ROSS GITTINS. Private health insurance is a con job

You won’t believe it, but my birthday was on Tuesday and I got a present from the federal government. I also got a card from my state member, sending his “very best wishes” for reaching such an “important milestone” in my life.

I almost wrote back asking him to alert the Queen to be standing by in 30 years’ time. Instead, my ever-sceptical mind told me the pollies have awarded themselves privileged access to the private information we’re obliged to give the electoral commission.

Do you need to buy health insurance?

Is it worth taking out private health insurance when the Medicare system is available to everyone?

So, what was my fabulous federal birthday present? Apparently, I’m now so ancient and infirm I get a bigger private health insurance tax rebate.

I never tire of pointing out that, contrary to what people say, our cost of living, overall, has not been rising strongly, unless you regard 2 per cent a year as “soaring”.

It is true, however, that a few, easily noticed prices have risen a lot – including the government-regulated price of private health insurance.

My “important milestone” reminds me that people have been complaining about – and I’ve been writing about – the high cost of private health insurance for as long as I’ve been an economic journalist.

And the opposition leader of the day – Bill Shorten, as it happens – hasn’t resisted the temptation to exploit people’s disaffection by putting it firmly on the agenda for this maybe-there’ll-be-an-election year.

The popular view is that everyone needs private insurance – if only they could afford it. Which about half of us can’t.

Opinion polling by Essential has found that, although a clear majority of people believe “health insurance isn’t worth the money you pay for it”, 83 per cent of people believe that “the government should do more to keep private health insurance affordable”.

The former opinion is right; the latter is delusional. Governments have been trying to keep health insurance affordable on and off for decades, while its cost just keeps climbing.

Why? Because it’s a self-defeating process. The more you do to make insurance affordable, the easier you make it for the people running the health funds, the owners of private hospitals and the surgeons and other procedural specialists who work in hospitals, to raise their prices and fatten their profits. Which the pollies fully understand.

In the old days health funds were owned by their members, except for the government-owned Medibank Private. These days, three of the biggest funds – Medibank Private, Bupa and NIB – are for-profit providers, thus increasing the pressure on the government to allow big price rises and reducing the chance of getting value for money.

As Ian McAuley, of Canberra University, has written, from a policy perspective health insurance is a high-cost and inequitable way to fund healthcare.

Only 85 cents of every dollar passing through private insurance makes its way to paying for healthcare. And only if you can afford it do you share in the government subsidies taxpayers provide.

From the customers’ perspective, it’s a con job. Most people under 60 get back only a fraction of what they pay. Often when you do claim you don’t get what you expected, because you don’t get choice of doctor or a private room, you’re caught by ever-changing exclusions from your policy, or because no one warned you about a huge gap payment.

Many buy insurance to avoid waiting times for elective surgery. But if private insurance didn’t exist, surgeons would have to earn more of their income from public hospitals and waiting times would be shorter. It creates the problem it purports to solve.

Health insurance is such bad value that, when John Howard sought to prop up the private system, he had to make it subject to a tax rebate. When that didn’t work he imposed a Medicare levy surcharge on better-off people who don’t have insurance, and imposed escalating prices for people who aren’t in a fund by the time they’re 31 (which is a con trick on the innumerate).

When the Hawke government reintroduced Medicare, it intended that the universal, taxpayer-funded provision of high quality hospital and medical care would make private insurance unnecessary. Those who preferred the snob status of private care could pay for it from their own pocket.

This is why Labor has long opposed public support for private insurance. Shorten, however, has taken a populist line, carrying on about the big increases in premiums and promising to cap them at 2 per cent a year for two years.

Another con. The profit-driven funds would respond either by excluding more procedures from coverage, or by demanding catch-up increases once the cap was lifted (as happened last time).

Private insurance is so counter-productive and so unfair that the best thing would be to end the subsidies and use the saving to improve the performance of the public system. (Howard’s claim that his tax rebate would reduce the pressure on public hospitals was always just a fig-leaf to hide his attempt to prop up the two-class system.)

A less politically controversial alternative was first proposed in an Abbott government federalism discussion paper: use the saving to introduce a commonwealth hospital benefit, where the same amount would be paid to the hospital someone chose to go to, whether public or private.

Private hospital beds would stay in the system – at a price fixed by the government – but the parasitic private funds would be out on their own.

Ross Gittins is the Sydney Morning Herald’s economics editor.

This article first appeared in Fairfax Publications.

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One Response to ROSS GITTINS. Private health insurance is a con job

  1. J Deacon says:

    Thanks Ross, someone had to say it ! Ive been against health insurance forever and a day. It skews everything, in my opinion. Since John Howard meddled with it, its been even worse. Govt has no business subsidising a private business/ industry. It means that the public system is actually starved of resources, like surgeons etc, and ordinary people have to wait longer on waiting lists.
    Or, put another way, the lower paid are subsidising priority in health care, for the better paid or wealthy.

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