JOHN MENADUE-The Private Health Insurance industry is a scam subsidised by taxpayers.

For over fifteen years I have been pointing to the failure of PHI both in terms of efficiency and equity.  Not once have the executives of major firms or their lobbyists joined in a public discussion.  They prefer to strong-arm ministers and officials in private.  It’s a classic example of crony capitalism, using private influence to obtain public benefits.  PHI is a scam.

PHI will bleed to death, but executives of PHI blame everyone but themselves.  They want even more tax breaks and subsidies in addition to the $12 billion per annum that they presently receive from taxpayers.  Together with their media friends, PHI executives only refer to the $6 billion or $7 billion subsidy in the form of the direct rebate.  They never mention the $5 billion to $6 billion additional cost to the taxpayer through tax concessions particularly for high income persons who take out private health insurance.

Now, PHI executives want to extend their role into general practice and take us further down the appalling path of waste and inequity in the US health system.  Whilst some of the Democrats in the US are proposing how they might get out of their health mess with reliance on private health insurance, our PHI mendicants want more subsidies a-la the US.  Do our foolish PHI executives really think that Australian employers and employees with stagnant wages want to fund additional PHI for their employees.  Who are these executives think they are kidding?  They sound increasingly desperate.

These executives now want to blame the costs of prostheses for their high costs which is then reflected in the need for higher premiums.  They don’t admit that the suppliers of these devices, like private hospitals, set the fees and the PHI funds who lack clout in the market are forced to accept the higher fees.  Medicare has more power than PHI  to control costs through its greater purchasing power, but unfortunately its powers are weakened with the division in buying-power between itself and PHI.  If only there was a single purchaser, Medicare, we would see much lower prostheses costs.

With a threadbare case for their poorly performing industry, PHI executives then turn on their critics and accuse them of political prejudice, of being too economically purist or too left-wing, or advocating a Soviet style system.  Their arguments and language conveys their desperation.

They refuse genuine public discussion and debate to rebut if they can what I regard as an overwhelming case or critique of PHI.

In September 2007 I asked Michael Armitage the CEO of the Australian Health Insurance Association whether he would be prepared to write an article for the Centre for Policy Development rebutting my article in CPD which was critical of PHI.  I also suggested he might join me in a public debate.  He did not respond to either offer despite several reminders.

In the lead-in to the Federal election in 2007, the PHI industry made a secret arrangement with Kevin Rudd to maintain taxpayer support for PHI.  We did not learn of this until many years later.  It was typical of how PHI and politicians operate in secret.  Not surprisingly the Rudd government’s Health and Hospital Reform Commission’s revue of our health system was stacked with health insiders and chaired by a senior executive of MBF, now BUPA. It was a wasted opportunity to improve our health system. The baleful influence of PHI lobbyists was plainly obvious.

Not only the government’s, but also the ALP’s pusillanimity in facing up to the PHI lobby has left us with a lasting mess.   Both in government and opposition the ALP just like the Coalition has been bluffed by health providers and their paid lobbyists.

Today we have the same sort of mess that led in the 1970s for Gough Whitlam to develop and then propose Medicare.  He found that voluntary health insurance as it was then called was inefficient, costly, grossly unfair and accumulated excessive funds and profits.

Despite the incompetence and self-interest of PHI executives in trying to prop up their unsustainable system, the bleeding continues.

  • Spiralling costs, particularly by device suppliers, cannot be contained.
  • The two major funds BUPA and Medibank Private have lost 95,000 customers with hospital cover in 2019.
  • The 10% discount on premiums for young people has not stopped their exodus.
  • The ‘simplification’ of products into Gold, Silver and Bronze has left consumers just as confused.
  • Many private specialists are continuing to rip off patients and private health insurance funds have shown their inability to address the problem.
  • Patients in private hospitals stay 9% longer than patients in public hospitals for similar conditions. That extra cost is passed on because PHI does not have the market clout to resist the extra cost.PHI is a price taker.
  • Premiums are expected to rise even more in the next annual round.
  • Guardian Australia found that in BUPA’s aged care homes one third were found to be a ‘serious risk to residents’. BUPA has 73 aged care homes.BUPA is also the largest PHI insurer.
  • Consumer organisation Choice gave Medibank Private a ‘shonky’ award.It found that Medibank’s ‘Basic’cover is more expensive than the cheapest Bronze options in NSW,ACT,SA,WA, and Tasmania.

In the national interest, the best outcome would be to end the $12 billion annual  subsidy and direct those funds into more productive areas – outpatients in public hospitals, mental health, indigenous health and dental care.

If more wealthy people want private health insurance that is there right but  they should pay for it fully themselves. Why should taxpayers pay for them to jump the hospital queue?

The taxpayer subsidized and shonky PHI companies should be taken off the public tit.





John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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5 Responses to JOHN MENADUE-The Private Health Insurance industry is a scam subsidised by taxpayers.

  1. John Menadue John Menadue says:

    Rachael David misses the points I made. I have argued for years against the waste and inequity of PHI in both Centre for Policy Development and this blog. Not once have I had a serious rebuttal. Further the MLS is a loss to tax revenue that would otherwise be paid by high income earners. The $12 b cost of PHI stands. PHI is indefensible on numerous ground that I have outlined for years. It is sustained by backroom political lobbying. John Menadue

  2. Avatar Rachel David says:

    ‘Not once have the executives of major firms or their lobbyists joined in a public discussion’

    Really?? Suggest you make better use of Google News, John.

    btw You and others know the ‘$12bn subsidy’ is phony. The MLS is a penalty paid by a handful of high income earners without PHI, not a higher tax rate all of us are avoiding. Suggesting otherwise is a silly as claiming roads could be better funded by charging all users speeding fines.

    • Avatar Kien Choong says:

      Hi, Rachel. I think JM is arguing that without private health insurance (PHI), tax rates would be higher. They were reduced to encourage taxpayers to take up PHI, requiring taxpayers to pay a MLS if they do not take up PHI. Suppose the 1.5% MLS (1% when first introduced) indicates the reduction in tax rates for taxpayers who do take up PHI, then the “public subsidy” would include (roughly) 1.5% of the total income of taxpayers who take up PHI. Here the “public subsidy” represents tax revenues foregone* due to the PHI.

      (* The tax revenues foregone is based on a counterfactual which in practice is unobservable, other than making an educated guess. Perhaps you think the counterfactual would have been different. Still, I respectfully suggest it’s not “silly” to think that some tax revenues have been foregone due to the PHI, but people may reasonably disagree about how much tax revenues are foregone.)

  3. Avatar Jim KABLE says:

    when in the States …(The US/The US of A)

  4. Avatar Jim KABLE says:

    Bravo, John. And/or – maybe it’s time for government to recoup the hundreds of billions of dollars already given to the Private Hospital Insurance schemes and simply nationalise them – no more private – all public – as we might do the banks, the education sector – any area where secrecy and deals for those “investor”/shareholders has taken from the public purse and made wealthy those undeserving of it. Aged Care etc Royal Commission is leading to that conclusion – Not-For-Profit is the only way to a fairer society and outcomes. You are right, John, to point to the ugliness of the US system. The Father of Australian Folk – Gary SHEARSTON – had his own uncomfortable confrontation with that heartlessness when in the State in the 1960s and his first wife became ill…and it’s only grown worse there since!

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