medicare_levy.htm">1 to 1.5%</a> of their taxable income.</p>
<p>The effectiveness of these subsidies is regularly debated, with questions about whether the <a href="https://www.health.gov.au/sites/default/files/documents/2022/03/budget-2022-23-portfolio-budget-statements.pdf">A$6.7 billion</a> of taxpayer money that subsidises private health insurance premiums could be better spent on Medicare or directly financing hospitals. </p>
<p>We set out to answer this question: do the savings from increased participation in private health insurance outweigh the costs the government incurs by subsidising private health insurance rebates?</p>
<p>Our <a href="https://consultations.health.gov.au/medical-benefits-division/consultation-on-phi-studies/supporting_documents/MLS%20and%20PHI%20Rebate%20Study%20%20Offset%20Analysis.pdf">analysis</a>, which was commissioned and funded by the Department of Health and Aged Care, found large benefits to the government, especially when older people sign up for private insurance. On average, the government saves about $554 for each person it helps with these subsidies a year. </p>
<p>But rebates can be better targeted for Australians who are more likely to need and use health services. </p>
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<h2>How did we work this out?</h2>
<p>To assess if the money spent on subsidising private health insurance pays off, we examined both the costs (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge) and the savings. </p>
<p>To calculate the savings we looked at how much money the government would spend if these people didn’t have private health insurance and used the public health system instead of the private system. We call this the “offset”.</p>
<p>This is a key metric for the success of the carrot and sticks, as it will be able to tell us the health-care costs saved by the government when someone has private insurance.</p>
<p>Using private health insurance spending data from 2019, we made assumptions that one day in a private hospital costs equal to one day in a public hospital, based on findings from the <a href="https://www.pc.gov.au/inquiries/completed/hospitals/report">Productivity Commission</a>.</p>
<p>We also factored in the government’s <a href="http://www.msac.gov.au/internet/msac/publishing.nsf/Content/Factsheet-03">75% Medicare Benefits Schedule fee contribution</a>, and <a href="https://theconversation.com/we-can-cut-private-health-insurance-costs-by-fixing-how-we-pay-for-hip-replacements-and-other-implants-121172">higher prices</a> for prostheses (for hip replacements and other implants) in the private system.</p>
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<a href="https://theconversation.com/we-can-cut-private-health-insurance-costs-by-fixing-how-we-pay-for-hip-replacements-and-other-implants-121172">We can cut private health insurance costs by fixing how we pay for hip replacements and other implants</a>
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<p>On average, we found that private health insurance offsets public health-care costs by about $1,400 per person, with greater savings for older people than younger people, reaching $4,000 for those aged 75 and above.</p>
<p>To answer if the savings from private insurance take-up outweighs the costs incurred, we needed to take into account what the government spends to subsidise insurance. </p>
<p>We used the standard <a href="https://privatehealth.gov.au/health_insurance/surcharges_incentives/insurance_rebate.htm">premium rebate percentages</a> where a person aged 70 or above earning up to $90,000 attracts a 32.812% rebate, while a person aged under 65 making $105,001–$140,000 would receive a 8.202% rebate.</p>
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<img alt="Surgeon operates" src="https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/551938/original/file-20231004-17-8tgkzg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&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">The savings were greater for older people, who were more likely to use health services.</span>
<span class="attribution"><a class="source" href="https://www.pexels.com/photo/woman-in-white-medical-scrub-4421551/">Anna Schvets/Pexels</a></span>
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<p>With an average annual private health insurance premium of $2,300, this would mean the government incurs costs ranging from $755 to $189.</p>
<p>As people who enrol in private insurance don’t have to pay the Medicare Levy Surcharge, which helps fund the public health system, we found that the forgone tax amounts range between $970 and $2,400 for single individuals subject to the penalty.</p>
<p>Combining the costs (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge), and subtracting the savings (the offsets), is how we find that the subsidies are a good financial deal for the government. The subsidies are less than the cost offset by about $554 per person who has private health insurance.</p>
<h2>Is there room for improvement?</h2>
<p>This raises a question: what if we could change these subsidies based on who costs more to provide health care for and who saves the government more money? As our findings reveal that some groups save the government more money than their subsidies cost, what should we do with the subsidies? If we increase their subsidies, it costs taxpayers more – unless more of them switch to private health insurance. </p>
<p>For instance, an individual aged 75+ earning $105,001 to $140,000 receives $1,877 in subsidies and offsets $5,268 in public health spending, saving the government $3,391. Given the roughly 6,000 people in this age group currently in private health insurance, only two additional enrolments would make it budget-neutral. </p>
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Read more:
<a href="https://theconversation.com/private-health-insurance-is-set-for-a-shake-up-but-asking-people-to-pay-more-for-policies-they-dont-want-isnt-the-answer-210981">Private health insurance is set for a shake-up. But asking people to pay more for policies they don't want isn't the answer</a>
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<h2>How can the savings be used?</h2>
<p>A better way to subsidise private health insurance is to give extra subsidies to people who are sicker and need more medical care. These are known as “risk-adjusted subsidies”. </p>
<p>A risk-adjusted subsidy would be based on a person’s characteristics such as their age, gender, income, where they live and their health history (such as prior hospitalisations, or use of services). These are people who need private health insurance the most, and also would save the government the most money by having private insurance.</p>
<p>This subsidy could be computed by a formula that uses individual-level spending to figure out how much health care the person is likely to need and how much it’s expected to cost. </p>
<p>Existing <a href="https://www.nber.org/papers/w31052">work</a> in Australia has shown how this can be developed, while <a href="https://www.sciencedirect.com/book/9780128113257/risk-adjustment-risk-sharing-and-premium-regulation-in-health-insurance-markets">countries</a> such as the Netherlands, Germany, the United States and Switzerland show such a system is feasible. </p>
<p>The Australian health system, and private health insurance regulation in particular, is set for a shake-up, with the <a href="https://consultations.health.gov.au/medical-benefits-division/consultation-on-phi-studies/">Department of Health and Aged Care</a> seeking input on its options. Our research can help inform a path forward. </p>
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Read more:
<a href="https://theconversation.com/who-really-benefits-from-private-health-insurance-rebates-not-people-who-need-cover-the-most-212611">Who really benefits from private health insurance rebates? Not people who need cover the most</a>
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<img src="https://counter.theconversation.com/content/212787/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francesco Paolucci has received funding from Horizon 2020, the National Health and Medical Research Council, the Medical Research Future Fund, the Australian Research Council, and The Department of Health and Aged Care.</span></em></p><p class="fine-print"><em><span>Josefa Henriquez has received funding from the Department of Health and Aged Care. </span></em></p>Yes, savings from increased participation in private insurance outweigh the costs the government incurs by subsidising private health insurance rebates. But rebates can be better targeted.Francesco Paolucci, Professor of Health Economics, University of Bologna, University of NewcastleJosefa Henriquez, Phd Candidate (Economics), University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2126112023-09-17T20:00:35Z2023-09-17T20:00:35ZWho really benefits from private health insurance rebates? Not people who need cover the most<figure><img src="https://images.theconversation.com/files/547124/original/file-20230908-19-g6utdm.jpg?ixlib=rb-1.1.0&rect=0%2C2%2C1000%2C663&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/busy-nurses-station-modern-hospital-352316315">Shutterstock</a></span></figcaption></figure><p>The Australian government spends <a href="https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/delivering-australias-lowest-private-health-insurance-premium-change-in-21-years">A$6.7 billion a year</a> on private health insurance rebates. These <a href="https://www.ato.gov.au/Individuals/Medicare-and-private-health-insurance/Private-health-insurance-rebate/">rebates</a> are the government’s contribution towards the costs of individuals’ premiums. </p>
<p>But our <a href="https://doi.org/10.1002/hec.4751">analysis</a> shows higher rebates for people aged 65 and older are not doing much to encourage them to sign up for private hospital cover, the very group who may benefit the most from it.</p>
<p>This and <a href="https://doi.org/10.1080/13504851.2017.1299094">other research</a> point to these rebates largely going to people on higher incomes, ones who’d be more likely to buy private health insurance anyway.</p>
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Read more:
<a href="https://theconversation.com/the-private-health-insurance-rebate-has-cost-taxpayers-100-billion-and-only-benefits-some-should-we-scrap-it-181264">The private health insurance rebate has cost taxpayers $100 billion and only benefits some. Should we scrap it?</a>
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<h2>Remind me, what are these rebates?</h2>
<p>In <a href="https://www.abs.gov.au/ausstats/abs@.nsf/2f762f95845417aeca25706c00834efa/0aaf3311ebcd3646ca2570ec000c46e4!OpenDocument#:%7E:text=The%20Federal%20Government%2030%25%20Rebate,the%20means%2Dtested%20PHIIS%20rebate.">1999</a>, the Australian government introduced the private health insurance rebate. Initially, the rebate meant the government paid 30% of the cost of private health insurance for everyone, regardless of income or age. Then in 2005, the Howard government increased the rebate rate to 35% for those aged 65-69 and to 40% for those aged 70 and older, regardless of how much they earned.</p>
<p>Over time, the rebate rates have decreased slightly and now depend on both income and age. However, the higher discount for older people has always remained.</p>
<p>We wanted to understand whether the higher rebates for older people actually encourage them to buy private health insurance. </p>
<p>So we looked at data from more than 300,000 people who filed tax returns over more than a decade (2001-2012). We then compared the trends in insurance coverage of people younger than 65 and older than 65, before and after the 2005 rebate policy change.</p>
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Read more:
<a href="https://theconversation.com/private-health-insurance-is-set-for-a-shake-up-but-asking-people-to-pay-more-for-policies-they-dont-want-isnt-the-answer-210981">Private health insurance is set for a shake-up. But asking people to pay more for policies they don't want isn't the answer</a>
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<h2>What we found</h2>
<p>We found higher rebates led to a modest and short-term increase in private health insurance take-up. We estimated that lowering premium prices by 10% through higher rebates would only result in 1-2% more people aged 65 and older buying private health insurance in the next two years.</p>
<p>This means higher rebates for older people are a very expensive way to get them to insure. </p>
<p>People aged 65-74 with income in the bottom 25% of earners were the most likely to buy insurance in response to higher rebates that reduced premium prices. That’s an income under $21,848 in today’s money (income increased to 2023 dollar amount, in line with the <a href="https://www.ato.gov.au/rates/consumer-price-index">consumer price index</a>).</p>
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<h2>What do we propose?</h2>
<p>Our findings suggest a more targeted subsidy program would be a more effective way to increase private health insurance. To achieve this, we recommend lowering income thresholds for rebates to target people of all ages on genuinely low incomes.</p>
<p>Currently, people earning as much as $144,000 (singles) or $288,000 (families) can receive rebates.</p>
<p>Other evidence to back our proposal comes from <a href="https://melbourneinstitute.unimelb.edu.au/publications/working-papers/search/result?paper=4682822">research</a> released earlier this year. This suggests higher income earners are likely to buy private insurance regardless of rebates.</p>
<p>A recent <a href="https://consultations.health.gov.au/medical-benefits-division/consultation-on-phi-studies">consultation report</a> commissioned by the federal health department reviewed a range of health insurance incentives. </p>
<p>The <a href="https://consultations.health.gov.au/medical-benefits-division/consultation-on-phi-studies/supporting_documents/Finity%20Consulting%20MLS%20and%20PHI%20Rebate%20Final%20Report.pdf">report</a> recommends removing rebates for those with income higher than $108,000 for singles and $216,000 for families (we recommend removing them at $93,000 for singles and $186,000 for families). The report also recommends increasing rebates for those older than 65 (we believe income, rather than age, is a better marker of someone’s means).</p>
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<span class="caption">People on low incomes should be targeted instead.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/elderly-man-holding-old-coin-purse-727162720">Shutterstock</a></span>
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<h2>Are rebates good value for money?</h2>
<p>We also need to look at whether rebates provide value for money more broadly, and across all ages. </p>
<p><a href="https://grattan.edu.au/wp-content/uploads/2019/12/926-Saving-Health-2.pdf">Existing evidence</a> shows a 10% decrease in premiums due to rebates only leads to a 3.5-5% increase in private health insurance take-up among all Australians. We show this is only <a href="https://doi.org/10.1002/hec.4751">1-2%</a> for people over 65.</p>
<p>So rebates are likely to <a href="https://doi.org/10.1016/j.jhealeco.2013.11.007">cost taxpayers more</a> than they generate in savings, and are largely windfalls to those who would privately insure anyway, often those who are financially better off.</p>
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Read more:
<a href="https://theconversation.com/do-you-really-need-private-health-insurance-heres-what-you-need-to-know-before-deciding-93661">Do you really need private health insurance? Here's what you need to know before deciding</a>
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<h2>What happens if we scrapped the rebates?</h2>
<p>It is uncertain how many people would drop private cover if the rebate was removed. </p>
<p>But based on research from when the rebate was introduced, the rebate might account for a maximum <a href="https://escholarship.org/content/qt6j47s8kq/qt6j47s8kq_noSplash_be059196ed2d70b94486039f64452494.pdf">10-15 percentage points</a> of the overall take-up rate. Other research suggests it might be much less than this, closer to <a href="https://www.sciencedirect.com/science/article/pii/S016762961300163X?casa_token=C-SdG98Jc2UAAAAA:KJLHBZ2BJhq9wRQQKUbEWPiqoeza1DEi3mZ9Y6O2GereVX1L1x0cJumVgrqBeMGa1ygDjFrPG7T5">2 percentage points</a>.</p>
<p>In other words, the rebate only appears to influence a small percentage of people to buy private health insurance. So scrapping it would likely have a similarly small effect.</p>
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<p>Then there’s the impact of scrapping the rebate, people dropping their cover and putting more pressure on the public system. Earlier this year, we found private health insurance had <a href="https://theconversation.com/does-private-health-insurance-cut-public-hospital-waiting-lists-we-found-it-barely-makes-a-dent-211680">minimal impact</a> on reducing waiting times for surgery in Victorian public hospitals. So scrapping the rebate might have minimal impact on waiting lists.</p>
<p>Taken together, the billions of dollars a year the government spends to subsidise private health insurance via rebates might be better directed to public hospitals and other high-value care, including primary care and preventive care.</p><img src="https://counter.theconversation.com/content/212611/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yuting Zhang has received funding from the Australian Research Council (future fellowship project ID FT200100630), Department of Veterans' Affairs, the Victorian Department of Health, and National Health and Medical Research Council. In the past, Professor Zhang has received funding from several US institutes including the US National Institutes of Health, Commonwealth fund, Agency for Healthcare Research and Quality, and Robert Wood Johnson Foundation. She has not received funding from for-profit industry including the private health insurance industry.</span></em></p><p class="fine-print"><em><span>Judith Liu received funding from Richard Ivan Downing Fellowship Fund (University of Melbourne) during the conduct of the study.</span></em></p><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>We found rebates don’t do much to encourage older people to sign up for private health insurance.Yuting Zhang, Professor of Health Economics, The University of MelbourneJudith Liu, Assistant Professor of Economics, University of OklahomaNathan Kettlewell, Chancellor's Research Fellow, Economics Discipline Group, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1281012019-12-03T18:36:45Z2019-12-03T18:36:45ZHow do you stop the youth exodus from private health insurance? Cut premiums for under-55s<figure><img src="https://images.theconversation.com/files/304850/original/file-20191203-67011-pcl5uo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As more young people drop their private health cover, premiums go up for everyone.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/outdoor-portrait-modern-young-man-mobile-228417220?src=30a5ea6b-7dd1-40a9-94a0-5f21263529eb-1-7">Josep Suria/Shutterstock</a></span></figcaption></figure><p>Young people don’t see private health insurance as good value for money. And they’re right: the cost of their expected use of private health care is significantly below what they pay in insurance premiums. </p>
<p>Unsurprisingly, <a href="https://theconversation.com/youth-discounts-fail-to-keep-young-people-in-private-health-insurance-121803">more and more young people are turning their backs on private health insurance</a>: dropping it, or opting not to take out a policy in the first place. </p>
<p>This youth exodus has put the private health insurance system into a “death spiral”. As younger, healthier people drop their insurance, the insurance risk pool gets worse, premiums go up, more young people drop out, and the cycle continues.</p>
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<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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<p>If Australia’s private health care system is to remain viable, the youth exodus has to be stopped. A <a href="https://grattan.edu.au/">new Grattan Institute report</a>, released today, proposes a fundamental change to the way health insurance premiums are set that aims to make private insurance fairer and better value for younger Australians.</p>
<h2>The risk rating spectrum</h2>
<p>Private health insurance premiums in Australia are mostly set on the average experience of the whole insured community – by a system of so-called “community rating”. Under this arrangement younger and healthier people subsidise the costs of older and sicker people. </p>
<p>But this is the <a href="https://link.springer.com/article/10.1007/s40258-015-0207-0">fatal flaw of community rating</a>: the cross subsidy only works if younger and healthier people still think the product is valuable. </p>
<p>Young people’s views on this are changing. Many are dropping their cover which means there are fewer and fewer young people to cross subsidise the costs of older people.</p>
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<img alt="" src="https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/304852/original/file-20191203-66990-b8uxdo.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">Young people don’t want to subsidise the costs of older people’s care.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/608739416?src=24d56ceb-42c8-4317-96f3-ecbb9d04855e-1-10&size=huge_jpg">lzf/Shutterstock</a></span>
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<p>Community rating contrasts with a “risk rating” approach, whereby the premium is set based on the specific risk of the insured person. Most insurance products, including home and car insurance, work this way.</p>
<p>Systems for setting insurance premiums lie on a spectrum, with a pure community rating at one end, and risk rating at the other. Australia’s private health insurance system lies close to the community-rated end. </p>
<p>However, <a href="https://www1.health.gov.au/internet/main/publishing.nsf/Content/private-health-insurance-reforms-fact-sheet-discounts-for-18-to-29-year-olds">youth discounts introduced in April</a> – and differential products where young people are more likely to choose “Basic” products and older people more likely to choose “Gold” – mean that policies are already partially risk-rated.</p>
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<strong>
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>The Grattan Institute proposes a further shift towards age-based risk rating in our private health insurance system. This change would allow private health insurers to reduce the premiums of people under 55 while leading to only small increases in premiums for people aged 55 and over.</p>
<h2>Age-based risk rating for people under 55</h2>
<p>If health insurance premiums for people under 55 were deregulated and insurers allowed to charge an age-based premium, the cost of premiums for this age group would fall significantly. </p>
<p>We propose that the government subsidy for private health insurance, the private health insurance rebate, be withdrawn from this age group. Even without a subsidy, premiums for this group would fall.</p>
<p>With a lower price that is more closely aligned to their expected benefits, young people would see private health insurance as a better deal, and would be more likely to retain their insurance or, indeed, take it out again if they’d previously dropped it.</p>
<h2>Community rating for people 55 and over</h2>
<p>The private health insurance subsidy costs taxpayers around <a href="https://www.abc.net.au/news/2018-01-30/private-health-insurance-too-expensive-and-excludes-too-much/9374920">A$6 billion every year</a>. </p>
<p>Although this subsidy is probably not good value from a taxpayer’s point of view, there is some uncertainty about whether abolishing it would represent an overall saving once the cost of increased demand for public hospital care is taken into account. </p>
<p>Erring on the side of caution, the Grattan Institute proposes redirecting most of the rebate to premium subsidies for people over 55.</p>
<p>The increased subsidy for older people would mean premiums for that group would increase marginally, but potentially less than the increases which will occur if the youth exodus continues. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/304851/original/file-20191203-67023-1d28xka.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">The rebate subsidies would be redirected to those over 55.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/172679258?src=4d33cd08-ac19-49ec-9f20-c094dd47cdd6-1-36&size=huge_jpg">Lolostock/Shutterstock</a></span>
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<p>Community rating would be retained for people 55 and over, since premiums for the very old would become prohibitively expensive without it. </p>
<p>The premium subsidy for people 55 and over would continue to increase in line with inflation, and the means-tested component currently in place for premium subsidies would remain.</p>
<p>The private health insurance death spiral is real, albeit slow. Without policy change, the youth exodus will continue. Insurance premiums will continue to go up and private health coverage will decrease overall. A fundamental industry shakeup is required to address the inherent adverse dynamics.</p>
<p>The industry should also rely more on providing good value products to customers rather than depending on people to take out a policy simply because they’ve been forced to do so. As in any other industry, private insurance companies should be encouraged – and allowed – to compete, based on the value they can provide to customers.</p>
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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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<img src="https://counter.theconversation.com/content/128101/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>Young people don’t see the value in private health insurance and are dropping their cover in droves. Allowing under 55s to pay lower premiums, based on their lower risk, could keep them in the system.Stephen Duckett, Director, Health Program, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1140862019-03-28T18:10:36Z2019-03-28T18:10:36ZPremiums up, rebates down, and a new tiered system – what the private health insurance changes mean<figure><img src="https://images.theconversation.com/files/266060/original/file-20190327-139377-12fjpz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">This year's premium increase is small in comparison to previous years – but it still outweighs wage inflation.</span> <span class="attribution"><span class="source">From shutterstock.com</span></span></figcaption></figure><p>If you have private health insurance, or are considering getting it, a series of changes coming into effect on April 1 are worth knowing about.</p>
<p>These include the annual premium increase, a small decrease in rebates, the introduction of a new tiered system designed to simplify things for consumers, and some premium discounts for young people.</p>
<p>This year’s premium increase is quite small compared to recent years, and the reforms are generally sensible. But cost pressures and confusion in private health insurance cannot be fixed overnight.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/is-it-time-to-ditch-the-private-health-insurance-rebate-its-a-question-labor-cant-ignore-111171">Is it time to ditch the private health insurance rebate? It's a question Labor can't ignore</a>
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<h2>A modest increase in premiums</h2>
<p>Private health insurance premiums will increase by <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/privatehealth-average-premium-round">an average of 3.25%</a> in 2019. These increases are relatively modest, as premiums have been rising at between 4% and 6% per annum for more than 10 years.</p>
<p><iframe id="sgTg1" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/sgTg1/7/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>However, compared to consumer price index <a href="https://www.rba.gov.au/inflation/measures-cpi.html">inflation of 1.8%</a> and <a href="https://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/6345.0Media%20Release1Dec%202018">wage inflation of 2.3%</a>, premiums are still rising substantially in real terms for Australians.</p>
<p>But in the current environment, above-inflation premium rises are not unexpected.</p>
<p>For comparison, consider the public health system, where spending increased at <a href="https://www.aihw.gov.au/getmedia/e8d37b7d-2b52-4662-a85f-01eb176f6844/aihw-hwe-74.pdf.aspx?inline=true">nearly 7% per year</a> in the decade to 2017.</p>
<p>Out-of-pocket spending by patients also had an above-inflation trend of <a href="https://www.aihw.gov.au/getmedia/e8d37b7d-2b52-4662-a85f-01eb176f6844/aihw-hwe-74.pdf.aspx?inline=true">5.1% per year</a> over the past decade.</p>
<p>So both public and private expenditure on health are increasing substantially. Driving this is the increased usage and price of health care. Hospital visits are growing at <a href="https://www.aihw.gov.au/getmedia/acee86da-d98e-4286-85a4-52840836706f/aihw-hse-201.pdf.aspx?inline=true">4% a year</a>, and health price inflation is a further <a href="https://www.aihw.gov.au/getmedia/acee86da-d98e-4286-85a4-52840836706f/aihw-hse-201.pdf.aspx?inline=true">2% per year</a>.</p>
<p>Many hospital procedures such as cardiothoracic surgery, colonoscopies, hip and knee replacements, are increasing in volume by <a href="https://theconversation.com/heres-whats-actually-driving-up-health-insurance-premiums-hint-its-not-young-people-dropping-off-85683">over 5% a year</a>. So as patients use their health insurance more, it’s reasonable for the price to rise.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-whats-actually-driving-up-health-insurance-premiums-hint-its-not-young-people-dropping-off-85683">Here's what's actually driving up health insurance premiums (hint: it's not young people dropping off)</a>
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<h2>Rebates continue to decrease slowly</h2>
<p>Most Australians with private health insurance receive a rebate from the Australian government to help cover the cost of premiums.</p>
<p>Means testing of rebates along income tiers was introduced in 2012. This sees individuals and households with higher incomes receive lower subsidies. </p>
<p>From 2014, the government began indexing rebates every year, using a formula that is calculated as a difference between the consumer price index, and the industry weighted average increase in premiums. </p>
<p>As a result of indexation, rebate entitlements have been <a href="https://www.ato.gov.au/individuals/medicare-levy/private-health-insurance-rebate/income-thresholds-and-rates-for-the-private-health-insurance-rebate/">gradually falling</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=335&fit=crop&dpr=1 600w, https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=335&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=335&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=421&fit=crop&dpr=1 754w, https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=421&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/266270/original/file-20190328-139356-vw7wkr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=421&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">Government rebates for private health insurance go down a small amount each year.</span>
<span class="attribution"><span class="source">From shutterstock.com</span></span>
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<p>For example, this means in 2013/14, a person aged 65 or below earning less than $88,000 (base tier) would have received a 30% rebate. Today, a person of the same age in the base tier would receive a rebate of just over 25%.</p>
<p>From April 1, rebates will decrease between 0.1% to 0.5% from their levels in 2018/19, <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/health-phicircular2019-08">depending on the income tiers</a> that people fall into.</p>
<p>For a typical family policy that covers both hospital and extras (with premiums approximately A$140 a fortnight), the decrease in the rebate translates to a very small rise in premiums of A$1 a fortnight.</p>
<h2>Basic, bronze, silver or gold?</h2>
<p>One key initiative starting on April 1 is the introduction of <a href="https://beta.health.gov.au/resources/publications/private-health-insurance-reforms-gold-silver-bronze-basic-product-tiers-fact-sheet">four tiers</a> of private health insurance coverage: basic, bronze, silver, and gold. This is distinct to the income tiers we talked about above.</p>
<p>In this case, each tier mandates the minimum set of treatments (defined by clinical categories) that insurers must cover.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/if-youve-got-private-health-insurance-the-choice-to-use-it-in-a-public-hospital-is-your-own-113367">If you've got private health insurance, the choice to use it in a public hospital is your own</a>
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<p>For instance, policies in the “basic” tier are required to cover rehabilitation services, hospital psychiatric services, and palliative care. </p>
<p>Insurers can include other types of treatments which are not mandatory under the basic tier, if they choose to do so. Each additional tier covers a wider range of treatments, in addition to services mandated in lower tiers.</p>
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<img alt="" src="https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=561&fit=crop&dpr=1 600w, https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=561&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=561&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=705&fit=crop&dpr=1 754w, https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=705&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/266265/original/file-20190328-139341-1ig2dxy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=705&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"><span class="source">The Conversation/Australian Government</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>This simplified categorisation of policies is designed to help consumers understand how comprehensive their cover is, and enable them to more easily compare products offered by different health funds.</p>
<p>While this initiative provides consumers with greater clarity on the types of services covered by each type of health insurance product, it still does not standardise care completely.</p>
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<strong>
Read more:
<a href="https://theconversation.com/private-health-insurance-premium-increases-explained-in-14-charts-92825">Private health insurance premium increases explained in 14 charts</a>
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<p>Health funds can offer to cover, in lower tier products, treatments that are mandated only in higher tiered policies (such as providing coverage for pregnancy in a basic policy). </p>
<p>This may confuse patients if they assume their policy covering pregnancy will also cover other costly private procedures such as joint reconstructions (bronze), or back, neck and spinal surgery (silver).</p>
<h2>Young people</h2>
<p>From April 1, health funds will be able to offer <a href="https://beta.health.gov.au/resources/publications/private-health-insurance-reforms-discount-for-18-to-29-year-olds">discounts on premiums</a> of 2% for each year a person is under the age of 30 when he or she takes up private health insurance. Premium discounts are capped at a maximum of 10%. The discount is retained until the person reaches the age of 41, after which it will be gradually phased out. </p>
<p><iframe id="2DqBM" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/2DqBM/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>This initiative is being introduced to encourage young Australians to purchase private health cover and to stem the decline in private health insurance ownership among younger people. From September to December 2018, the largest net decrease in insured persons was recorded in <a href="http://www.apra.gov.au/sites/default/files/private_health_insurance_quarterly_statistics_december_2018.pdf">people aged 25 to 29</a>.</p>
<p>These discounts on premiums for young people complement the <a href="https://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htm">Lifetime Health Cover policy</a> introduced in 2000, which was designed to encourage Australians to take up private hospital insurance earlier, and also to maintain cover. </p>
<p>Under the Lifetime Health Cover policy, which is still in force, people above the age of 30 without private cover are required to pay a 2% loading on premiums for each year they are over 30, if they choose to take up private cover later on.</p>
<h2>Other changes</h2>
<p>Another key change is that health funds are permitted to offer private hospital policies with a <a href="https://beta.health.gov.au/resources/publications/private-health-insurance-reforms-increasing-voluntary-maximum-excess-levels">higher excess</a>, in return for lower premiums. The maximum permitted excess is increasing from A$500 to A$750 for singles, and A$1,000 to A$1,500 for families.</p>
<p><a href="https://beta.health.gov.au/resources/publications/private-health-insurance-reforms-travel-and-accommodation-benefits-for-regional-and-rural-consumers">Travel and accommodation benefits</a> will be allowed to be included in hospital insurance plans for customers living in regional and rural parts of Australia. This will assist patients and their carers to meet the additional costs of having to travel to urban centres or capital cities to receive specialised treatment.</p>
<p>Natural therapies such as yoga, naturopathy, pilates and reflexology will no longer be covered under a general treatment policy. A total of <a href="https://beta.health.gov.au/resources/publications/private-health-insurance-reforms-changing-coverage-for-some-natural-therapies">16 natural therapies</a> are excluded. A review undertaken by the National Health and Medical Research Council concluded there is no clear evidence of the efficacy of these therapies. </p>
<p>Finally, to strengthen consumer protection, the role of the <a href="http://www.ombudsman.gov.au/How-we-can-help/private-health-insurance">private health insurance ombudsman</a> will be expanded, giving the agency new powers and greater capabilities to address issues and complaints.</p><img src="https://counter.theconversation.com/content/114086/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><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>A raft of changes to private health insurance in Australia will come into effect on April 1. Here’s what you need to know.Peter Sivey, Associate Professor, School of Economics, Finance and Marketing, RMIT UniversityTerence Cheng, Senior Lecturer, School of Economics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/936612018-03-27T19:11:36Z2018-03-27T19:11:36ZDo you really need private health insurance? Here’s what you need to know before deciding<figure><img src="https://images.theconversation.com/files/212124/original/file-20180327-188604-1reew9a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some people choose private health insurance for shorter wait times.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/senior-male-patient-modern-hospital-1043985610?src=nCyVKbbKxPamM7ARcR34Nw-1-89">l i g h t p o e t/Shutterstock</a></span></figcaption></figure><p>Every year at the end of March and early in April, the <a href="http://www.apra.gov.au/PHI/Publications/Pages/Quarterly-Statistics.aspx">11 million Australians</a> who have private health insurance receive notification that premiums are increasing. </p>
<p>Premiums will increase by an average of 3.95% from April 1 and will <a href="http://www.health.gov.au/internet/main/publishing.nsf/content/privatehealth-average-premium-round">vary with the insurer</a> and the product. The increase is lower than previous years but still higher than any wage growth, leaving consumers wondering if they should give it up or downgrade to save money.</p>
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Read more:
<a href="https://theconversation.com/private-health-insurance-premium-increases-explained-in-14-charts-92825">Private health insurance premium increases explained in 14 charts</a>
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<h2>Why go private?</h2>
<p>Australia has a universal health care system, Medicare. Health care is available to all and is financed, in part, through a <a href="https://www.ato.gov.au/Individuals/Medicare-levy/">2% tax on our wages</a> (the Medicare levy). Access to general practitioners and public hospitals are just some of the benefits. </p>
<p>The Commonwealth government <a href="https://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/">encourages Australians to have</a> private health insurance. It imposes penalties for not taking it out (paying more income tax: the <a href="https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-surcharge/">Medicare levy surcharge</a>) and offers incentives for those who do (rebates on premiums). </p>
<p>Some 45.8% of Australians have private health insurance, a rise <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4815.0.55.001Main+Features12001">from 31% in 1999</a>. </p>
<p>Australians have different reasons for taking out private health insurance. For some, it makes financial sense to take out policies to avoid paying the Medicare levy surcharge.</p>
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<p>
<em>
<strong>
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>Others choose to take out policies to avoid waiting times for elective treatment (predominantly surgery); to choose their own specialist or hospital; or to have the option of a private room, better food or more attractive facilities. </p>
<p>Some people perceive that private health insurance will give them access to better care in the private system. Many are fearful they won’t get the services they need in the public system. </p>
<h2>Shorter waits than the public system</h2>
<p>A universal health system is based on people with the most clinical need gaining access to the services required. </p>
<p>Most emergency treatment is provided in public hospitals. The case is different for “non-urgent” or elective surgery, with patients encouraged to use their private health insurance, mainly because of waiting times for such surgery in the public system. </p>
<p><a href="https://www.aihw.gov.au/reports/hospitals/ahs-2015-16-admitted-patient-care/contents/table-of-contents">Elective surgery waiting times</a> for public hospitals vary according to whether patients are publicly or privately funded. In <a href="https://www.aihw.gov.au/getmedia/3e1d7d7e-26d9-44fb-8549-aa30ccff100a/20742.pdf.aspx?inline=true">2015-2016</a>, the median waiting time (the time within which 50% of all patients are admitted) was 42 days for public patients, 20 days for patients who used their private health insurance to fund their admission, and 16 days for those who self-funded their treatment. </p>
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<img alt="" src="https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212127/original/file-20180327-188619-c0s64a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&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 patients often have shorter waits.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/1053274676?src=QDXmElqtgzA9ILzHXyZmJw-1-14&size=medium_jpg">Iakov Filimonov/Shutterstock</a></span>
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<p>Bear in mind, however, that waiting times vary according to clinical urgency. <a href="https://www.aihw.gov.au/getmedia/a7235c2d-3c90-4194-9fa1-b16edf7ff1f0/aihw-hse-197.pdf.aspx?inline=true">In 2016-17</a> in New South Wales, 98% of public patients were admitted within the clinically recommended time frame.</p>
<p>Differences in waiting times also vary according to the type of procedure. In <a href="https://www.aihw.gov.au/getmedia/3e1d7d7e-26d9-44fb-8549-aa30ccff100a/20742.pdf.aspx?inline=true">2015-2016</a>, cardiothoracic (heart) surgery had a median waiting time of 18 days for public patients and 16 days for all other patients. In contrast, the median wait for public patients needing total knee replacement was 203 days, and 67 days for all other patients.</p>
<h2>The question of choice</h2>
<p>Choice of provider is a leading reason people take out private health insurance. </p>
<p>The idea that consumers should have choice in the services they receive has been promoted by government and private health insurance companies for some years, with great success. Many consumers now believe that more choice is better and private health insurance is an “enabler of choice”. </p>
<p>But do people really have choice? Choice is not equally distributed, and not everyone with private health insurance gets the choices they desire. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/private-health-insurance-and-the-illusion-of-choice-10985">Private health insurance and the illusion of choice</a>
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<p>Private health insurers reserve the right to restrict benefits, or provide maximum benefits for using their “preferred providers”. This, in fact, limits the choices consumers can make. </p>
<p>A recent example of this is the <a href="https://www.choice.com.au/money/insurance/health/articles/bupa-cuts-health-insurance-benefits-010318">announcement from Bupa</a> that, from August 1, members will face higher out-of-pocket costs in private hospitals that don’t have a special relationship with the company, and some procedures will be excluded from particular policies. </p>
<h2>Finding the best policy</h2>
<p>If you decide to keep your private health insurance, make sure you’re getting the best deal on a policy that’s right for you. Shop around for a policy that meets your needs. </p>
<p>Take note of what is excluded. If you are thinking about starting a family, you may want to look at whether obstetrics care is covered. For those who are older, inclusions such as hip replacements and cataract removal may be more important. </p>
<p>The Australian government website <a href="https://www.privatehealth.gov.au">PrivateHealth.gov.au</a> or the <a href="https://www.choice.com.au/money/insurance/health/compare">Choice health insurance finder</a> are good places to start. These include all registered health funds in Australia and allow you to compare what is covered in each policy. </p>
<p>Other “free” comparison sites may compare only some health funds and policies, or earn a <a href="https://www.choice.com.au/money/insurance/insurance-advice/articles/insurance-comparison-sites">fee per sale from insurers</a>. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-whats-actually-driving-up-health-insurance-premiums-hint-its-not-young-people-dropping-off-85683">Here's what's actually driving up health insurance premiums (hint: it's not young people dropping off)</a>
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<p>Before taking out extras cover, see whether you are better off to self-insure: setting aside money for if and when you need to pay for extras such as dental or optical care. </p>
<p>Review your policy each year and talk to your health insurance fund about your changing needs. <a href="http://www.ombudsman.gov.au/about/private-health-insurance">Seek redress</a> if something goes wrong. </p>
<p>If you need a procedure, <a href="https://www.myhospitals.gov.au/">find out</a> the waiting period in the public system, rather than assuming it will be quicker in the private system. Check the out-of-pocket costs if you choose to use your private health insurance. Then you can assess whether the price tag is worth getting your surgery a few weeks earlier. </p>
<p><em>* This article originally said more than half of Australians had private health insurance. This has now been corrected to 45.8%.</em></p><img src="https://counter.theconversation.com/content/93661/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sophie Lewis receives funding from the Australian Research Council </span></em></p><p class="fine-print"><em><span>Karen Willis received funding from the Australian Research Council (2013-2015) to investigate choice and health care.
She has an Honorary appointment at Melbourne Health.</span></em></p>Private health insurance premiums will rise from April 1, leaving consumers wondering if they should give it up or downgrade to save money.Sophie Lewis, Senior Research Fellow, Centre for Social Research in Health, UNSW SydneyKaren Willis, Professor, Allied Health Research, Melbourne Health, LaTrobe University, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/554352016-03-02T06:36:24Z2016-03-02T06:36:24ZIs a 5.6% increase in private health insurance premiums justified?<figure><img src="https://images.theconversation.com/files/113504/original/image-20160302-25879-n4wizs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The 2016 increases range from 3.8% for the Doctor’s Health Fund, to just under 9% for CUA health Fund.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-324866402/stock-photo-hospital-focus-on-flowers-next-to-hospital-bed.html?src=A_m07GiPC0QfE3cZrmJ02g-1-2">thipjang/Shutterstock</a></span></figcaption></figure><p>Health Minister Sussan Ley <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/0B815BFEB8EDECA7CA257BF000195929/$File/Table-of-premium-increases-2016.pdf">today announced</a> private health insurance premiums will increase by an average of 5.6% from April. This amounts to the average family paying about $300 more a year for an average policy. </p>
<p>This year’s increase is a little lower than <a href="http://health.gov.au/internet/main/publishing.nsf/Content/privatehealth-average-premium-round">increases of about 6%</a> approved over the last two years.</p>
<p>The 2016 increases range from 3.8% for the Doctor’s Health Fund, to just under 9% for CUA health Fund. Increases for the largest funds, Medibank and BUPA, are just below the industry average.
<em>(Scroll to access the full list below).</em></p>
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<p>Under the <a href="https://www.comlaw.gov.au/Series/C2007A00031">Private Health Insurance Act</a>, the health minister must approve company requests for premium changes, unless she is satisfied that to do so would be contrary to the public interest. </p>
<p>After receiving the first round of applications, <a href="https://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2016-leySL005?OpenDocument&yr=2016&mth=01">the minister requested</a> on January 30 that health funds “resubmit lower applications for premium increases or provide any evidence of extenuating circumstances”. Twenty funds subsequently lowered their requests. </p>
<p>The minister’s request for funds to work with the health department to reduce premiums, while unusual, is not surprising. Since 1997, when the Howard government introduced the 30% health insurance premium rebate, the federal government is a significant stakeholder in the private health sector. </p>
<p>The annual cost of the premium rebate has <a href="http://www.aihw.gov.au/health-expenditure/">grown markedly</a> from about A$1 billion in 1998 to about A$6 billion currently. </p>
<p>In the 12 months to December 2015, the national regulator, the Australian Prudential Regulation Authority, <a href="http://www.apra.gov.au/PHI/Publications/Pages/Quarterly-Statistics.aspx">reports that</a> premium revenue increased by 6.9%, benefits paid by insurers by 6% and fund profits before tax by 7%. </p>
<p>Despite the small reduction in this year’s premium increase, the 2016 outcomes for the industry are unlikely to differ much from those of 2015. </p>
<h2>What’s driving premium increases?</h2>
<p>The major driver of premiums is the level of benefits paid to insured patients for hospital treatment and services covered by general insurance. </p>
<p>In 2015, <a href="http://www.apra.gov.au/PHI/Publications/Pages/Quarterly-Statistics.aspx">total hospital benefits</a> were A$13.58 billion, including A$2.13 billion for benefits to medical practitioners and A$1.95 billion for prostheses such as pacemakers, stents and artificial hips and knees. </p>
<p>Benefits for general cover (99% of which are for extras treatment such as dental, optical, chiropractic, natural therapies) totalled A$4.63 billion.</p>
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<p>Hospital benefits have increased at a faster rate than extras. This is despite the share of the population with hospital cover remaining steady at around 46% to 47% over the past five years and very limited increase in the average age of the population with hospital cover. </p>
<p>Even though there has been a <a href="http://www.apra.gov.au/PHI/Publications/Pages/Membership-and-Coverage.aspx">steady increase</a> in the share of the population with general cover (from about 52% in 2010 to 56% in 2015) premium increases are being driven by hospital benefits, of which 14.4% are for prostheses. </p>
<p>Insurers could use higher benefits payments to justify premium increases if there was sufficient competition in the insurance sector to promote efficiency and lower costs of private treatment. </p>
<p>But the Australian industry is highly concentrated. The two largest insurers, Medibank and BUPA, have <a href="http://www.apra.gov.au/PHI/PHIAC-Archive/Pages/PHIAC-Archive-Operations-of-Private-Health-Insurers-Annual-Report-2013-14.aspx">56% of the market</a>. This suggests that inefficiency is driving premium inflation, some of it arising from a poorly designed regulatory framework. </p>
<h2>Benefits for prostheses</h2>
<p>In 2015, insurers paid almost A$2 billion in hospital benefits for prostheses. </p>
<p>The insurance cost of prostheses was raised in a submission to the Harper Competition Policy Review from Applied Medical, a manufacturer of a clip applier used in laparoscopic surgery. </p>
<p>The submission argued that the minimum benefits set by the government regulator, the Prostheses Listing Authority, were far higher than both prices in comparable overseas countries and those paid by public sector hospitals in Australia:</p>
<blockquote>
<p>Subject to the need to consult with stakeholders, there is sufficient power to implement reforms which would bring prostheses costs to the private health system down so that they would be comparable with prices paid in other countries – reducing prices by as much as 75%.</p>
</blockquote>
<p>Applied Medical estimated that hospital benefits could be reduced by about A$600 million annually if excess benefits, currently shared between the manufacturer and the private hospitals, were eliminated. </p>
<p>The <a href="http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf">final report of the Harper Review</a>, released in March 2015, recommended:</p>
<blockquote>
<p>The regulation of prostheses should be examined to see if pricing and supply can be made more competitive, while maintaining the policy aims of the current prostheses arrangements. </p>
</blockquote>
<p>Minister Ley has <a href="https://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2016-ley007.htm?OpenDocument&yr=2016&mth=02">raised prostheses reform</a> as a priority this year, noting that insurers pay $26,000 more for a pacemaker for a private patient than a public patient ($43,000 compared with $17,000). </p>
<h2>What needs to be done?</h2>
<p>According to an <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/phi-consultations-scope">online government survey in November and December of 2015</a>, the public is concerned about the affordability of health insurance and questions its value for money. </p>
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<a href="https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=696&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=696&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=696&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=875&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=875&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113511/original/image-20160302-25918-1wi5ory.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=875&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Despite premiums continuing to increase at a rate considerably above inflation, there is little evidence that people are responding by dropping their cover. </p>
<p>The Lifetime Health Policy, introduced the Howard government introduced in 2000, ensured that the penalties of doing so are too high if they wish to buy insurance at some time in the future. After the age of 31, the <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htm">policy adds</a> adds a 2% loading to the premium for every year of age over 30.</p>
<p>One way to keep premiums down is to address regulatory failures. Reforming the inflated prostheses benefits set by the government regulator and health minister in 2006 is in urgent need of attention. </p>
<p>Without such reforms, patients remain worse off, paying insurance premiums which increase every year. And the federal government is faced with an ever growing cost of the insurance rebate. </p>
<p>Another way is for government to rethink the incentives for insurers to pursue cost reductions by health providers that will lower insurance payouts and thereby lower premiums. </p>
<p>In the Australian system, insurers pay the providers agreed amounts and request approval from the minister for premium increases to cover increased benefit payouts. In other countries, insurers contract with specified health providers who compete both on quality and price for patients listed with the insurer. </p>
<p>Encouraging insurers to be more active could reduce premiums for consumers.</p><img src="https://counter.theconversation.com/content/55435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Savage receives funding from the Australian Research Council and has received funding from the NHMRC.</span></em></p>The 5.6% increase amounts to the average family paying about $300 more a year for an average policy.Elizabeth Savage, Professor of Health Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/395042015-11-09T23:34:34Z2015-11-09T23:34:34ZShould taxpayers subsidise extras for private health insurance holders?<figure><img src="https://images.theconversation.com/files/101214/original/image-20151109-7528-1qnf4dg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ancillary cover, otherwise known as 'extras', includes the likes of dental, physiotherapy, optical care and natural therapies. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/barteko/6131141598/in/photolist-akMGMU-9F27zx-9a8zCU-5m8qoP-5mcFyJ-z74fV-9fD9y-9buW13-awSjSC-82CStg-86eLgH-9VTSW-cmJnej-6jDQPS-e7TPTf-8Dpesk-8Dpeh4-8DsjxQ-8DpdEK-233Eqz-55NxzT-2mJEfo-8DskVJ-6fnjk-9ALoVZ-wiaERw-S5hP3-3wzoe-6FSyHG-6tXwkH-8VaLye-VmnL-4YLV7Q-e77P9-2VeoZk-4YodZP-4uF82u-4CxKx-vCS2n-97R8Ym-5vjTQY-4XYs8t-GDkt-6YGMnX-483quT-a21NZN-AWGv-fj2MHx-7y7JVM-7y7JtK">Karolina Kabat/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The government is conducting a review of private health insurance, purportedly aimed at ensuring consumers can access “affordable, quality and timely health services into the future”. </p>
<p>When <a href="https://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2015-ley151028.htm?OpenDocument&yr=2015&mth=10">announcing the review</a>, Health Minister Sussan Ley said:</p>
<blockquote>
<p>There are certainly questions that need to be asked, such as perhaps the current ancillary model would be better directed to encourage Australians to save for their out-of-pocket primary care expenses? Perhaps specifically for their later years.</p>
</blockquote>
<p>Ancillary cover, otherwise known as “extras”, includes services such as dental, physiotherapy, optometry and natural therapies. Consumers can take it out as stand-alone cover, or as an addition to private hospital cover. </p>
<p>The consumer <a href="http://survey.orcinternational.com/orc/j10262/surveylinkn.asp?job=Au3000187&id=RANDOM">survey</a>, launched at the weekend, asks specifically whether Australians’ tax dollars should go towards rebating premiums of those with only hospital or extras cover, or those with both. </p>
<p>There is little evidence that private health insurance rebates take pressure off the public health system. Instead, they contribute to inequity of health care across the country, ensuring better and timely care for those who can afford it.</p>
<p>Removing subsidies for 50% of Australians (who currently have private health cover) is a politically unpalatable task, especially when it comes to hospital cover. But scrapping rebates for ancillary services can be a good place to start. </p>
<h2>High cost of extras</h2>
<p>Government spending on private health insurance rebates <a href="http://phiac.gov.au/wp-content/uploads/2014/02/QtrStats-Dec13.pdf">grew by almost 70%</a> between 2002 and 2013. Claims for ancillary items grew at a rate ten times that of hospital cover. </p>
<p>These ancillary costs are the low-hanging fruit of private health insurance subsidies and have been under fire for decades.</p>
<p>In 1999, a 30% universal subsidy of private insurance premiums for hospital and ancillary insurance was introduced to combat steady health insurance coverage decline and increasing premium levels.</p>
<p>Although advice from commentators and experts was against the subsidy, the government argued that the private health insurance industry and private hospital sector were unsustainable without it. </p>
<p>According to the government, the subsidy would encourage more people to take up cover, expand choice, reduce long waits in public hospitals and use excess capacity in the private hospital sector effectively.</p>
<p>After the government went ahead with the policy, it <a href="http://link.springer.com/article/10.1007%2Fs10754-008-9040-4">didn’t have much impact</a> on the number of people insured. This was despite the subsidy applying beyond hospital care to ancillary services – which the government believed would attract a younger population.</p>
<p>Over time, it became clear the predicted premium reductions did not eventuate. In fact premiums increased. And waiting times for public hospital treatment did not change.</p>
<p>But the inequity of the policy was most striking. The subsidy was going to the 50% of Australians who could afford private health insurance. </p>
<p>The half of the population with insurance had higher incomes and better health than those without private cover, and the cost to the federal budget was large and growing <a href="http://www.smh.com.au/federal-politics/political-news/abolishing-health-insurance-rebate-would-save-3b-analysis-20140109-30kkc.html">faster than other health expenditures</a>.</p>
<h2>Low-hanging fruit</h2>
<p>In 2002, opposition to the rebate began to target ancillary cover. It emerged subsidies to these services were supporting <a href="http://www.smh.com.au/articles/2002/12/02/1038712888182.html">lifestyle choices</a> such as gym memberships, running shoes, golf clubs and the like. </p>
<p>The Private Health Insurance Ombudsman had revealed, for instance, that a fund paid $400 for a member to buy CDs of relaxing music.</p>
<p>An analysis by Catholic Health Australia <a href="http://www.smh.com.au/articles/2003/02/12/1044927663795.html">showed</a> health fund benefits on ancillaries were growing at double the rate of those for private hospital care, which was what the rebate was primarily designed to promote. </p>
<p>The report found that, in three years since the rebate was introduced, benefits paid to private hospitals had risen by 37%, while ancillary benefits increased by 71%. </p>
<p>The Labor opposition <a href="http://www.smh.com.au/articles/2003/05/05/1051987657855.html">announced</a> removing the ancillary rebate altogether would save $640 million annually.</p>
<p>But private insurance funds <a href="http://www.theage.com.au/articles/2003/02/12/1044927663455.html">lobbied</a> to keep the rebate intact, aware of the gains from having more young, healthy people who were unlikely to need expensive hospital treatment. </p>
<p>The Australian Medical Association president, Dr Kerryn Phelps, <a href="https://ama.com.au/media/private-health-rebate-and-lifetime-health-cover-not-perfect-doing-job">stated</a> in 2002:</p>
<blockquote>
<p>There is evidence that the cost of the rebate to taxpayers is in danger of blowing out to unsustainable levels… We need to see better targeted products and a move away from non-vital ancillary products. </p>
</blockquote>
<p>The 2003 Liberal government responded to the pressure and announced the phasing out of coverage for lifestyle gym shoes, CDs, tents and golf clubs. The change was minor, however, and the cost of the rebate continued to climb. </p>
<p>In response, the Labor government <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/7EED8B718BF46875CA257BF0001BDB8D/$File/14_12.pdf">means-tested</a> the rebate from July 1, 2012. It used a three-tiered system (dependant on earnings) and tied increases to inflation, rather than premium increases. This meant the impact of the subsidy would be eroded over time. </p>
<h2>Natural therapies</h2>
<p>But costs for rebates have continued growing. In 2014-15, the government <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/PHIconsultations2015-16">spent</a> $A5.8 billion on the Private Health Insurance Rebate.</p>
<p>The number of Australians with general cover (which includes ancillary items) is greater than those with hospital. As at June 30, 2015, 47.4% of Australians were covered for hospital treatment while 55.8% had some form of general cover.</p>
<p>In the 2012-13 budget, the Labor government announced a review of <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/phi-natural-therapies">rebates for natural therapies</a>, to examine evidence for their clinical efficacy, safety and quality.</p>
<p>A <a href="https://www.nhmrc.gov.au/guidelines-publications/cam02">report on homeopathy</a>, the first of 17 natural therapies to be scrutinised, found no reliable evidence for the therapy’s effectiveness. The chair of the review committee stated unproven therapies should not be publicly funded.</p>
<p>But as Ley <a href="http://www.theaustralian.com.au/national-affairs/health/sussan-ley-holds-fire-on-rebates-for-useless-natural-therapies/story-fn59nokw-1227259055905">recognised in response</a> to the report, taxpayers receive the private health rebate based on their entire policy, so removing funding for specific items would not be straightforward.</p>
<p>The minister also cautioned against cuts to the subsidy, stating:</p>
<blockquote>
<p>It’s important to remember Labor launched this broader review of natural therapies as part of their multi-billion-dollar raid on private health insurance rebates in government — it was never about health outcomes for patients.</p>
</blockquote>
<p>Despite Ley’s claims, the current review can be seen as a cost-cutting exercise. Were the government to scrap the rebate altogether – for both private hospital and ancillary costs – it could redirect the money saved into the public health system.</p>
<p>It would be challenging to remove a large subsidy from almost 50% of the population even if they are the relatively advantaged half. But cutting ancillary rebates may be the easiest to pass off to the public and a good place to make savings.</p><img src="https://counter.theconversation.com/content/39504/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Savage receives funding from the Australian Research Council and has received funding from the NHMRC.</span></em></p>Removing subsidies for the 50% with private health insurance is politically unpalatable. But scrapping rebates for ancillary services can be a good place to start.Elizabeth Savage, Professor of Health Economics, University of Technology SydneyLicensed 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>
<hr>
<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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<p>
<em>
<strong>
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>
</strong>
</em>
</p>
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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>
<hr>
<p>
<em>
<strong>
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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<hr>
<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>
<hr>
<p>
<em>
<strong>
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>
</strong>
</em>
</p>
<hr>
<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>
<hr>
<p>
<em>
<strong>
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>
</strong>
</em>
</p>
<hr>
<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>
<hr>
<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>
<figure class="align-center ">
<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">
<figcaption>
<span class="caption">Private health insurance cannot provide coverage for primary care serices.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-173816189/stock-photo-consultation-woman-in-pain.html?src=pp-same_model-173817368-LQEeKyfu5ZmtujMTGA28Dw-5">Image Point Fr/Shutterstock</a></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>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=530&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=530&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76506/original/image-20150330-1229-3wlsha.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=530&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<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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</figure>
<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>
<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/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">
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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</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/383902015-03-29T19:12:32Z2015-03-29T19:12:32ZCan private health insurers justify a 6.2% premium increase?<figure><img src="https://images.theconversation.com/files/76205/original/image-20150327-4766-fivw7n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The increase in benefits paid out by health funds far exceeds the approved increase in premiums.</span> <span class="attribution"><a class="source" href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">06photo/Shutterstock</a></span></figcaption></figure><p>The half of the Australian population that has private health insurance can expect higher bills from Wednesday, as premiums <a href="http://www.health.gov.au/internet/ministers/publishing.nsf/Content/health-mediarel-yr2015-ley012.htm">increase</a> by an industry average of 6.18%. The increase <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/0B815BFEB8EDECA7CA257BF000195929/$File/Table%20of%20premium%20increases%202015.pdf">varies</a> across different funds, ranging from 3.98% to 7.92% and will add around A$200 to A$300 a year to the average cost of hospital cover for families.</p>
<p>The increase is two to three times higher than inflation. So, how can the government approve such a hike? And how much profit are private health insurance companies making? </p>
<h2>How are premium increases determined?</h2>
<p>Under the <a href="http://www.comlaw.gov.au/Details/C2014C00791">Private Health Insurance Act 2007</a>, health funds <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/privatehealth-summary-premiumincreases">must apply</a> to the health minister to change their premiums. The industry regulator, the <a href="http://phiac.gov.au/">Private Health Insurance Administration Council</a>, individually assesses the applications and refers them to the minister.</p>
<p>To justify their application, health funds are required to provide projections of the anticipated changes in premium revenue and benefits outlay, and information about the financial performance of health funds, including operating margins and management expenses.</p>
<p>Premium increases are often justified as being necessary to ensure the solvency of health funds, and to maintain sufficient underwriting margins to meet its obligations.</p>
<p>The Act states the minister must approve the proposed change, unless it’s deemed as contrary to the public interest. The new premium rates come into effect each April. </p>
<p>So, what case do insurance companies have?</p>
<h2>Premium increases vs benefits paid</h2>
<p>The table below shows the total benefits paid by health funds for hospital and general treatment from 2009 to 2014. Over the six year period, benefits outlay grew by between 7.4% and 9.2%, with an average growth rate of 8.4% over the period.</p>
<p><br></p>
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<p>This next table shows the approved (industry weighted) average increase in premiums. In every year, the increase in benefits paid out by health funds far exceeds the approved increase in premiums.</p>
<p><br></p>
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<p>Benefits paid by health funds are influenced by the number of hospitalisation episodes (for things like hospital accommodation and operating theatre fees) and the number of general treatment services provided (such as physiotherapy visits), in addition to the level of benefit that each of these services attract. </p>
<p>In 2014, the number of hospital episodes and general treatment services grew by 5.2% and 3.9% in 2014, whereas total benefits paid in the same year increased by 7.4%. </p>
<p>This suggests that the growth in benefits is driven to a larger extent by an increase in the number of claims made, and to a smaller degree an increase in the average size of claims.</p>
<h2>Where are the growth areas?</h2>
<p>From 2013 to 2014, intensive care and anaesthesia grew by 9.3% and 8.6% respectively; the largest increase in benefits paid. </p>
<p>These increases are significantly higher than the average growth of 5.9% for all services. </p>
<p>On the other end, benefits for obstetrics actually fell slightly by 0.1%, and those from general surgery increased by 2.9%.</p>
<p><br></p>
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<h2>Are health funds making excessive profits?</h2>
<p>With consecutive premium increases year on year, it’s reasonable to ask if health funds are making excessive profits. But it’s a difficult question to answer satisfactorily. </p>
<p>Let’s first look at the gross (pre-tax) and net profit margins, a commonly used measure of profitability. The table below shows the gross profit margins (as net margin data isn’t available) in private health insurance compared with other private health and social assistance industries.</p>
<p><br></p>
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<p>So, the gross profit margin of the private health industry in 2014 is 12.8%, and the net margin is 4.4%. The gross margin is higher than private hospitals (7.7%), and is considerably lower than other sub-industries of private medical services (31.4%) and private residential care services (28.3%).</p>
<p>However, a <a href="http://www.apra.gov.au/PHI/PHIAC-Archive/Documents/PHIAC_Research_Paper_No1-new-format.pdf">research paper</a> by the Private Health Insurance Administration Council notes that the profitability of the private health industry is “generally high by historical standards”, with net profit margins in the range of 3% to 6% since 2005. The report also notes that net profit margin is highest for for-profit funds with open enrolment. </p>
<p>In a very different institutional context of the United States health system, the profitability of health insurers has also been a <a href="http://www.economist.com/blogs/democracyinamerica/2010/03/insurance_costs_and_health-care_reform">topic of debate</a> surrounding the Obama health care reform. The <a href="http://mjperry.blogspot.com.au/2009/08/health-insurance-industry-ranks-86-by.html">average profit margin</a> in the US health insurance industry is 3.3%, which is <a href="http://voices.washingtonpost.com/ezra-klein/2009/09/profit_and_the_insurance_indus.html">substantially lower</a> than related health care industries.</p>
<h2>Impact of the premium rise</h2>
<p>The increase in health insurance premiums will undoubtedly place further strains on household budgets. In the short term, higher premiums may lead to some individuals downgrading their cover, or dropping cover altogether.</p>
<p>The policies introduced by the Howard government to support the private health insurance industry (the <a href="https://www.ato.gov.au/individuals/Medicare-levy/Medicare-levy-surcharge/">Medicare Levy Surcharge</a> and <a href="http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htm">Lifetime Health Cover</a>) will still provide strong incentives for individuals to continue to maintain coverage. Medium and high-income earners are often financially better off by taking out private health insurance rather than paying the higher tax rate. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=472&fit=crop&dpr=1 754w, https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=472&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/76193/original/image-20150327-8682-16iztkn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=472&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">Some Australians take out private health insurance to avoid the tax penalties.</span>
<span class="attribution"><a class="source" href="http://one.aap.com.au/#/search/private%20health%20insurance?q=%7B%22pageSize%22:25,%22pageNumber%22:2%7D">Dan Himbrechts/AAP</a></span>
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</figure>
<p>There are, however, two groups that are more likely to feel financial pain from the premium increase. The first are individuals whose potential tax liability under the <a href="https://www.ato.gov.au/individuals/Medicare-levy/Medicare-levy-surcharge/">Medicare Levy Surcharge</a> is only slightly larger than the premium cost. </p>
<p>The second are those whose incomes lie below the surcharge threshold, and choose to buy private health insurance for reasons other than to avoid the tax.</p>
<h2>Challenges ahead</h2>
<p>Premium increases are closely tied to the growth in benefits expenditure. So it’s important to study the factors driving the increasing use of private hospital care and general treatment services, as well as the prices private providers charge. </p>
<p>Sustained increases in premiums have significant implications on the private health industry, particularly if rising premiums lead to a significant fall in the proportion of the Australian population with private health insurance coverage.</p>
<p>We have gone down this path before. The Medicare Levy Surcharge and rebates for private health insurance were introduced from 1997 to 2001 to reverse the declining membership that resulted then from rapidly rising premiums. These solutions didn’t, and wouldn’t, work. </p>
<p>What Australia needs is to fundamentally rethink about the role of private health insurance, and private health care.</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="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/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/38390/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>The half of Australians who have private health insurance will be face higher bills from Wednesday, as insurance premiums increase by an industry average of 6.18%.Terence Cheng, Senior Lecturer, School of Economics, University of AdelaideLicensed 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/174152013-12-08T19:23:57Z2013-12-08T19:23:57ZSix reasons why Australia needs a single national health insurer<figure><img src="https://images.theconversation.com/files/36734/original/dmgp49gq-1386031800.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Countries relying on private health insurance, such as the United States, pay far more for health care.</span> <span class="attribution"><span class="source">Kate Ter Haar</span></span></figcaption></figure><p>We have come to see private health insurance as an essential part of the national health funding mix, but it’s actually quite a costly way to fund health care. A well-designed system with a single national insurer at the heart of it could result in significant public and private savings.</p>
<p>Just as education funding was becoming the dominant political issue last week, the Productivity Commission’s paper <a href="http://www.pc.gov.au/research/commission/ageing-australia">An Ageing Australia: Preparing for the Future</a> drew national attention to the public and private costs of our ageing population. A little remarked-on aspect of the paper was its ideas on funding health care.</p>
<p>After years of turbulent debate, the last few years have seen the emergence of bipartisan consensus around health-care funding. It’s now accepted that subsidised private insurance has an established role alongside government programs. </p>
<p>Most political debate on health funding is now about details such as inequities and inefficiencies in private health insurance subsidies and co-payments for pharmaceuticals, rather than the ideas underpinning health funding.</p>
<p>Only a few commentators have questioned the role of private insurance, and even fewer have raised the possibility of direct payments for health care.</p>
<h2>Do we need private health insurance?</h2>
<p>Although many academics and independent researchers have argued that private health insurance is an expensive, inefficient, and inequitable way to share health-care costs, the private health insurance industry has never been subject to thorough study.</p>
<p>The Howard Government referred it to the <a href="http://www.pc.gov.au/about-us/history/ic">Industry Commission</a> (a precursor of the Productivity Commission) in 1996, but that was only about how private health insurance should be subsidised, not whether it should be subsidised at all.</p>
<p>The final recommendation of that report was that there should be a broad public inquiry into our health system, including funding. That inquiry was never held.</p>
<p>Kevin Rudd’s 2009 <a href="http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/nhhrc-report">National Health and Hospitals Reform Commission</a>, without evidence or argument, specifically ruled out any change in the health-care funding mix.</p>
<p>Promising to restore private health insurance rebates in the run-up to the recent election, Tony Abbott said the rebates were “<a href="http://www.liberal.org.au/latest-news/2012/02/16/tony-abbott-doorstop-0">an article of faith for the Coalition</a>”, and that “<a href="http://www.tonyabbott.com.au/News/tabid/94/articleType/ArticleView/articleId/9052/QA-Session-National-Press-Club-of-Australia-Canberra.aspx">Private health insurance is in our DNA</a>.”</p>
<p>Not exactly logical economic justifications. And anyway, bipartisan consensus isn’t an adequate basis for an <a href="http://www.budget.gov.au/2013-14/content/bp1/html/bp1_bst6-01.htm">annual A$5.4 billion industry subsidy</a>.</p>
<h2>Six reasons to ditch private health insurance</h2>
<p>Indeed, there are <a href="http://cpd.org.au/wp-content/uploads/2012/01/CPD_DP_Menadue_McAuley_PHI_2012.pdf">some very compelling reasons</a> why we <a href="http://www.ianmcauley.com/academic/dissent/healthfund2013.pdf">shouldn’t bother to retain</a> this expensive and cumbersome industry.</p>
<p>First, private health insurance is administratively expensive; only 85 cents in every dollar passing through private health insurance funds health care, compared with 95 cents of every dollar passing through the Australian Tax Office and Medicare.</p>
<p>Second, the industry can’t control costs or usage; the notion “HCF/NIB/Medibank Private will pay for it” is the same as “Medicare will pay for it”. Insurance of any kind, public or private, in making a service free at the time of delivery, removes normal market incentives for users and providers to contain costs.</p>
<p>Only a strong single national insurer would be able to keep prices and usage under check. That’s why the Nordic countries, Canada and Britain, which have single national insurers, have kept health-care costs at about 10% of GDP. Meanwhile, countries relying on private health insurance pay far more; most notable among these is the United States, where health-care costs are approaching a fifth of GDP.</p>
<p>Third, private health insurance distributes health-care costs inequitably. Taxation is a much better distributive mechanism than private insurance.</p>
<p>Fourth, it’s an inefficient way to fund private hospitals, and doesn’t take pressure off public hospitals. In fact, because more lucrative work in private hospitals attracts specialists away from the public sector, encouraging people to use private hospitals through subsidies to private insurance may <a href="https://theconversation.com/why-its-time-to-remove-private-health-insurance-rebates-16525">worsen the burden on public hospitals</a></p>
<p>Fifth, despite advertising claims, private health insurance <a href="http://theconversation.com/private-health-insurance-and-the-illusion-of-choice-10985">doesn’t offer meaningful choice</a>; consumer “choice” is between look-alike highly-regulated insurers with little product differentiation.</p>
<p>Sixth, in its present form in Australia, private health insurance doesn’t always offer proper “insurance”. </p>
<p>In well-functioning insurance markets, people buy cover for risks they cannot cover from their own resources. But for health insurance, the insurer’s liability is generally capped, leaving the patient with open-ended risk.</p>
<h2>A viable funding model</h2>
<p>An alternative to our public/private insurance mix is a single national insurer to cover those health-care expenses we cannot pay for from our own resources. </p>
<p>Some advocate a “free” system, but even Nordic countries require those who can do so to make uninsurable upfront payments before the public safety net takes effect.</p>
<p>A funding system that relies more on people’s direct payments, rather than on public or private insurance applies some market discipline to people’s decisions. And it makes them more aware of the costs of therapies. </p>
<p>We already have out-of-pocket payments for health care, but their incidence is haphazard. A system of compulsory contributions, designed around principles of equity, ability to pay and economic efficiency, could replace our <a href="http://cpd.org.au/2009/07/out-of-pocket-rethinking-health-copayments/">present mess of co-payments</a>.</p>
<p>And we could make provisions for people with limited income and limited liquidity, particularly older Australians. The <a>Productivity Commission report</a>, for example, suggests tapping into people’s housing equity. </p>
<p>Most of the time, most Australians would make no call on public funds for their health care. And, most importantly, it would obviate any need for private insurance.</p>
<p>For a government ostensibly committed to self-reliance and the operation of markets, a policy combining self-reliance, the discipline of prices, and a safety net, should surely be attractive. </p>
<p>In the 1987 election, the Coalition proposed requiring Australians to pay A$250 from their own pockets before receiving Medicare payments (equivalent to around A$800 now if indexed by incomes). Because, over the last ten years, Australians have built up their savings, such a policy should be more attractive than it was in 1987. </p>
<p>But is the Coalition government willing to consider market-friendly ways of funding health care, rather than continuing to pay huge subsidies to the private health insurance industry?</p><img src="https://counter.theconversation.com/content/17415/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>We have come to see private health insurance as an essential part of the national health funding mix, but it’s actually quite a costly way to fund health care. A well-designed system with a single national…Ian McAuley, Lecturer, Public Sector Finance , University of CanberraLicensed 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/155602013-07-01T04:45:45Z2013-07-01T04:45:45ZThings you should know about private health insurance rebates<figure><img src="https://images.theconversation.com/files/26582/original/9rw7wn4s-1372652870.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate.</span> <span class="attribution"><span class="source">LUKAS COCH/AAP</span></span></figcaption></figure><p>The government will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30.</p>
<p>The removal of the rebate from the lifetime health cover loading, once again, raises questions about the efficiency and equity of public subsidies for private health insurance. </p>
<p>This is not the first cut to government rebates for private health insurance. From July 2012, the tax rebate for private health insurance has been means tested. Individuals with incomes below $84,000 now receive a 30% rebate, and the subsidy gradually reduces to zero for incomes greater than $124,000. </p>
<p>And from today, the loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate.</p>
<h2>What do the rebates mean?</h2>
<p>The private health insurance rebate has been growing at over 6% per year and is <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1213a/13bd123#_ftn11">estimated to be around</a> $5.56 billion in 2012–13. This is a significant proportion of the health budget that could, for example, cover <a href="https://theconversation.com/labor-plugs-the-gap-in-dental-health-care-9169">a national dental scheme</a>, or over a third of the cost of the <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201213/NDIS">National Disability Insurance Scheme</a> or could be used to reduce the waiting list in public hospitals.</p>
<p>The main argument for the rebate is that it sustains a viable health insurance industry in Australia. In turn, private health insurance ostensibly supports private hospitals and increased patient choice, and reduces waiting times for elective surgery in public hospitals.</p>
<p>But does the rebate actually sustain private insurance?</p>
<p>After the 1975 introduction of a universal public health scheme (now known as Medicare), it was expected that private health insurance membership would decline. And that’s exactly what happened.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">PHIAC 2013/http://phiac.gov.au/wp-content/uploads/2012/08/membershipall.zip</span></span>
</figcaption>
</figure>
<p>The graph above shows that private health insurance membership declined sharply, from nearly 80% to just over 30% by the late 1990s. </p>
<p>In response, the then-Liberal government (with John Howard at the helm) introduced a suite of measures to encourage private health insurance membership. These included: </p>
<ul>
<li><p>a government-funded rebate on private health insurance premiums, </p></li>
<li><p>a means-tested tax penalty for those without insurance, </p></li>
<li><p>a premium surcharge for people taking out membership after the age of 30, and </p></li>
<li><p>a prominently advertised “Run for Cover” scheme that waived the surcharge for those taking out insurance before June 30 2000.</p></li>
</ul>
<p>These threats of higher premiums, coupled with the “Run for Cover” campaign, were the main drivers of the jump in membership from 30% to 45% in 2000. Membership levels have remained steady since then. </p>
<p>It’s too early to tell if the means-testing of the private health insurance rebate will have an impact on membership levels but, so far, it has not. That is, people don’t seem to have stopped their private health insurance because they no longer receive funding from the government for it.</p>
<p>In fact, membership seems to have increased by more than 1% between July 2012 (when means testing was introduced) and March 2013. </p>
<p>But while membership went up in the aftermath of the Howard government drive, it’s not clear that subsidising private insurance from 1999 was successful in reducing pressure on public hospitals – its main expressed intention at the time.</p>
<h2>Funding the rich?</h2>
<p>New insurees who responded to the financial incentives <a href="http://econpapers.repec.org/paper/herchewps/2006_2f11.htm">did not significantly reduce</a> their use of the public hospital system. Waiting times in public hospitals did not fall when private insurance take up increased and national median waiting times <a href="http://www.oecd-ilibrary.org/social-issues-migration-health/waiting-times-for-elective-surgery-what-works_9789264179080-en">rose in the subsequent decade</a>.</p>
<p>Some people who would have been treated in public hospitals shifted to private beds, but the resources went with them. The result was <a href="https://www.mja.com.au/journal/2000/172/9/new-health-insurance-rebate-inefficient-way-assisting-public-hospitals">no significant overall increase</a> in treated patients. </p>
<p>Indeed, since government still paid for public hospitals, and now paid a rebate on private insurance for treatment in <a href="https://www.mja.com.au/journal/2000/172/9/new-health-insurance-rebate-inefficient-way-assisting-public-hospitals">less efficient private hospitals</a> the net effect was to increase government expenditure</p>
<p>At best, there may have been some short-term saving in direct government spending from increased membership, but that was offset by patients paying out-of-pocket costs, or in premiums. In this context, premiums are like a <a href="http://cpd.org.au/wp-content/uploads/2012/01/CPD_DP_Menadue_McAuley_PHI_2012.pdf">tax but without the variation</a> with income - private insurance “reshuffles money and reshuffles the queues”.</p>
<p>Private health insurance and access to private hospitals are <a href="http://ideas.repec.org/p/yor/hectdg/11-22.html">the main reasons</a> why people who are better off wait less time for surgery. What has actually happened is that Medicare’s equity-of-access principle has been eroded by a tax subsidy of over $5 billion for the financially better off to jump the queue for elective surgery (and to use more dental or optometry services). </p>
<p>Our tax dollars would be better and more equitably spent on prevention, improving hospital services, and widening access to other services.</p>
<h2>Why have private health insurance at all?</h2>
<p>Even without the government subsidy, there remains the question of why we want to a parallel private health system for the quality of health service that we agree should be available to everyone paid from their taxes under Medicare.</p>
<p>Private insurance premiums are a cost to individuals just like taxation. And they cost more than a tax-funded system without producing better quality health outcomes. Medicare has advantages of scale (it is accessed by everyone) and purchasing power that enable lower costs and improved quality control.</p>
<p>In contrast, private health insurance is generally unsuited to pooling resources across people of different health needs and income, while actively ensuring equity of adequate care. This is especially so in Australia where insurance companies have regulated premiums and very limited scope to tie member contributions to their insured risk.</p>
<p>If we want high quality health care with choice, private insurance is not the only way we can have it – and is relatively expensive. Private hospitals could be subsidised from taxes at lower cost to the public budget.</p>
<p>More importantly, reducing the number of health funders increases the potential for better and more efficient health outcomes by integrating health-care provision – a feature that is sorely lacking in our fractured health-care system.</p><img src="https://counter.theconversation.com/content/15560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Harris 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 government will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30. The removal of the rebate from the lifetime health cover loading…Anthony Harris, Director of the Centre for Health Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/141482013-05-15T04:12:23Z2013-05-15T04:12:23ZSmall tilt toward health equity in the federal budget<figure><img src="https://images.theconversation.com/files/23800/original/vrbtfcbf-1368584864.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Last night's budget edges closer toward equity but a broader view of health is required if we are to make real progress.</span> <span class="attribution"><span class="source">winnifredxoxo/Flickr</span></span></figcaption></figure><p>Health took a back seat in this year’s federal budget. While the proportion of money being spent on health is increasing in 2013-14, the bulk of it is due to spending commitments made in previous budgets.</p>
<p>Headline grabbers include additional money to expand screening for breast and bowel cancer, as well as other new funding to improve cancer research and support services. And there are some additional funds for the mental health nurse incentive program. </p>
<p>While such investments may well produce health benefits, it would be interesting to understand the process that informed the decision to invest in these areas and not others. </p>
<p>Were the decisions based on estimates of the relative value of a range of alternative investment options? Do they align with the public at large, or more so with the mass media? And it’s always interesting to have an insight into the relative influence of alternative lobby groups.</p>
<h2>Private health insurance rebates</h2>
<p>Despite the introduction of means testing for the private health insurance rebate, the government is still spending $5.4 billion on these subsidies. </p>
<p>The means testing to be introduced in July will remove support for high earners. It’s predicted this will lead to savings of $149 million in 2013-14 and rise to $279 million in 2016-17. </p>
<p>Such small changes are unlikely to affect uptake of private insurance, and hence population health outcomes will remain the same at lower cost to the government. A coalition government would remove means testing, while a (less likely) Greens government would scrap the rebate completely. </p>
<p>All this leads to the question: how far should or could the government go with respect to reducing what it is still spending in this area? What would the consequences of further means testing be on the uptake of private health insurance? And what else could the government be funding with this money, so what associated benefits are we missing out on?</p>
<p>Indeed, why should the search for equity stop at the private health insurance rebate? The government is reviewing some Medicare-subsidised items and the Coalition has indicated that it would also do the same.</p>
<p>And while savings are being made by the decision to delay indexed increases in Medicare item fees, the whole system of Medicare funding for inpatient services is a subsidy for higher earners, who are more likely to use private inpatient services. </p>
<p>The government might be spending less on such services than if they were wholly provided (and funded) by public hospitals, but could the Medicare fee levels be reduced with limited impact on private health insurance uptake? In the United Kingdom, private health care is not subsidised at all.</p>
<h2>Pharmaceuticals</h2>
<p>Over $10 billion will be spent on pharmaceuticals over the next year, and this figure excludes a large proportion of pharmaceuticals prescribed in public hospitals. </p>
<p>Despite cited savings in the pharmaceutical budget due to expected price reductions for some existing drugs, spending on new drugs is expected to eclipse these savings. A net pharmaceutical budget increase of $143 million is predicted for 2013-14.</p>
<h2>A broader view</h2>
<p>An important area that was not addressed in any significant manner is the issue of variation in clinical practice, which has been shown to have a large impact on both health service costs and patient outcomes. </p>
<p>It’s likely that dollars spent reducing variation in clinical practice will produce greater benefits than dollars spent funding new drugs and services.</p>
<p>This is an internationally recognised area of importance, and countries such as the United States and the United Kingdom are spending large sums to tackle the issue head on. Of course, Australia can learn from the experiences of these countries, but the Australian health system is unique in many ways and overseas solutions may not be transferable. </p>
<p>Solutions are complex, involving better data collection, negotiation, and potentially regulation. It’s time to switch funding priorities from new technologies with marginal benefits to informing actions so we can improve the use of existing technologies and services.</p>
<p>Overall, looking at the new announcements, the 2013-14 federal health budget is relatively balanced. But previous funding announcements have loaded considerable additional costs onto this year’s budget and beyond. </p>
<p>A deeper analysis of the health budget requires consideration of not only alternative funding options within the health sector, but the broadly defined value of funding options outside of the health sector. By broadly defined, I mean the direct effects on individual quantity and quality of life, as well as the long-term sustainability and equitable distribution of societal well-being.</p><img src="https://counter.theconversation.com/content/14148/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Karnon 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>Health took a back seat in this year’s federal budget. While the proportion of money being spent on health is increasing in 2013-14, the bulk of it is due to spending commitments made in previous budgets…Jonathan Karnon, Professor of Health Economics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.