Private Health Insurance: High in cost and low in equity



closeup of red stethoscope against blurred blue-green background|Private Health Insurance subsidies are inequitable

Government proposals to apply a means test to private health insurance subsidies have re-ignited the debate about the role of private insurance.

In our present system the vast majority of subsidies disproportionately benefit the well-off. Country people with poor access to private hospitals subsidize high-income city dwellers with private hospitals around the corner. Richer people who can afford private health insurance are more likely to purchase it, and they get a disproportionately high subsidy as a result. Meanwhile basic services like dental care are subsidised for Private Health Insurance policy-holders, but barely accessible to people on low incomes.

The proposals have shortcomings, however, because they don’t go far enough. They would have hardly any impact on membership of private insurance, they would sustain a separation of private and public hospitals, and they would sustain a social division with one hospital network for the well-off, and another for the other 45 percent of Australians. This division is at odds with the Government’s social inclusion policy.

Private health insurance is an expensive and clumsy way to do what the tax system and Medicare do so much better – that is to distribute funds to those who need health care. In itself it is an expensive financial overhead – a $3 billion annual burden on the health care system. Its even greater economic impost is its general impact on the cost of health care. International experience shows that private health insurance buys more expensive health care than tax-funded health insurance, but it doesn’t buy better health care.

Nor has the increased uptake of private insurance succeeded in its claimed purpose of easing pressure on public hospitals. That was an impossible task, because while demand has indeed shifted to private hospitals, so too have health care staff. The main result has simply been a re-shuffling of the queues for limited resources, and that re-shuffling has put private insurance membership ahead of clinical needs.

In Private Health Insurance: High in cost and low in equity John Menadue and Ian McAuley explain, in simple terms, why a single national insurer provides the most efficient and equitable way for Australians to share our health care costs.

Download Private Health Insurance: High in cost and low in equity

The Health and Hospitals Reform Commission, established by the Rudd Government, failed to consider broad questions of health funding. In its recommendations, it simply said “We want to see the overall balance of spending through taxation, private health insurance, and out-of-pocket contribution maintained over the next decade.”