After ten years we should be used to the Commonwealth’s practice of obscuring a major decision behind the smokescreen of a minor but more controversial decision.
The changes to health insurance announced last week provide a case in point. While the sale of Medibank Private has created the smokescreen, the decision to expand the role of private health insurance will do far more damage to our health care system and, for many, will diminish our autonomy and personal responsibility.
The smokescreen — the Medibank Private sale
The decision was announced with much hype about efficiency, costs and competition, but a change in equity holding, in itself, results in no change other than a different heading on the balance sheet. After all, Medibank Private is just another insurer which happens to be government owned.
Abbott’s suggestion that because it will be in the private sector it will be more efficient does not stand up to scrutiny. Its management costs, at 9.2 percent of revenue, are already below the 9.5 percent industry average. The industry is highly regulated (which limits the scope for innovation), and, in any event, government agencies are skilled in collecting and distributing money. But no amount of evidence can shake some people’s faith in the intrinsic inefficiency of the public sector.
Hints that privatization will help keep premiums in check do not wash — the cost drivers of premiums (ageing, younger people deserting the funds, technologies, the moral hazard of private insurance itself) are still present.
But, in itself, the sale won’t drive premiums up either. Medibank Private is already highly profitable, returning about 20 percent on the book value of equity, but it is thinly capitalized. Even if Medibank Private had been operated on a non-profit basis, it would have been able to drop premiums by only around two percent. In the financial sector (and let’s remember that the insurers are part of the finance industry, not the health industry), very small changes in fees result in large changes in profit.
Abbott’s suggestion that the sale will put more competitive pressure on the funds is fallacious; there will be no more insurers as a result of the sale, and, in fact, if Medibank Private is taken up in a trade sale, there may be much less competition, because the other private insurers tend to be dominant in particular states. Such concentration, however, is not in itself a problem, for the service providers such as private hospitals and medical specialists themselves have strong market power, and they need to be confronted by strong insurers. (That is the case for a single national insurer, a case which the present Australian Government, after wasting at least $25 billion on subsidies to private insurance, still does not understand.)
Opposition to the sale has been strong, however. This opposition probably has two sources. First, it seems that many people who felt bludgeoned into private insurance chose Medibank Private. There is a reservoir of trust in government agencies. That trust may be misplaced — Medibank private was run as a corporation — but people still feel let down. Second, people are disenchanted with privatization generally — Sydney tunnels, electricity supplies in most states, outrageous salaries in the Commonwealth Bank — have all given privatization a bad name.
Thanks to Sean Leahy.
Behind the smokescreen — the expansion of private insurance
This is the more serious issue. The private insurers have been longing to expand into non-hospital medical care, and this expansion — into outpatient and out-of-hospital services as well as chronic care management and disease prevention — is their wedge into Medicare’s territory. We saw this thirty years ago when the Fraser Government, in small increments, permitted private insurance to take over more and more of the role of Medibank.
This expansion is irresponsible for five reasons:
First, any expansion of private insurance results in inequities, rising costs and resource misallocation. That case is well-established: almost all independent economists (who are not compromised by consultancies to the private insurers) know this, and many have written for The Centre for Policy Development. If the Commonwealth really wanted to subsidize the health sector it would do so directly, not through a high-cost financial intermediary.
Second, disease prevention is all very well, but all that private insurers can reasonably be expected to do is to provide individual services. There is potential for a great deal of waste — unused gym memberships, idle exercise bikes, the services of genuine and charlatan counsellors. Far more effective would be public health measures — such as a ban on food promotion to children and anti substance abuse programs. But of course, because of market failures, the private sector cannot provide public health.
Third, while the Commonwealth refers to choice in justifying subsidies for private insurance, the claim is rubbish. It’s choice without variety — the choice between look-alike, highly-regulated financial intermediaries. Choice is good — choice of lifestyles, choice of therapies, choice of service providers — but that’s not what Abbott means. The Howard Government has diminished the meaning of the word choice; progressives and the left generally should re-capture the word to promote its real meaning.
Fourth, contrary to the rhetoric about choice, this looks like managed care of the most paternalistic kind. In a society which values individual autonomy, surely it’s up to us to decide whether to take gym membership or to live on a diet of Big Macs and beer. We can be certain that the insurers won’t be open-ended about these so-called preventative services but will be most paternalistic in their rationing. While neoliberals rant against the nanny state they turn a blind eye to the nanny corporation.
Fifth, chronic care services and so-called preventative services are not subject to significant risk. They generally involve known and controllable outlays. We don’t insure against regular servicing of our car, for example, even if it is an old car needing a special level of care. Why bring a financial intermediary claiming to be an insurer, into these transactions? By the same argument, if the government sees some merit in people making an outlay on chronic care services and preventative services, why not subsidise everyone, including those who take personal responsibility for their health decisions rather than handing that responsibility over to a financial institution? Why leave out the 60 percent of Australians without private insurance?
There was a time, perhaps, when the Liberal Party stood for self-reliance; this decision shows it is now firmly established as the party of the nanny corporation.