Health system needs radical surgery
The Age
Tuesday June 23, 2009
Eliminating private health funds would reduce costs, writes Nick Renton. IN ITS budget, the Federal Government expressed concern that the cost of the private health insurance rebate was growing rapidly and, without changes, was expected to more than double to $9.3 billion a year by 2019-20. The Government also felt that the rebate disproportionately favoured taxpayers on higher incomes.Among other initiatives, it decided that from 2010-11 private health insurance rebates would be lowered for taxpayers earning more than $75,000 (single) or $150,000 (married couples), and that they would be eliminated for taxpayers earning more than $120,000 (single) or $240,000 (married couples).These proposals have been criticised as likely to encourage those affected to drop their insurance cover, leading to increased use of the public health system and greater costs to revenue.It is also suggested that people in good health would quit insurance in greater numbers, thus forcing up premiums for those remaining insured. That in turn could be expected to encourage even further withdrawals and another bout of premium rises.Actually, it seems likely that most policyholders in the affected income groups will still prefer to pay insurance premiums entitling them to benefits, rather than incurring similar expenditure in the form of the Medicare surcharge without obtaining access to the benefits.Furthermore, privately insured patients have both medical and non-medical advantages. For example, they can jump queues to get non-urgent hospital treatment and they can receive treatment by a medical practitioner of their choice. They are also more likely to get a private ward and better-quality food.But nobody seems to have suggested a more drastic change to the present method of funding the entire health system. Its total costs are not really a function of the bookkeeping. Rather, they are made up of amounts paid to doctors and their support staffs, to nurses, to hospital administrators, to pharmacists and so on - and to the associated costs incurred in respect of their premises and their often high-tech medical equipment.These costs are rising annually, partly because of inflation but also because modern technological improvements are getting more expensive and the population is ageing. There are also increasing costs for the development of new drugs.The total cost of the system is spread over many headings: the compulsory Medicare levy and its surcharge, voluntary premiums to private health insurance funds, income tax rebates, taxpayer subsidies for pharmaceutical benefits, as well as the funds paid by individuals. There are also employer premiums to workers' compensation schemes and levies on motorists to fund transport accident compensation schemes.The fact that Australia is becoming a more litigious society is also forcing up professional indemnity insurance premiums for medical practitioners and especially for specialists - another hidden cost that is passed on to patients.It might sound revolutionary, but one easily achieved way of reducing the total costs of the system would be to do away with the separate private health funds and to stop pretending that these offer insurance. The so-called "premiums" paid to these funds are, in reality, a de facto tax, similar in character to a poll tax and to the social welfare taxes levied in some other countries. (True insurance would involve premiums that have regard to each insured's age, sex, occupation, smoking pattern and health - as distinct from the present flat rate for everyone.)These funds are not really competitors with each other, because their charges, their policy conditions and their benefit scales all require regulatory approval. In effect, the funds are really just another branch of the public service.Furthermore, this is not a case of the private sector being able to do something better than the Government. The funds incur non-health expenses, such as for advertising and, in some cases, for commission payments. Because there are so many relatively small funds, they do not enjoy economies of scale. Also, all private funds need to devote some of their premiums to setting up reserves to guarantee their future solvency.Many funds are not even non-profit bodies. Thus a portion of their premium income from customers flows to shareholders.There is no particular advantage to the community in having some health claims processed by Medicare and others by private funds.Another way to change the health industry would be to eliminate the division of responsibility for the system between the Commonwealth and the state and territory governments. Not only would this lower costs overall, but it would improve efficiency for patients and taxpayers by doing away with gaps and duplications.Furthermore, it would stop the political buck-passing. In addition, it would help to make the system administrators more accountable and it would make the total costs bill more transparent.Finally, there is an unrelated budget change - an absurd feature of the Medicare surcharge as from July next year. A taxpayer on $75,000 a year will not incur a surcharge. But a taxpayer on $75,001 a year will have to pay a surcharge of $750, an enormous "penalty" for earning one extra dollar.Nick Renton is an actuary and the author of about 70 books. His latest book is Understanding Taxation for Investors (BAS Publishing).
© 2009 The Age
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