Another exxcellent contribution in today’s Canberra Times. You’re one of the few writers taking a broad look at health care financing.
Ian Chalmers sent me a copy of his proposal for comment – my reply to him is below. Basically I am still puzzled about why they rest their fortunes on private insurance.
——————————————————- Dear Ian
Thank you for the paper on TMEs. It’s an interesting contribution to the health financing debate. The principle of achieving some equity between those who use private and public hospitals is one worth advancing.
It’s hard to see what benefits there are in retaining private insurance as an intermediary in the health financing system. Choice of providers may be important, but is choice of insurers important – particularly for the basic product for which there seems to be no potential for price competition? In fact, the proposal retains one of the anti-competitive aspects of the present arrangements – state hospitals are funded by government, private hospitals are funded through insurers (page 11). I cannot see why the APHA does not want intersectoral competition. Why should someone privately insured be restricted to a private hospital; why should one publicly insured be restricted to a public hospital?
There are a number of technical problems; the two most significant are risk adjustment for TMAs and means testing for discounts. As far as I can see, age and sex are the only objective criteria which can be used for risk adjustment. (The paper mentions things like claims history, but it’s hard to see how these could be incorporated into a risk adjustment formula.) In short, there is still potential for adverse selection. The other technical problem relates to means. Income is a crude proxy for means, and is becoming cruder over time as people have varying employment patterns and as older people accumulate wealth. Many people with a high income for a short period are not necessarily all that well-off; conversely many wealthy people have low incomes – often through manipulation of incomes through businesses and trusts.
Another problem, acknowledged in the paper (page 15) relates to cost control by a fragmented insurance industry. Until this or any other government is prepared to achieve structural and competitive reform in the health care industry, or alternatively is prepared to exercise price control, that is a major problem. The private hospitals themselves seem to be less than willing to engage in competitive market behavior – an academic colleague is trying to get private hospitals to state their schedules of fees, but he is finding that the industry is characterised by widespread price discrimination depending on the source of funding.
Perhaps the APHA should stress that the proposal is about attracting more funding into the health care system. It does not address the question of attracting resources. People with “basic” TMEs may find themselves at the end of a long queue in which priority is given to people with extra cover.
But the greatest problem with the proposal is that the proposal provides no case for retaining private insurance. What value-added does it provide in the health system? Why should governments go to the problem of collecting taxes, and then distributing the funds to another funding intermediary? I cannot see the value-added. (This criticism I level also at the Scotton proposals, although the APHA proposals are quite different from the Scotton proposals.) All the benefits of TMEs, without the collateral costs, could be achieved through retaining Medicare as a single national insurer, free to purchase services from the public or private sector. There could be co-payments, of course – I have been a strong proponent of rationalizing, and even increasing, co-payments to make sure they carry more intelligible price signals.
As far as I see the proposals, they are mainly about shoring up private insurance, and continuing to protect private hospitals from competition with public hospitals. I have been critical of the APHA for its assumption that its core funding must necessarily be by way of private insurance, rather than through public insurance or direct payment. Public insurance (Medicare in its broadest sense) carries many benefits – a strong purchaser to control costs, low administrative costs, public accountability, and the equity which is inherent in the tax system. Direct payment from people’s savings carries the benefit of price and market signals – markets work when people pay for goods and services they receive, not when an insurer picks up the tab. Private insurance disingenuously combines the worst aspects of public insurance and private payments, without any of their benefits.