Pearls and Irritations

The Minister for Health and Ageing, Sussan Ley has said she wants to canvas community and expert views on PHI (private health insurance).

If she does consult the community on this issue that will be a welcome change, for consideration of the PHI is usually a private discussion with the vested interests – the PHI industry, doctors and private hospitals.

I am not holding my breath about real consultation with the community. So much ‘consultation’ is purely token. Furthermore the community is genuinely confused about the range of look-alike policies that are very hard to understand until the patient has to pay.

The first thing the Minister should get right is the cost of the PHI taxpayer subsidy. She says it is $6.3 b. p.a. But that is only telling part of the story. The total costs revealed in the budget for 2015/16 are as follows.

• Direct outlays on PHI (Table 81 of budget papers)                       $6.341 b.
• Exemption from income tax of the PHI rebate
  (Tax Expenditure Table A1)                                                                $1.690 b.

           Total                                                                                                     $8.040 b.

That makes a cost of $8.040 b. p.a.

But there is more because revenue is foregone through exemption, particularly for those with high incomes, from the Medicare Levy Surcharge. This revenue foregone is estimated to be $3.0 b. p.a. based on 2012/13 tax tables. There is no reason to expect it now to be any smaller

• Revenue foregone through exemption from
  Medicare Levy Surcharge                                                               $3.000b

                  Total                                                                                        $11.040 b.

This gives a cost to the budget in terms of direct outlays and revenue foregone of $11 b. in 2015-16, almost double what the Minister tells us.

But there is more.

In addition to the cost to the budget, there are large additional costs to the community. Let me give you some examples.

• PHI premiums increase each year at about three times the rate of the CPI.
• Through PHI and gap insurance, we have had an enormous increase in specialist fees, often four and five times greater than remuneration paid to specialists in public hospitals.
• With competing funds unable to control the fees of doctors and hospitals, PHI weakens the ability of Medicare to curb the charges of doctors and private hospitals.
• PHI has costs, including profit, that are three times higher than Medicare.

These additional costs take the cost of PHI far beyond the cost to the Commonwealth budget. But they are hard to quantify. We do know however that in the US, health expenditure at 17% of GDP is so high because of the dominance of PHI. We spend less than 10% of GDP on health. If we spent the same proportion on health as the US, we would be spending another $115 b. p.a. on top of our existing expenditure of about $150 b. p.a. Every step we take to expand PHI takes us further down the exorbitant cost of the US system which is based on PHI.

So in summary, we have

• The direct cost to the taxpayer in the budget of the PHI subsidy was $11. b. in 2015-16.
• In addition there are very large economic and social costs if we continue on the same path as the US with its dependence on PHI. If we took that path we could add another $115 b p a to our health costs. We are unlikely to go as far as the US, but every step along the way significantly increases our costs.

We have a lot at stake that goes well beyond the $6.3 b. p.a. direct taxpayer subsidy to PHI that the Minister mentions.

There is big money involved and it is growing rapidly and driving not just budget costs but health costs in the wider economy.

If individuals want private health insurance to get privileged access to private hospitals that is fine. But there is no reason why taxpayers should be paying $11 b per annum for an inefficient and inequitable insurance system.

The $11 b pa would more than finance a national dental scheme.

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