JOHN THOMPSON. Private health insurers discriminate against country people

Feb 2, 2018

Private health insurers have asked the Commonwealth Government to prevent patients paying for public hospital services through their private health insurance (PHI).  This would be grossly unfair for those people in non-metropolitan Australia who are enticed into PHI through the Medicare Levy Surcharge, but have no private hospitals in their region. More basically, the Government should abolish its $10 billion subsidy to PHI, and direct the savings to funding private hospitals more efficiently and equitably.  

In its 2017 budget submission to the Australian Government, the industry association for the major private health insurers, Private Health Care Australia, asked the government to take measures to prevent patients paying for public hospital services from their PHI. The association claimed that public hospitals were ‘cost shifting’ or transferring the cost of public services to health funds to the tune of about $1 billion dollars per year. In the 2014-15 financial year, the private health insurance payments provided 2.1% of all public hospital funding.

This ‘problem’ for the private health insurers of privately insured patients agreeing to pay for public health services points to the inefficiency and inequity, indeed absurdity, of the private health insurance system.

I live in a regional area of Victoria and there is no private hospital in our area. The public hospital here is, by metropolitan standards, quite small but provides a range of very important medical services to the local population. For this reason, and because it is a significant employer of local people, there is a strong community attachment to “our local hospital”. It, like many rural hospitals, is always short of funding and relies on local community fundraising to supplement its government funding. So, although I, like many others , have been pressed to maintain PHI by government financial incentives, I am very happy to support our local hospital by paying for its services from my PHI.

Many of our community share this view. I have made enquiries of other hospitals in this country region and it appears that 20 to 25% of patients of the public hospitals in this region (there are no private hospitals) register as private patients and pay using their private health insurance.  And it is clear that many people in the cities are also pleased to support their public hospital in this manner even when private hospitals are available or, as is often the case, do not provide the particular service they need.

But PHI is a very inefficient way to fund private or public hospitals. In the year to 30 September 2017, the insurers received $23.3 billion in premiums, and paid $19.7 billion in benefits. (This was in addition to approximately $10 billion per annum in government subsidies to the industry. See Ian McAuley and Jennifer Doggett, various publications) Thus, 15 per cent of premium revenue is directed to the private health insurers’ highly expensive advertising, paper shuffling, excessive CEO payments, and shareholders’ returns before any of the members’ contributions can pay for health services.  This is $3.6 billion that could be more effectively applied every year if it were allocated directly to needy public hospitals.

I believe there would be general outrage if the government, despite its seemingly evidence-free attachment to our inefficient private health insurance system, attempted to prevent our various communities providing financial support to their local hospital through the PHI system they have contributed to financially.

The more basic question, however, is why we have PHI in our funding mix. There is increasing awareness of the enormous cost of the private health insurance system to Australia in terms of taxation rebates, subsidies and other support, and increasing bafflement as to why the Australian Government remains attached to such a wasteful system. If the government wishes to support private hospitals, the most efficient and fair procedure would be direct subsidies based on a systematic and transparent process.

John Thompson is an economist with experience in primary health.

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