The increases in private health insurance premiums approved by the Federal Government yesterday show just how fragile and foolish the Coalition’s policies on health have been. Since coming to office in 1996, the Howard Government has pursued a policy of private is good-public is bad – irrespective of the evidence. It has introduced massive subsidies for private health insurance after the number of Australians covered fell below the dangerously low 30 per cent mark. Too many young people were seeing no value in health insurance as premiums went up and Medicare and the public hospital system covered them against catastrophic injury. With young people leaving, premiums went up further, so more people left – leaving the funds with all the hard cases.
The Government introduced a penalty Medicare rate for high-income earners of up to 1 per cent of income, making private cover irresistible. Still the uptake did not change significantly. Then it introduced a 30 per cent tax rebate at a cost of some $2 billion a year. There was a most increase in private insurance rates. Then it introduced lifetime cover, which meant premiums for people over 30 taking out insurance would increase with every year of age they did not have private cover. This turned the trend. The number of people with insurance bottomed out at 30 per cent and moved towards 35 per cent.
The theory was that with more people coming on board, the losses would be spread more – particularly among the younger and more healthy part of the population – so premiums would fall. At least they would not rise. That was the promise before the election.
And yesterday, the Government approved increases of an average of 7 per cent, to a maximum of 9 per cent for the biggest private insure, Medibank Private – it will come $250 a year for some families. True, the funds have not have an increase for nearly three years, but they have had the huge benefit of the tax rebate to entice more members. True, many medical costs have increased and the population is ageing, but the average age of funds members should be going down as government policy entices or cajoles more younger people in and improved administrative and communications technologies that have driven down costs in other industries should apply to health funds. Moreover, increased day surgery and better diagnostic technologies should held reduce treatment costs.
The danger now is that people will flee the funds and the overall amount of money going into health will consequently fall.
It seems as if the increased subsidies by the taxpayers have been poorly spent. Rather than shuffling the money through inefficient health funds, the money would have been better spent by increasing the funding of public hospitals. It has been an inefficient exercise. The administration costs of private funds are about 5 times the costs of Medicare (though admittedly there are economies of scale to be considered).
The Government is now on a treadmill. Having approved these increases, its liability under the 30 per cent rebate will increase – by about $175 million a year. Perhaps the Government should look at capping the rebate. It should look at not paying a rebate on ancillaries. Further, it should look at steepening the penalty curve in the lifetime cover scheme, so the disincentive for not taking cover is more compelling. The evidence shows that this element of the Government’s policy worked best.
These rises show that the ideologically driven policies to run down the public health sector while enticing and cajoling people to the private funds has not worked and it is time for a rethink. The Government must abandon ideology and get a more workable mix between public and private cover.