Australian health policy: does it swing?

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It is tempting to see Australian health policy as a swinging pendulum. We swung towards a universal health system in 1975 and again in 1983, but away from it after 1976 and most recently in 1995.

This idea is comforting for those of us who believe we are currently heading in the wrong direction — but it would be foolish to assume that a swing back towards universalism is inevitable. It is entirely possible that Australia’s health policy pendulum is stuck where it is, or that its midpoint has been redefined.

There are some people who argue that global warming is just part of an ongoing cycle of ice ages. However, previous interglacial periods did not feature billions of tons of fossil fuel pollution billowing into the atmosphere. Likewise in health care, never before have poor health policies been supported by so many billions of dollars of hidden advertising. There was no previous period when bogus think-tanks like the Centre for the New Europe were secretly funded by the drugs industry and published their ‘independent’ assessments in most major newspapers on a regular basis.


The case of the US health system

The pendulum idea is clearly open to question in the US health care context. In The new Massachusetts Health Reform: half a step forward and three steps back, Steffie Woolhandler and David Himmelstein (1) write ‘ Massachusetts runs in regular cycles: every 86 years our Red Sox win the World Series, and every twenty years our legislature passes a universal health care bill’.

The Massachusetts government recently passed another health reform law in an apparent attempt to move towards universal coverage. But in effect the new law merely provides a few uninsured people (the very poor) with coverage under the State government health insurance scheme, while requiring the remainder of the uninsured (the poor) to purchase private health insurance (PHI) or suffer tax penalties.

Like the current Australian system, the bill takes a ‘carrot and stick’ approach to encouraging more widespread take-up of PHI. Subsidies are provided for the purchase of PHI, along with penalties for failing to buy insurance if an ‘acceptable plan’ is ‘available at an affordable price’ (the determination of what is acceptable and affordable has been left to a new state agency).

Woolhandler and Himmelstein argue that this legislation will follow its predecessors to failure for several reasons. First, the calculations were wrong. In part, this was because the estimates of the number of uninsured were derived from a quick telephone survey that overlooked ‘…everyone who lacks a phone or does not speak English or Spanish, nearly half of whom are likely to be uninsured.’ The calculations used by the Australian Commonwealth government to justify the 30 per cent rebate on private health insurance (PHI) were hardly any better. During the questioning of the Commonwealth Department of Health and Aged Care by the Senate Community Affairs Committee, as recorded in Hansard (Community Affairs CA—76 to CA—91), it became evident to all that the decision to introduce the rebate had been based on rough analyses at best. In both cases, it appears that the calculations were directed at supporting a decision already taken by the government rather than at informing policy development.

Secondly, this system offers small gains to a few of the poor and much larger gains to the better off. Australia’s private health insurance system works in the same way: those who can afford to take up PHI receive the lion’s share of the subsidies. Aboriginal people and poor rural citizens will never gain from PHI (there are hardly any accessible private hospitals anyway) but their taxes still contribute to the scheme.

Thirdly, the Massachusetts Law increases co-payments. The co-payments required by Australian private health insurers are the reason that many Australians refuse to admit they have PHI when treated in a public hospital. Woolhandler and Himmelstein say the proposed new PHI payments constitute ‘a highly regressive new tax: the wealthy contribute virtually no new money to the system, while the near-poor, who were previously uninsured, foot the bill’.

Finally, the proposal will churn yet more money through the highly inefficient US PHI industry. The main private insurer, Massachusetts Blue Cross, spends 14 per cent of its revenue on billing, marketing and other administrative tasks. On average, the administrative costs of US private insurers ‘are ten times more per enrolee than Canada’s national health insurance program.’ In Australia our private health insurers spend about six times more on administration per consumer than the public system.

'Present history' image

Thanks to The Contextual Villains

There is a high degree of support in the US for the kind of universal government-run insurance that is delivered by Medicare in Australia. Woolhandler and Himmelstein note that sixty two per cent of Americans favour ‘a universal health insurance program in which everyone is covered under a program like Medicare that’s run by the government and financed by taxpayers’. Universal government insurance is also supported by ‘a broad spectrum of researchers’; government agencies like the Congressional Budget Office, the General Accounting Office and even by ‘fairly conservative’ consulting firms.

So why has the Massachusetts government opted instead for a high-cost, inequitable, PHI-based system?

One explanation may be that this proposal has received widespread support from the PHI industry, the drugs industry, and medical associations, all of whom stand to benefit financially if more citizens are subsidised to pay for more health care. The PHI industry has been particularly active in lobbying on the issue — see for example health insurance giant Aetna’s statement in support of the bill (2) . Woolhandler and Himmelstein note that the bill ‘will generate huge new revenues for private insurers’.

The Massachusetts case indicates that it is unlikely that the pendulum will swing back towards universalism in the US anytime soon. Indeed, if you put aside the birth of the Medicare and Medicaid programs in the 1960s, there is little reason to believe the pendulum has ever swung. Perhaps private health insurance is like global warming: once you have it, you’re stuck with it.

This certainly seems to be the case in Australia, given that there is now bipartisan support for the 30 per cent private health insurance rebate (3) . Should we therefore conclude that the midpoint of the pendulum has been permanently redefined, and political parties will in future only argue as to whether the rebate should be 25 or 35 per cent?

There are important differences between Australia and the United States when it comes to the support of PHI by vested interests, but the underlying features appear to be much the same. For example, Australian private insurers rely heavily on other pressure groups (such as the drugs companies and the private care providers’ associations) to promote their cause. At the time the 30% PHI rebate was being debated, the Australian Private Hospitals Association (APHA) ran full-page advertisements in major newspapers claiming that the rebate ‘… has the potential to completely eliminate waiting lists.’

The Australian private insurers also do a little work on their own behalf. For example, Medibank Private commissioned an analysis by Ian Harper (4) that has been heavily criticised (see Hindle and McAuley (5) ). However, this did not stop Health Minister Tony Abbott from quoting from Harper’s report, saying that ‘every dollar spent on the rebate saves federal and state governments two dollars they would otherwise have to spend.’ A similar view was expressed in an APHA-commissioned study by Access Economics (6) that said if the 30% rebate were removed, ‘we would again see private health insurance in decline, creating significant flow-on problems for the public hospital system and unacceptable budget burdens.’

The secret is to ask the right question. Will the government’s expenditures fall if citizens have to pay more of their own health costs through PHI? This is not a difficult question to answer, with or without the help of Access Economics. A more useful question is ‘Will Australia pay more for the same amount of health care if there is more PHI?’ Neither Ian Harper nor Access Economics have tried to answer it.

Woolhandler and Himmelstein note that in the US,

‘despite millions spent by drug and insurance firms on think tanks and public relations denigrating the single-payer option, and tens of millions of dollars lobbying politicians to keep the single-payer (universal) option off the table, it still remains popular’.

This is the lesson that needs to be continuously relearned: health policy is not a matter of evidence, logic, or citizens’ preferences if there are strong vested interests involved. We should stop pretending that it is — and begin to get better at using the tools that have proven effective against the tobacco and drug industries, where the harmful effects of allowing vested interests to have too much influence are widely accepted. A system that costs more while delivering less is a system that is hazardous to our health. We need to increase our efforts to make this known to the Australian public and the mass media, the politicians who should know better, and the politicians who do know better but are keeping quiet.


  1. Steffie Woolhandler and David Himmelstein. The new Massachusetts Health Reform: half a step forward and three steps back. Hastings Cent Rep. 2006;36(5):19-21. Available free from if you choose to register.
  2. Aetna Statement In Support Of Massachusetts Law To Cover The Uninsured. At
  3. NewMatilda. Discussion of the Centre for Policy Development in Parliament . Friday, October 13, 2006.
  4. Harper I. Preserving Choice: A Defence of Public Support for Private Health Care Funding in Australia. Harper Associates 2003, Commissioned by Medibank Private Limited. At
  5. Hindle D, McAuley I. The effects of increased private health insurance: a review of the evidence. Australian Health Review 2004: 28; 119-138. Abstract available from
  6. Access Economics: exploding the myths. At
  7. NewMatilda. A health policy for Australia: reclaiming universal health care. At
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