John Menadue. Private health insurance and funding a Medicare Dental Scheme.

In this blog I have written extensively about the damage that private health insurance (PHI) is doing in Australia. We are sleep-walking into a US style health disaster.

If people want private health insurance, that is their right, but I see no reason why the taxpayer should subsidise a socially divisive and nationally damaging subsidy.

The damage of PHI is increasing year on year. In my most recent blog on the subject at the time of the last annual increase in PHI premiums, I pointed out that since 1999 when John Howard introduced the subsidy on PHI, overall prices have risen by only 50% but PHI premiums have risen by over 150%.

PHI has many damaging consequences and risks

  • It threatens our universal health system through seriously weakening the ability of Medicare as a single funder to control costs. We have seen the enormous damage that PHI has wrought in the US. We are steadily going down the same dangerous path. On present trends, we will have a divided healthcare system. One system will be for the wealthy with a safety net system for the indigent.
  • Private health insurance not only weakens Medicare, but in itself it does not have the market power to match the power of health providers who hold all the cards.
  • It favours the wealthy who can jump the public hospital queue by going to private hospitals.
  • It penalises country people who have limited access to private hospitals.
  • It has administrative costs three times higher than Medicare.
  • It has made it extremely difficult for public hospitals to retain specialists who are attracted to remuneration which is often at least three times higher in private practice and private hospitals.
  • There are government-supported trials in Queensland to extend coverage of PHI to general practice.
  • Medibank Private is pressing for PHI holders to get preference in emergency departments.

I could go on, but I have said much of it before. We are really sleep-walking into an American style health disaster.  The future of Medicare is at stake, but the ALP which was the proud founder of Medibank/Medicare doesn’t seem to care.

And the cost of the taxpayer subsidy which I had previously estimated at $7 billion p.a. is now approaching $10 billion p.a.  This is middle-class welfare writ large.

Let me explain how this figure of $10 billion is calculated:

The cost of PHI.

Direct outlays on PHI from Budget Paper 1, 2014-15

2013-14               $5.977 b.
2014-15               $6.302 b.
2015-16               $6.565 b.
2017-18               $7.187 b.

But there’s more! The rebate is essentially tax-free income for those who get it.  So, under the tax expenditures statement in Budget Paper 1 is the line item:

“Exemption of the private health insurance rebate, including expense equivalent”:

2014-15               $1.510 b.
2015-16               $1.600 b.
2016-17               $1.650 b.
2017-18               $1.690 b.

Adding these together you get:

2014-15               $7.812 b.
2015-16               $8.165 b.
2016-17               $8.523 b.
2017-18               $8.877 b.

To this should be added the benefit of exemption from the Medicare Levy Surcharge.  That calculation, based on ATO tax tables takes some time to do and requires some assumptions to be made.  Last time I looked, quite a few years ago, it was more than $1 billion.

We get up to about $10 billion, and that’s before looking at the inflationary effect of PHI which, if the experience of USA (and other countries) is any guide, dwarfs such budgetary expense.

A quick back-of-the-envelope calculation using Australian Institute of Health and Welfare (AIHW) figures illustrates the point:

In 2012-13 Australia’s total health expenditure was $147 billion.
This was 9.7$ of GDP.
In the USA (in 2012) it was 16.9% of GDP.
Add another 7.2% of our GDP ($1.583 trillion in 2013-14), and
You get an additional $114 billion.

We are talking big money.

It’s hard to get health ministers or health department public servants to think this way, however. The former minister, when questioned about total expenditure (government and non-government) on services within his portfolio couldn’t even give a rough answer.  I suspect the same would go for any minister. The concern of ministers is only what passes through their own budgets.  Public attention is directed from the public purpose to fiscal performance – ‘a triumph of finance over economics’.

A MEDICARE DENTAL HEALTH SCHEME

I am usually reluctant to propose cuts in one area of government expenditure to finance a new area. But I do believe that the future of Medicare is at stake if the expansion of taxpayer-subsidised PHI continues.

Abolishing this $10 billion middle-class subsidy would carry risks considering the powerful PHI lobby and the associated private hospitals that are large donors to the Liberal Party, like Ramsay Healthcare. For this reason I propose that the PHI subsidy currently of $10 billion p.a. and growing should be abolished and the savings used to fund a Medicare Dental Scheme.

Dental Costs

I have assembled the table below from the latest AIHW data.

Recurrent expenditure on dental services 2012-13

Commonwealth
Department of Veterans Affairs                  $100 m.
Other                                                                        $843 m.
PHI premium rebates                                     $606 m.

Total Commonwealth                                   $1549m

Total State                                                       $657 m.

Total government                                                                       $2.206 b.

Non-government
PHI net of rebates                                          $1.396 m.
Individuals                                                          $5.066 m.
Other                                                                     $73 m.

Total non-government                                                              $6.499 b.

TOTAL expenditure                                                                                         $8.705 b.

Those figures are a couple of years older than budget figures.  But, as a rough estimate, the Commonwealth government’s expenditure on PHI and the individual expenditure on dentistry would about balance.

Would it result in increased demand – probably, to the extent that there is a price elasticity effect?  I doubt if there would be much by the way of “supplier induced demand” however. Unlike other health services in that regard, dentistry is different but there would need to be some constraints on public expenditure for example on cosmetic dental work.  The introduction of a dental scheme would need to be carefully phased in to take into account the availability od dentists and support facilities.

Abolition of the $10 billion tax-payer funded subsidy to PHI would clearly be enough to fund a Medicare Dental Scheme.  To me that would make very good policy and perhaps even some political sense.

I assume that Bill Shorten is keen to preserve the great Labor monument, Medicare. If he also wants to differentiate his health policy from that of the Coalition, the abolition of the PHI taxpayer subsidy to fund a Medicare Dental Scheme could be just what he needs.

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One Response to John Menadue. Private health insurance and funding a Medicare Dental Scheme.

  1. Delia Scales says:

    Another excellen article. This blog has a high standard of health commentry. Another issue with private hospitals is their low standards of clinical practice. Private hospitals are exempt from having to publish their infection rates. Check the My Hospitals site and you will find private hospitals have ‘information witheld under commercial in confidence laws’. Doctors and nurses are often employed on a casual bases in private hospitals. This saves the hospital money normally spent on perminent staff rates. It also means staff are not monitored for their education levels and clinical standards. Public hospitals have many problems and errors are far too high. But as an ex nurse I have to say that I’m continously shocked by the shoddy standards of private hospital treatments. Private health insurence is a bad financial policy. Private hospitals are a bad clinical model of care.

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