Aspiring to opt out


Is Australia becoming an 'opt out' country? That is, a collection of physical and metaphorical gated communities, where those with means opt out of using public education and public health services.

Opting out has superficial appeal. It appears to be socially responsible: why should those who can afford to pay for their own health care clog up hospital waiting lists, depriving the needy of care? It appears to be efficient: if we want the best return for our scarce tax dollars, shouldn't we target expenditure towards those with least capacity to pay? And it appears to offer choice: why should those who have accumulated wealth for themselves and their families be forced to accept the 'one size fits all' services for the hoi poloi?

Opting out is not new. There have always been private schools and private clinics. But when it extends beyond a small and very rich minority, or, in the case of schools, beyond religious minorities, it takes on a different form. We now hear suggestions that those who can afford to do so have a moral obligation to opt out. For example, on introducing the 1 per cent levy on high income taxpayers without private health insurance, Treasurer Costello, in his 1996 Budget speech, said 'This is the levy which the Government hopes no-one will pay'.

Thanks to Peter Nicholson at the Australian

Thanks to Peter Nicholson at the Australian

More recently the Productivity Commission floated the idea of 'allowing, or obliging, those people who can afford private health insurance to opt out of the public system'. (link here)

That goes beyond opting out; it's eviction without any option.

Was this idea slipped in by a naive or mischievous young graduate, escaping the scrutiny of senior and experienced staff? Surely the Commission staff know that private insurance is a means of buying out of the discipline of market forces, thereby distorting resource allocation; surely they understand that scarce resources (medical and nursing staff, diagnostic technology) shift to where the money goes; surely they know about America's fragmented and expensive health care system and the waste of the Howard Government's ill-considered incentives for private health insurance.

Haven't they seen what's happening in education? Forty years ago, when many of the Commission staff would have been at primary or high school, only 4 per cent of Australians were educated outside the public and Catholic school systems. Now that figure is 12 per cent, and it's growing rapidly. When 32 per cent of people (including 20 per cent in Catholic schools) are outside the public education system and 43 per cent of people have private health insurance, opting out is not simply for the very rich; it is becoming what one may call an aspirational norm. Those who can't afford to opt out are left with the system designed for the 'indigent' to use the American term, or 'no-hopers' in Australian vernacular.

Fred Argy, in his book Where to From Here?, warns that people pushed into using private hospitals or private schools lose contact with the public health and education systems. They no longer have a stake in maintaining these public services and come to resent paying taxes to support them. A policy of targeting services to the needy is self-defeating. (In health care, in particular, it is not costly to keep the well-off in the public system, because the well-off are not major users of health services.)

Another distinguished economist concerned with opting out is Thomas Schelling, who addresses the puzzle of racial and other forms of social segregation. Why is it that even where the overwhelming majority want racial integration, cities remained racially divided? Using simple mathematical models, Schelling demonstrates the notions of critical mass and tipping. Once systems tip into black/white, male/female, or rich/poor divisions, mixed systems are hard to re-establish — even if the vast majority want a mixed system.

For example, as a reasonably well-off academic, I may want to send my children to a public school, and so may my neighbours. We may be attracted to the values of citizenship and mutual responsibility in the public school system, and want our children to be in a school which is representative of the wider community. If the school's community includes a cohort of articulate and assertive parents who expect high standards and who know how to lobby bureaucrats and politicians, standards will remain high, to the benefit of all. If, however, I perceive that public schools have 'tipped', used only by children from poorer or troubled families, I will feel constrained to send my children to a private school. I need to consider the consequences of not only my decision, but also the decisions of my neighbours, who are guided by the same logic. In our individual capacities we make decisions we would prefer not to make; we flee from the public system.

When governments encourage or force the better-off to opt out they talk about choice, but, far from extending our choice, we are denied choice — in this case the choice of using a public school. The same extends to health care and beyond (e.g. to security services and to physical gated communities).

Opinion polls confirm that the vast majority of Australians want to share their health care and education costs through their taxes. But, paternalistically, when governments encourage people to opt out, they set up system dynamics that deny people their wishes and limit their choice.

The shift of Australia to an 'opt out' nation has been subtle. In the early nineties the then Labor Government started talking about Medicare in terms of welfare, rather than in terms of a shared resource. The Coalition Government has redefined the concept of 'mutual obligation', away from the civic duty of contributing to and sharing in the common wealth. (Note that the Coalition has dropped the term 'Commonwealth' from references to the federal government.)

To restore a strong civic society we must expose the superficiality of the arguments for opting out. We must be unforgiving on politicians who defile the notion of 'mutual obligation' and who redefine health and education as welfare, rather than as part of our shared or common wealth.

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