An overwhelming majority of Australians support a Royal Commission into the finance sector. Ian McAuley explains why.
We’re paying too much for a bloated financial service sector.A prominent example is Australia’s largest health insurer, Medibank Private, which in the last financial year absorbed just over
a billion dollars of contributors’ premiums in management overheads and profits – $511 million as profit and $516 million as management expenses. Spread over its 1.9 million policies that’s $540 per policy holder.
Using a combination of subsidies and penalties (most notably the Medicare Levy Surcharge) successive governments have bludgeoned Australians into holding private health insurance, even though it has proven to be a woefully ineffective and high-cost mechanism of doing what Medicare can do so much better.
Out of every dollar that contributors spend on private health insurers, only 83 cents comes back as claims paid. By comparison, of every dollar that passes through Medicare and the Australian Tax Office, 95 cents is spent on health services.
It’s no wonder people are annoyed with private health insurers: in a
recent survey 78 per cent of respondents agreed with the proposition that “private health insurers put profits before patients”. And it’s no wonder that the government’s stealthy moves to displace Medicare with private insurance met with so much resistance in the recent election.
When it comes to general insurance – the insurance that covers cars, houses and business assets – the industry’s performance is even worse. Health insurers, it turns out, are the leanest among a well-fattened lot.