With health-insurance, the Government has provided too much, too soon to the wrong people.
The rebate passed the Parliament on Thursday.
On the Government’s own figures it is an absurd waste of money. It is a tax deduction for the rich, not a boost to health spending in Australia.
During the debate the Government admitted two critical facts:
The scheme would cost $1700 million a year.
It would cause private health insurance rates to rise from the present 30.3 per cent of the population to 33 per cent.
That means the Government is willing to spend $1700 million to insure an extra 507,000 people. This is really dumb extravagance.
Health insurance costs a little under $1000 a head ($2100 for family cover averaging 2.2 people per family in insurance or $5500 million to cover 5.7 million people). Now if you multiply 507,000 by $1000 you get $507 million. So the Government is buying $507 million worth of private health insurance for $1700 million. For a Government that prides itself on good economics, that is pretty dumb.
Where is the missing $1193 million going? It is being handed to people already in health insurance. And who are these people, by and large? The well-off.
Australian Bureau of Statistics figures show that 72 per cent of households earning $70,000 plus have private cover and only 23 per cent of those below $20,000 income have it. This is a tax cut for the rich. It is not a boost to health funding. $1193 million of money is not going to health at all. It is going into household tax relief and will be spent on petrol, Coke, the pokies, basketball shoes or whatever.
Further, the private-health-insurance industry takes much more money out in administration than Medicare. Medicare’s administration is a mere 4 per cent of pay-out. Private insurance is about 12 per cent. It is burnt up in needless duplication and advertising without getting the efficiencies that normally come with competition because the whole health business is so regulated and subsidised (and about to become more so) that competitive forces simply do not work.
The latest Private Health Insurance Administration Council report shows that in the past year $540 million was lost to management fees out of total premiums of about $5500 million. About 10 per cent of premiums.
A further 2 per cent of premiums went to other administrative and advertising costs.
In short a further $50 million of the Government’s money is gong to be blown away in unnecessary administration.
The Government’s foolishness is compounded by the fact that it tried a smaller-scale version of bribing people to enroll for insurance or to stay in insurance and it failed. The Government wasted $600 million last financial year and still the number in private insurance dropped a little. The $600 million just went to existing players.
And worse still, it could well be that the number of people in private cover was about at rock bottom at 30 per cent, having fallen from about 50 per cent in 1984. The whole exercise might have been unnecessary. And certainly there is no way that insurance would have fallen by the 1.7 million people that the Governments $1700 million represents. That is a 9 percentage point drop. (SUBS: not 9 percent, I mean 9 percentage points)
The other thing is that a subsidy inevitably distorts the market. Doctors will just charge more. The funds will be under less pressure now to keep premiums down because they have just had a 30 per cent cut paid for by the Government.
Oddly enough, the logical extension of the Government’s subsidy mentality should be: why not take over the lot, rather than just 30 per cent. At least the Government would have some control that way. Instead of paying $1700 million a year why not go the whole hog and pay $5500 million, less 12 per cent for the funds extravagant management fees, and amalgamate it all with Medicare? If the private sector funds are so hopeless they cannot function without a 30 per cent subsidy, why have them at all?
Or if the market is so good, scrap all the regulations and subsidies and let the funds stand or fall in the marketplace. Most, of course, would fall and the Government would have to realise that health service (unlike airline, telecommunication and bank services) is not especially well-delivered by markets forces.