Well the obvious truth has finally come out of a Minister’s mouth.
“”The Medicare levy has really got nothing to do with health. It’s a way of collecting revenue”, Health Minister Michael Wooldridge finally admits.
He is using this as a justification not to apply the revenue raised from the high-income surcharge on Medicare to health, as everyone would expect. Instead it will go to general deficit reduction.
It means that the government is keeping the letter of its promises to retain Medicare and not to raise taxes, but it is breaking the spirit of both promises.
It is raising taxes by 1 per cent on high income people without private cover and calling it a Medicare levy, not a tax. It is nonsense. The Government should call a spade a spade.
It is retaining something called Medicare with a capital M, but it is eroding the fundamental principle behind it of universal access to good health care. That principle requires paying for a decent public hospital system.
Wooldridge is right in one respect: the Medicare levy should not be seen as a funding mechanism for the federal health budget. It comes nowhere near it. The levy raises about $4 billion a year; federal health funding is about $15 billion a year (which includes the upkeep of state hospitals).
So why not scrap the Medicare levy by incorporating it into general incomes tax? The answer is politics. To be seen to fund a universal medical insurance system out of general revenue would be seen to be socialising medicine. Governments of both complexions have steered away from that.
If that is not to happen surely it would be better to make Medicare a genuine health insurance scheme that pays its way? The answer is politics. People would see a huge rise in the Medicare levy rather than the present fatuous pretence that a 1.7 per cent income levy pays for our health system.
We have an $11 billion a year shortfall. The Government would like to reduce that. Its approach is to encourage more private insurance in the hope that the premiums will come back into the health system.
But the way the government is going about it is foolish and probably doomed.
The Government, of course, should be funding an excellent health system for Australians and be proud of it. It should tell Australians that good health care costs and they will be taxed to pay for it. Australians put their health very highly and would happily pay. Spending a good chunk of GDP on health is far better than spending it on widgets or hamburgers.
Two of the governments bandaids will not work, almost on their own admission. These are the rebate and the surcharge.
The rebate for low-income earners who take out private insurance is a twin edge sword. It may attract some new people in, and that money will go to the general pool of health spending. But it comes at the cost of having to pay the rebate to all the low-income people who already have private insurance. The higher the rebate the more new people you attract, but at a greater cost to the existing private insurers. The lower the rebate the less effective it is in attracting people in.
In short, the rebate policy is self-destructive. The people who thought of it must just be thick.
The Government’s own Budget figures put the cost of the health-insurance rebate at nearly $500 million a year. Health insurance costs about $500 a head. That means the Government must attract or retain about one million people into private insurance every year the scheme lasts. It is pie in the sky.
What about the extra levy for high-income earners? At $100,000 the levy will cost $1000, about the total cost of cover. So the very few people in this tax bracket who do not have cover now will take it out. But the group is so small that it will have no significant budgetary effect.
Indeed, the government has recognised this by refusing to rule out a lower threshold for the surcharge, say as low as $50,000.
But the approach of cajoling or encouraging people to private cover to get more money into the health system is based on ideology not good sense. The private health insurers are hopelessly inefficient compared to Medicare. Their overheads are some 14 per cent compared to 3 per cent for Medicare. True, there are ameliorating factors, but if the aim is to get more money into the health system it seems silly to do that via a middleman who takes 14 per cent.
The fundamental problem is that we get none of the advantages of competition that the private sector can bring because Medicare and the funds are not competing on an even basis and we get none of the efficiency advantages of a natural monopoly because the private funds are allowed into the market.
The Government is right to say that the health system should pay for itself, but it will not achieve that with bandaid unworkable incentives to get people into private cover and at the same time hampering the funds with community rating and competition with a hugely subsidised Medicare.
But the Government has painted itself into this corner with promises at the last election which have now come back to haunt it. It faces a choice of keeping the letter of those promises but at the long-term cost of threatening the quality of health care Australians have become used to, or to risk breaking the promises by developing a sane health-insurance system that provides universal coverage; enough money to eliminate large waiting lists; enough money for high-standard care; and enough competition with both the health and health-insurance industries to ensure efficiency.
It can be done. But it involves ridding ourselves of the pretence that the Medicare levy and private premiums pay for health cover.
Medicare is hugely subsidised by general revenue and is hugely subsidised by people who take out private cover. People who take private cover get no relief from the “”hospital” element of their Medicare levy. Conversely, nor are they able to take a Medicare element towards paying the cost of their hospital stay even though they have paid the Medicare levy; the private fund has to pay the lot.
The result is that Medicare is a raving bargain and private cover is hampered in its competition. The only advantage for the privately insured is the ability to jump queues for elective surgery. As a consequence only those in relative high-risk groups likely to call on health care stay in the funds.
The amazing thing is not that so many have left private cover but that they took so long to do it.
A consequence is a vicious circle. The Government must replace community rating, under which everyone (young, old, fit, infirm) pays the same premium, with risk-based premiums so that the premiums if it wants premiums for the young and fit to go down enough to make private cover value for money. But if it did that the premiums for the aged and infirm would sky-rocket. The result would be that the trickle of funds from the young and fit would be vastly out-weighed by exodus from private to Medicare coverage by the aged and infirm who would place a very high burden on Medicare.
The Government says it believes in community rating for equity reasons. Nonsense. It is all about money.
It has taken 13 years for the hopeless imbalance of the original Medicare to manifest itself.
Bandaids and ideologically driven proposals will not help. Health insurance should not be surrendered to the market; nor should it be a an uncompetitive monopoly. Universal coverage must remain.
Ultimately it means converting both Medicare and the private funds to risk-based insurance with sliding-scale subsidies for people on lower incomes and people in higher risk groups. Premiums might rise as high as $15,000 for highest-risk people, so the subsidies would have to be substantial. But these very large subsidies would replace the present $11 billion in subsidies that are paid to the states and Medicare payments now. But they would be far more efficient and yet retain the social aim of universal coverage.
And it must mean an end to the present forced double insurance where people pay both Medicare and private insurance for hospital cover. Either the Medicare benefits should be transportable or those with private cover should not have to pay that part of the Medicare levy that can be attributed to hospital cover.
But to do these sensible things would take political courage because the community prefers to live in a fools paradise imagining that 1.5 per cent of income or $1000 per family is actaully paying for their health services.