MEDICARE has been too good for its own good. That simple fact was not addressed in the Budget and it will inevitably mean more changes later. And because Medicare is such a political sacred cow, the changes are bound to be piecemeal.
The leak from private insurance is only a symptom of deeper troubles in health; it is not, as the Government imagines, the problem itself.
The number of people privately insured has fallen from nearly 70 per cent when Labor came to power in 1983. It was 45 per cent in 1990 and is now 33.6 per cent.
Very simply, Medicare has been so good that people have abandoned private cover. The structure of Medicare has been such that private insurers have been competing with an arm and a leg behind their back. Basically, they can only offer queue jumping for elective surgery and ancillaries not covered by Medicare, but have been forced to do it a price which has to cover in addition the basic hospital cover that people have already paid for with their Medicare levy.
Further, the Medicare levy of 1.5 per cent has never covered the true cost of the benefits it provides. It was always a raving bargain grossly subsidised by the Government.
In that circumstance, it was not surprising people left private cover. The really surprising thing is how long it took for people to leave private cover and that 33.6 per cent remain in it.
Of course, if they had left sooner, the fools’ paradise of Medicare would have been exposed that much sooner. You cannot run a universal health-insurance scheme in Australia for 1.5 per cent of personal income when total health costs run to more than 8 per cent of total GDP, even if you allow for very large amounts of total health expenditure to be funded outside Medicare (pharmaceutical benefits, the states, private and so on).
The fools’ paradise is exposed as it is every year in the Budget figures. The Commonwealth outlays about $20 billion in health and gets back only $4 billion from the Medicare levy.
Medicare has never paid for itself.
But the Budget’s 1 per cent extra levy on high income earners who do not take out insurance (the stick) and its incentives to middle-income who do (the carrot), will, on the Budget’s own admission do precious little to help, at huge, misguided cost.
Let’s take the carrot first.
With decent insurance at $1000 a year to cover what Medicare already covers, the $250 incentive may not be enough to stop the rot. Sure, you get to queue jump for elective surgery, but at a high cost even after the government bribe to stay in.
Further, some families may think that with all the high-income people being forced into insurance, hospital queues may shrink, thereby reducing the one significant advantage of private cover.
The Government has not made a estimate of how many people will take up insurance because of its incentives. Rather, it has said it hopes just to stem the tide. But its incentives of $125 for singles and up to $450 for families with lots of children may not be enough because these are targeted at precisely the group who are struggling now … low- and middle-income earners and people with lots of children. They may find it more advantageous to drop basic hospital cover and insure only for bells and whistles extras. That has been the trend since 1983, and these incentives may not change it much.
And to the extent it does, it comes at a very heavy price. The incentives will cost the Government about $500 million a year.
The trouble is that to attract or keep a few people in to private insurance, the Government has to pay a big incentive to virtually every low and middle-income earner in private insurance, including those who would have stayed in anyway.
It is paying $500 million to keep the premiums of a few people in the total health pot. Ultimately, those premiums may add up to much less than $500 million a year. In short, the Government is giving a big subsidy to private health insurance industry.
It says it is handing the money to the battlers, but in effect it is handing $500 million a year to the private health-insurance industry.
If there was not to be a major restructure, the money would have been better spent on increasing capacity.
Small wonder, the Government does not want to estimate how many will join or stay in stay in private insurance because of the incentive. If it did, someone might do the embarrassingly simple sums to work out that the $500 million is badly spent.
About 6 million Australians are covered by private insurance. The government on average will give them each about $80 in this Budget in the hope of retaining some and attracting some more. And it is doing that to ensure more money is coming in to the total health cake.
So how many people will it need to retain (who would otherwise go) or attract to justify the $500 million? Well, at a rough average of a $500 per person premium, it will need one million people.
To justify this measure the Government would need to lift the participation rate from the present 33.6 per cent to 40 per cent. Not in their wildest dreams.
This measure is a foolish, ideologically driven hand-out to the Government’s constituency.
It has nothing to do with fixing health-funding problems.
Chucking money around like this is certainly not economically rational. It would have been better spent increasing the general health-service capacity.
There is a further point. Even if the Government stems a little of the tide or encourages a few more into private cover with its $500 million subsidy, there is no guarantee that when these people go to hospital that they will sign in as private patients. The foolish structure of charging in public hospitals is such that many people are better off as public patients in public hospitals because private patients get charged differently and end up with out-of-pocket charges that public patients getting exactly the same service do not get.
What of the stick? On the Government’s own admission, it will not amount to much. Health Minister Michael Wooldridge said the high-income fine will cajole 70,000 singles and 60,000 couples into insurance. Increasing the participation rate by 1.5 percentage points. All that fuss just to bring the private-insurance rate back to where is was at the beginning of this year. And that is assuming that more people do not leave despite the Budget measures.
The Budget admits that about 100,000 people will prefer to pay the 1 per cent extra than take out health insurance. It assumes, for example, that revenue from the extra levy will be $75 million in 1999-00. This is the extra levy that the Government hopes no-one will pay … but in its own Budget assumes will raise $75 million (that is 100,000 at $750 a head, a reasonably conservative average).
A lot of the fine detail is not in the Budget paper, but one can presume that to escape the extra levy (which applies from July 1 next year), you would have to take out cover for the full year and that the cover would have to be for at least the basic hospital charges for all conditions and will not allow you to escape with an el-cheapo fit-and-healthy cover which excludes full cover for degenerative conditions but gives full cover if you get smashed up.
There is no detail on whether you could escape with a very cheap cover that forces you to pay a very high excess (say $1000 a year). It is likely you will need to pay a premium of about $500 a year as a single or $1000 for a family.
Depending on the precise conditions it lays down, I suspect the Government has under-estimated. Looked at rationally, the extra levy (fine or penalty would be better words) is high enough to make private insurance the “”rational” choice for all singles over $50,000 and all families over $100,000 income.
You would expect nearly all those people to do that. If they have got the brains to earn $50,000 a year, they will have the brains to work it out. If that is the case, you would see more like a 2.5 percentage point increase in private cover.
Even so, on that best-case scenario, the high-income Budget measure is not significant enough to address the fundamental problem of ever-increasing, unfunded health costs.
The trouble has been that both major parties have nearly always put ideology before sense.
Labor subsidised Medicare beyond good sense and now the Liberals are subsidising private insurers beyond good sense.
And both have hamstrung both systems from sending price signals that could create better use of resources with sacred cows like the prohibition on a co-payment and community rating.
Labor hates the privilege of the rich insuring for extras and the Liberals hate compulsion and they will attack and undermine them. Yet we need both.