Not so healthy proposals for Medicare & private insurance


Ian McAuley takes a look at the Government’s proposed bill to increase the Medicare Levy Surcharge and means test the private health insurance rebate. Ian considers what this means for funding our health system and making public and private hospitals work for us, as the patients who may need to use them.

It has been reported that the Government will re-introduce to Parliament its bill to increase the Medicare Levy Surcharge and to abolish the 30 percent private health insurance rebate for people with incomes above $75,000.

The Surcharge is bad policy, but not for the reasons its opponents raise.

It’s bad because it contributes to a two tier health system. It encourages those with above average incomes to opt out of sharing their hospital services with other Australians.

It provides a massively over-generous incentive for the well-off to hold private insurance.  Even with the 30 percent subsidy removed, the increase in the MLS from 1.0 percent to 1.5 percent actually increases the subsidy to hold private insurance for those with incomes above around $120,000. At present, a person with an income of $150,000 taking out a $1000 policy, has a $1500 incentive through the MLS and a further $300 incentive through the rebate – $1800 in all. The higher surcharge would bring her incentive to $2250, an increase of $450, and $1250 more than the price of the insurance policy!

In any event, a survey by the Australian Bureau of Statistics shows that financial incentives have very little influence on people’s decision to hold private insurance. This confirms more general studies on insurance of all types, showing the well-off tend to over-insure. They don’t need incentives.

Concerns for private hospitals are valid, but they should not have to rely on private health insurance for their viability. Public funds for private hospitals should be paid directly to them, rather than being churned through private insurance where around 15 percent of that money goes in administration and profits. That would also be fairer to those Australians who pay for private hospital care from their own pockets, without being dependent on insurance.

Earlier this year, we heard the Prime Minister announce that the new regional hospital authorities would be buying services from private hospitals. That would break their dependence on private insurance, and would introduce some useful competition between public and private hospitals. Is the government now backing away from this policy? Is the government serious about “social inclusion”, or does it want to support a “gated community” in health care –  with private hospitals for the well-off, “charity wards” for the masses.

It’s not clear what the Government is trying to do, in part because it has failed to articulate any principles in health care funding.  In any event, if it puts the Surcharge bill to the Senate before July, it will surely be rejected. It would surely be far better to use the time between now and July to sort out how private hospitals can be funded more efficiently and equitably than through private insurance incentives, to explain the economics of health care funding to those who are uneasy about changes to private insurance, and to find ways of improving health services in non-metropolitan Australia, where there are very few private hospitals anyway.

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