Australians are questioning the cost and value of private health more than ever.
In 1976, the Fraser government created Medibank Private to provide competition to private health insurers. As Malcolm Fraser himself put it: ”Full and open competition between Medibank and the private funds … will do much to cut down the total cost of healthcare”.
Thirty-eight years later, Fraser’s Liberal successors took a very different view. In 2014, the Abbott government sold off Medibank for $5.7 billion. At the time, it comprised 29 per cent of the market.
The result was what standard monopoly economics would lead you to expect. Since privatisation, Medibank has raised prices and increased gap fees. Prior to privatisation, Medibank had agreements with pathology and radiology providers so that Medibank paid the gap if those providers charged above the Medicare Benefit Schedule fee. Starting in 2014, Medibank ended those agreements, and members have had to pay these gap fees out of pocket.
And it’s not just Medibank. A decade ago, fewer than one in ten health insurance policies contained exclusions – now four in ten do.
With little competitive pressure in the market, and ministers who take a tick-and-flick approach to fee increases, private health premiums have soared. Since 2013, such premiums have risen by 27 per cent, meaning that the typical family pays $1000 a year more for health insurance than it did when the Liberals came to office.
Premiums aren’t the only thing that’s soaring. Last year, the pre-tax profits of private health insurers increased by 7 per cent. The return on equity of our largest private health insurers – who comprise an unhealthy share of the market – is significantly above the average for listed firms.
Last year, private hospital coverage dropped to the lowest level since 2011. Australians are paying more than ever for private health insurance, and still being stung when they try to use their cover. Puzzlingly, the private health insurance industry seems to regard health costs as being like the weather – entirely outside its control. This sits oddly with the experience from other countries, where private insurers are exploring innovative ways of reducing costs.
Privatisation isn’t always a mistake. Historically, state and federal governments have owned a plethora of enterprises, including sawmills, butcher’s shops, oil refineries, airlines and fishing trawlers. The privatisation of these assets allowed governments to focus on their core objectives, rather than being distracted by activities the private sector does perfectly well.
Last year, private hospital coverage dropped to the lowest level since 2011.
The risk comes when the privatised asset is a monopoly or near-monopoly. In these cases, as Australian Competition and Consumer Commission head Rod Sims points out: ‘The lack of effective regulation will see higher prices for users and so can see reduced investment by them, thus causing inefficiencies. In addition, the higher price received for the sale of an unregulated asset can effectively be a tax on users or consumers, now and into the future.” Without competition, he notes, ”merely monitoring prices makes little to no difference”.
That’s why Labor did not support the Liberals’ decision to sell off Medibank.
We can’t undo the privatisation of Medibank, but it’s important to learn the lessons of this blunder by the Liberals. Selling Medibank might have added billions to federal government coffers, but by privatising a behemoth, the Liberals have cost households billions in higher premiums. They’ve failed to balance the government budget, but they’ve helped unbalance the family budget for millions of households.
Only Labor has a plan to address the rising cost of private health care. For its first two years, a Shorten Labor government would cap premium increases to 2 per cent. With 10-year average annual premium increases at 5.5 per cent, this would save singles $143, families $344 and older couples $347.
Labor would also task the Productivity Commission with the most significant review of the private health system in 20 years. We want the commission to explore underlying cost drivers, the role of incentives to take up private health insurance, and the balance between the private system and Medicare – Australia’s universal public health insurance scheme.
Private health plays an important role in Australia’s health system. But under the Liberals, Australians are questioning its cost and value more than ever.
Catherine King is shadow minister for health. Andrew Leigh is shadow minister for competition.
First published in The Age, 5 March 2018.