John Menadue. The policy scandal of a $11b taxpayer subsidy to private health insurance.

Repost from 08/12/2013

I don’t think that I can recall a domestic policy that is so outrageous as the $11 b. annual cost to the taxpayer of the subsidy to private health insurance (PHI) companies. The subsidy is paid to policy holders, but it really means that PHI companies receive the benefit of the subsidy.For further explanation of the $11b figure see link to submission below.

Our motor manufacturing industry has been criticized for its taxpayer subsidy of about $2 b. per annum. PHI companies receive a subsidy more than five times that amount. That subsidy of $2 b. p.a. is being phased out and will see the end of motor manufacturing in Australia.

But the Australian motor manufacturing industry did produce things – cars. But the PHI companies don’t produce anything of value. They don’t deliver any healthcare at all. Zilch! These companies are expensive financial intermediaries shifting money from the pockets of taxpayers into the pockets of high income earners who then jump the queue for hospital admission.

PHI underwrites the business of private hospitals. But it would be much better public policy, and cheaper, to fund private hospitals directly and not via high cost PHI companies.

Private hospitals and day surgeries treat more than three in five veterans. Their stay in private hospitals is funded by the Department of Veterans Affairs. Why can’t we apply the same policies to the whole community? Furthermore, if the Commonwealth Government directly funded private hospitals in an appropriate way it would provide a means to integrate public and private hospital care, something which is badly needed.

Yet the government allows itself to be led by the nose by the rent-seekers in the PHI sector and private hospitals. Their case is threadbare, but their political clout is considerable. Ramsay Healthcare is a major donor to the Liberal Party. They secretly play to their political connections all the time. Ramsay paid its CEO $34m in 2014.

The ALP lacks the insight to protect Medicare and the courage to stare down the rent seekers. If the ALP does not stand for Medicare what does it stand for in its health policies. Very little I fear!

The Minister for Health Sussan Ley has said that she will ‘look into’ PHI through a consultative process. She has admitted that consumers are angry with PHI; that premium increases suggest that there is something seriously wrong with the whole system and that PHI companies are putting out an increasing flood of ‘junk’ policies.

But will the Minister grasp the nettle and seriously address the key failures of PHI which include –

  • The outrageous $11 b. taxpayer subsidy that is driven by ideology but without any policy merit.
  • The main beneficiaries of this subsidy are people who access private hospitals. But there are very few private hospitals in country areas. As a result the subsidy really ‘duds’ country people including people in the ministers own electorate of Riverina.
  • Premiums have increased at three times the CPI.
  • The administrative costs, including profit of PHI, are three times that of Medicare.
  • Contrary to the propaganda, the taxpayer subsidy has increased the problems of public hospitals. Gap insurance by PHI companies has resulted in a dramatic increase in private specialist remuneration that drains specialists out of public hospitals where remuneration is often three or four times lower for people of equal or higher skill.
  • The subsidy particularly favours the wealthy who can afford PHI.
  • PHI makes it much more difficult for Medicare to contain doctor and hospital fees.

I sense that there is growing concern even in the government bureaucracy that PHI is in crisis – growing outlays on subsidies, consumer complaints, rising costs in private hospital procedures as was revealed recently on Four Corners, and cost of premiums.

Grahame Samuel has been appointed to consult the PHI industry. Unfortunately Grahame Samuel usually sees competition as the solution of most problems when what is required is a strong Medicare as a single buyer to contain costs and ensure quality and accountability across the healthcare system. The so-called competition between PHI companies in the US has brought the American health system to the edge of disaster.

The subsidy of $11 b. should be abolished and in part used to directly fund private hospitals.

I fear that all we will see will be pledges of good behaviour, better disclosures, new rules and of course the old solution of more competition.

The most worrying thing is that the minister doesn’t really get or understand the problem. A former health minister and prime minister said that ‘PHI is an article of faith for the Coalition, PHI is in our DNA’. Just as worrying is what the minister recently told an ABC breakfast program ‘We support the pubic system for those who can’t afford private health’. There it is most clearly and starkly stated. The minister wants to see a two-tier system with a public system for the poor and the indigent, and a private system for the more wealthy. It is quite chilling to consider what the minister is saying whilst dolling out $11 b.pa ‘for the private system’.

A submission of colleagues, Ian McAuley and Jennifer Doggett to the PHI consultation can be accessed at http://www.ianmcauley.com/academic/cpd/phisubmission2015.pdf

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3 Responses to John Menadue. The policy scandal of a $11b taxpayer subsidy to private health insurance.

  1. John Timlin says:

    A wonderful analysis!!

  2. Steve Jordan says:

    Good, John, as usual.
    In this context, it is important to remember the mistake that Peter Smedley made when he was the CEO of Mayne Health: he assumed that the main clients of the private hospital system were the the patients. He rudely discovered that the the main clients were the surgeons who kept the rooms and wards of the hospitals full of insured people.
    Another very unholy trinity: health insurers, private hospitals, surgeons? What political donations would come from these groups and to whom?

  3. Jaquix says:

    Thanks for drawing attention to this inequity. Hope it gets plenty of attention. Bottom line – it means for instance that hard working, tax paying tradies may be subsidising the well-heeled getting upmarket private hospital care which they could well afford anyway. I know thats not the case always, but there should be no subsidising of this wealthy health industry sector.

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