Private Health Insurance: Where To Now?

Aug 27, 2019

Much has been written about the problems of the Private Health Insurance (PHI) industry. Desperate attempts to make an inherently inefficient product less inefficient have been proposed. Such suggestions do nothing for the inherent unfairness of taxpayer subsidised PHI. But something needs to be done and it should address both the inefficiencies and the inequities.

Private Health Insurance enables patients to bypass the public hospital queues, particularly for elective surgery. Taxpayer support for PHI through the 30% rebate means about $11 billion is not available to be spent on the public system where the needs are greatest. It gives those who can afford PHI a choice of doctor and perhaps timing of their admission. There is no evidence it gives better care except for timely access to elective surgery.

Claims that PHI in Australia is in a death spiral ignore reality. PHI can exist even when it only covers 10% of the population as occurs in the United Kingdom. In 1996 the cover in Australia had fallen to 29% which is what forced the Howard G to act. But that was not done to save an industry. It was done to challenge our universal public health insurance scheme (Medicare) and to emphasise the Liberal/ Conservative values of choice and the benefits of high incomes. PHI could be in Australia what it is in the UK, an expensive private insurance product for the wealthy to use to choose their hospital and doctor, the timing of admissions, and the quality of non medical ancillaries such as the view from the hospital bed. In the presence of a strong public sector it would thus no longer give the insured faster access to appropriate medical care.

Option 1

To date two moderately detailed suggestions have been proposed to address the issues as discussed by Jackson here. The first is Medicare Select, an option put forward by the Rudd Labor Government’s Health and Hospitals Reform Commission which was headed by a PHI company executive. It is a form of managed competition. Competition between insurance companies doesn’t work now. Can it be made to work? It requires abandoning Medicare as we know it and is thus a very unlikely political option.

Option 2

The second option is an expansion of the Medicare Gold concept put forward by Labor at the 2004 election. This is a scheme whereby private hospitals are used for public patients, funded through taxes for each admission in the same way public hospitals are currently funded.

Option 3

There is a third option. It is to adequately resource the public system. It was dismissed in Jackson’s article on the grounds that doctors and perhaps patients would object. Some doctors will see a decline in the private industry as an attack on their autonomy and income. The same objections were raised prior to the introduction of Medibank (the original Medicare) in 1975. It didn’t matter. Some patients may bemoan the lack of choice. Even in private, choices are usually on the advice of their referring doctor who decides as much or more on who he/she knows as on the quality of the specialist.

Expanding the public system can’t be done quickly. Public hospitals have inadequate capacity. Twenty years ago however, when the Howard Government began under-resourcing the public hospitals, the private hospitals did not have the capacity they now have. So they invested. We can now do the same with our public hospitals. The PHI rebate can be removed.

However it would be naïve to think the $11 billion cost of the rebate can simply be abandoned. Too many people who don’t deserve to suffer would do so with such a dramatic policy change. It would take time to move the money and resources to build the capacity of the public system to manage the 60% of elective surgery currently performed privately.

Any change would need to be carefully staged, beginning with a freeze on the rebate and an immediate further increase in funding for public patients to access elective surgery using private hospital capacity in the short term but moving to public hospitals in the long term. Once such capacity begins to grow, a gradual reduction in the tax rebate could be introduced. Savings can then be directed to the public system.

Problems with private options

Expanding the public system rather than funding fee for service expansion of the private system as Jackson has suggested, has other benefits. The managing director of Bupa’s health insurance business in Australia, Dwayne Crombie, said in 2015,

“There is quite a bit of inappropriate care and overservicing going on and it’s pretty hard to question doctors on whether it is needed,”

Private specialists do what they want. Most do the right thing most of the time. But public specialists work in units surrounded by colleagues and trainees who are much more likely to discuss and question the appropriateness of treatment.

Research and innovation does occur in large private hospitals but is much more likely in university associated public hospitals. Training of specialists also can occur in private hospitals but is a well established tradition in public hospitals.

Not just hospitals

Increasing the capacity of the public system to address hospital care is just one aspect of the changes required to cope with increased demand as the rebate is reduced. Another major focus needs to be the reduction in admissions to hospital for causes which are preventable if only we had an adequate primary health care system. 8% of admissions to hospitals are for preventable causes. Our public dental system is a disgrace and its inadequacies are a major contributor to preventable admissions. The lack of co-ordination in primary care and with hospital care is a nightmare for many patients. We can do better.

Not just access

There are many factors outside of health which also affect health outcomes and the productivity of individuals in our society. Fair employment, housing, and protection from violence and discrimination are just some of these factors which need to be addressed to maximise the benefits of timely access to care and to minimise the need for such access.

Thinking big

We do have to improve health insurance. Let’s do that with Medicare, our public health insurance. It can be expanded and improved, giving all Australians timely access to the quality care they deserve and we can afford. A more general way forward is suggested on this blog previously. A way backward is to appeal to a profit driven fee for service private system.

Tim Woodruff is president of the Doctors Reform Society, an organisation of doctors and medical students promoting measures to improve health for all, in a socially just and equitable way. On Twitter: @drsreform

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