IAN McAULEY. Health care and Labor.

Aug 10, 2016


In the recent election Labor had fine words on health care – “Labor will ensure that access to health care is determined by your Medicare card, and not your credit card” – but in reality its policy proposals, if implemented, would have been even more destructive of Medicare than the Coalition’s.

The Coalition, true to form, proposed to entice more people into holding private health insurance, but Labor’s enticements to hold PHI were even stronger.  

That’s because while the Coalition proposed to freeze the income cut-off threshold for the PHI rebate until 2021, Labor proposed extending the freeze until 2026. That threshold is the income, currently $90 000 for singles, at which the rebate starts to cut out.

It’s also the income at which the Medicare Levy Surcharge (MLS) cuts in. That surcharge starts at 1.0 per cent of income for those on $90 000, rising to 1.5 per cent for those with incomes above $140 000. (Thresholds for families are double). Those who hold hospital insurance are exempt from the MLS, which means that about 90 per cent of people who would otherwise pay the MLS hold PHI.

In 2014, when the Coalition Government first froze the threshold, average incomes were just over $77 000, meaning that the threshold was about 17 per cent higher than average earnings. By 2021, at the rates of income growth forecast in this year’s budget, average incomes will be around $90 000, and by 2026 around $103 000.

That means that by the time the Coalition’s proposed five year freeze is lifted, everyone with average or above average income would face a strong incentive to hold PHI, while under the Labor’s ten year freeze even people with incomes well below the average would have the same strong incentive. As former Health Department head Andrew Podger has said “[Labor] is allowing the Medicare levy surcharge exemption to continue to play an increasing role in crudely subsidising the industry.”

Labor put itself into this position because of its obsession with budgetary costings. Supporting PHI through direct subsidies shows up in pre-election fiscal costings, while shifting support off-budget, into the dark world of an exemption from the MLS, is not brought to public account. As explained in a recent conference paper I recently delivered, this distortion arises from the media’s obsession with budgetary costings, while far greater economic misallocations go unreported.

That’s why, rather going into the election with a clear health policy, it obfuscated with 31 commendable but disparate proposals, such as managing allergic diseases and raising tobacco excise. Its only broad policy was to propose a permanent Healthcare Reform Commission, but otherwise there was no statement of principles or overarching policy – presumably because its policymakers realised its proposed freeze on the MLS threshold would destroy any vestiges of Labor’s original vision of Medicare as a universal tax-funded system.

Hence Labor relied on its “don’t privatise Medicare” scare campaign. The Coalition couldn’t point out the hypocrisy in Labor’s freeze proposal because it could hardly say it was less supportive of PHI than Labor, and it did indeed have a number of proposals, most notably the freeze on Medicare rebates (another freeze) and recommendations of the Abbott Government’s Commission of Audit, that would have undermined Medicare.

Labor’s campaign, in turning a poorly-considered policy into a near election winner, was a stroke of political genius. Post-election polling reveals that “health policies” and “Medicare” were the two most important issues in deciding how people voted.

A clever and opportunistic election strategy, however, does not make for sound policy.

I suspect that Labor surprised itself when it found Australians to be so attached to Medicare. Even though in 1974 the Whitlam Government had gone all the way to a double-dissolution election to introduce Medibank (the forerunner of Medicare), and in1983 Hawke had won office on a platform that included Medicare and withdrawal of support for PHI, in later times Labor has been less than enthusiastic about supporting Medicare as a universal program.

Labor in opposition and in government has tended to go along with the Coalition’s notion that publicly-funded health services are residual services for the poor or “indigent” (to use American terminology). The Gillard Government even went to far as to strengthen support for PHI when in 2012 it increased the MLS and therefore increased the incentive for those with high incomes to hold PHI.

This is in spite of mounting evidence that the public are fed up with PHI, and evidence that the Government itself has been becoming impatient with the industry. Late last year the Government was seriously considering a proposal in its own Reform of Federation paper, that there be a general hospital funding formula applying to both public and private hospitals, putting them on a competitive funding base, and bypassing PHI.

That presented Labor with an opportunity to show its support for private hospitals without subsidising PHI, dispelling any notion that Labor was “anti private health”, and making it easier to return to its original policy of Medicare as a universal single health insurer. But it missed the opportunity.

As John Menadue, I and many others have pointed out, there is a strong economic case for health insurance to be handled by a single national insurer, such as Medicare and similar sources in other countries.  (That does not rule out use of carefully-designed co-payments in conjunction with national health insurance.) Even in America, where conventional wisdom suggests PHI is firmly entrenched, public opinion is now strongly in favour of a single national health insurer.

Obviously a fully-funded Medicare would require extra taxation, possibly through an increase in the Medicare Levy, and a removal of the exemption of the MLS for those with high incomes. But it should be easy for Labor to explain that people would enjoy a net benefit from a tax increase that is more than compensated by not needing to pay for PHI. The popularity of the increased Medicare Levy to finance the National Disability Insurance Scheme should give Labor some confidence in pursuing such a policy.

If Labor can develop a coherent health policy, in line with its original commitment to Medicare as a universal national insurer, it will be able to demonstrate a clear policy difference from the Coalition, which seems incapable of thinking beyond supporting PHI. Its “don’t privatise Medicare” campaign was a one-time strategy, but by the time of the next election (which could be at any time), it will have to present a credible and coherent health policy, hopefully guided by consideration of economic responsibility, administrative efficiency and equity rather than the cosmetics of budget estimates.


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