The Australian Private Hospitals Association came up with a health-finance plan this week which has a lot more going for it than the Government’s foolish 30 per cent rebate scheme.
The Government has dismissed it, preferring the populist stand that it is committed to Medicare and that its 30 per cent rebate will fix the problem.
The Government’s response is another example of the woolly thinking and ideological blinkers that have dogged health policy in Australia.
The APHA discussion proposal at least puts money into health; whereas the Government’s rebate scheme is little more than a tax deduction for the mostly wealthy who take out private insurance. That tax deduction is likely to be spent on anything but health.
Under the APHA plan people could carry their Medicare entitlements to a private insurer. The plan is similar to the much discussed voucher schemes for education. And is likely to be denounced for the same reasons, which is shame, because it is important to get more money into health and to get a more rational balance between the public and private sectors. At present both suffer because they don’t compete on an even basis. Medicare can never offer instant treatment for elective procedures (queue jumping) and private insurance can never offer full coverage at a reasonable premium compared to Medicare.
Under the existing scheme, you are either a public or a private patient. If you are public you have to wait in the queue and then you get treated for nothing. If you are private you can be treated more or less immediately and at the hospital and doctor of your choosing, but you have to pay an extra $1000 a year insurance and you get billed for extras after treatment, averaging about $110 per treatment, though much higher in some cases.
There are two things wrong with this system.
The first is that public patients cannot carry the Medicare element of their hospital cover and use it as a private patient. If I am not insured and I want a non-urgent knee operation I have to either wait in the public queue or if I go to a private hospital I have to pay the full hospital cost. Medicare does not give me what it would have given me if I had been treated in a public hospital, about $150 a day.
The second fault is that private insurers have to cover their clients for total hospital cover. They get no credit for the Medicare hospital element of it, even though their clients have paid the Medicare levy. This forces up premiums. In turn that forces many out of private insurance, which in turn forces premiums up further. That spiral should be stopped.
The APHA paper argues to the Government, “”How about giving us the amount you would have had to pay if our clients were in the public system?”
It is a fair call. It is similar to the education argument. Parents using private schools argue, “”How amount funding our schools to an equivalent amount as you would have to spend if we sent our kids to a government school?”
We want universal education and health. The argument is more compelling with health because health is much more responsive to market forces and much more fluid. People are buying health services all the time.
The APHA paper estimates that the “”credit” the Government would have to give for private clients would be about $1.4 billion a year.
People would either stay with Medicare or take their Medicare entitlement to a private insurer.
But whether you stayed in Medicare or went private there would be an annual cap on how much you pay for medial and hospital in any year.
The APHA suggested this system would erode the universality of Medicare, as did the Government. But they miss the point. The point, surely, is not that everyone must be in Medicare, but that no-one in Australia should miss out on necessary medial and hospital treatment because of cost. That no-one should be catastrophically affected financially by health costs, as they were pre-Medicare.
But let’s be sensible. That should not mean that everyone gets all health care free, right now. Health care is open-ended. We have to have some form of rationing beyond the base service, and price mechanisms are about the best form of rationing going.
The trouble is that the present price mechanism is not working because of the two flaws mentioned about. The APHA scheme would address those flaws, provided it and the Government accepted that a Medicare patient without private insurance could carry his or her Medicare hospital entitlement into the private sector for a single treatment and pay the balance in cash.
Under the APHA plan, you can transfer your Medicare entitlement to a private insurer in the form of an annual premium and the private insurer then covers you. You can increase the range of your cover by paying extra for such things as private hospitals, dentistry etc. Or even opt out of things like GP visits and pay you own. It would give the funds the power to offer much wider choice and be more competitive. And the annual cap on individual contribution would ensure no-one gets financially ruined by medical costs.
The scheme has two other important elements. The transferred Medicare entitlement is not a flat per-person amount. Rather it is different according to which risk band you are in. It is higher for older people, less for younger people and so on.
This would help overcome the defects of community rating under which everyone pays the same premium for private cover. Under the existing scheme private cover is not good value for money for the young and fit and they leave. The APHA plan provides at least some element of relating risk to costs and would give insurers a chance to offer better value for money.
Secondly, the scheme would allow the Government to reduce the value of the Medicare transfer entitlement for high-income earners. It could do it on a sliding scale. That would force high-income earners to take greater responsibility for their own health cover, while always leaving them the option of staying in Medicare. Everyone would still be covered.
It is a pity this scheme was not put forward before the Government squandered $1.7 billion a year on the rebate scheme. The APHA scheme would be money much better spent.
But all of this must be put in perspective. That’s why I have cobbled together the table, largely from 1995-96 figures from the Australian Institute or Health and Welfare. They are the latest available, but the percentages no doubt have remained the same.
The way the debate has been run, you would expect the sky would fall in if something is not done about private insurance. The private money is useful and it helps improve services and contain costs through competitive pressure. And with changes like the APHA scheme could be made to work better. But the private-insurance element is a small one in the scheme of things.
Australia spends 8.5 per cent of its gross domestic product on health. A wapping 68.7 per cent of that is government. A further 20.3 per cent comes straight out of individuals’ wallets. That leaves just 11 per cent of health spending through private insurance. Further, private hospitals represent only 7.4 per cent of health spending, and of that 30 per cent comes out of individuals’ wallets and 70 per cent from insurance.
The private-insurance contribution is so small that the Government was able to swallow almost a third of it in one gulp with its rebate scheme. (One wonders why it did not swallow the whole lot.)
The rebate, like most subsidies, was very foolish. The funds will have much less pressure to contain premiums now they have been artificially cut by 30 per cent. And in any event, it is likely that private insurance had reached its nadir at 30 per cent of the population. It was not likely to go much lower.
The rebate which will cost $1.7 billion is bad value for money. On the Government’s own figures it will increase private cover to an extra 507,000 people. At $1000 per person for private cover that should cost only $0.5 billion. The Government has wasted $1.2 billion.
It should have looked as things suggested by the APHA and put the funds and Medicare on a more level footing. The funds would have got some benefit, but their poor administrative-cost performance compared to Medicare (12 per cent vs 4 per cent of out-goings) would have been exposed and they would have had to lift their game.
Now they can just get fat on government subsidy. And the Government petrified by the 1993 election result will continue to chant that Medicare will not be touched while all the time strangling it in substance while maintaining it in form.