Are the billions spent on private health insurance subsidies actually buying Australians better health?
Subsidising private health insurance (PHI) costs the Australian taxpayer over $12 billion a year, but the value of this investment is rarely scrutinised.
Older Australians benefit the most from the rebate.
As things stand, Australians aged 65 and over are eligible for an extra, age-based subsidy. It’s worth about 4% extra for people aged 65-69 and 8% extra for those aged 70 and over.
However, earlier this year the government announced it would remove the additional subsidies. If passed, rebates will be based solely on income, not age.
This is a modest, equitable change
The PHI rebate is already means-tested. People who take out PHI get a discount based on their income.
Why then, should two households on the same income receive different taxpayer subsidies simply because people in one are older?
Older Australians already benefit from community rating, which prevents health funds charging higher premiums because someone is older or sicker. Younger Australians, who use less healthcare on average, already cross-subsidise older members through their premiums.
The impact of the proposed change is expected to be small. Independent modelling estimates that the number of older Australians to drop their cover will range from 14,800 to 42,500. Even if all future healthcare for the people affected shifted to the public system (which is highly unlikely), the additional activity would amount to less than 1% of projected public hospital admissions.
The savings – expected to be around $3 billion – will be invested in aged care, where shortages routinely keep people in hospital after they’re medically ready to leave. Funding more residential places and home care can therefore free public hospital beds directly.
But to truly understand why the rebate is poorly targeted and why reducing it makes sense, we need to challenge four key assumptions that successive governments have used to underpin policy in this area.
1. Australia, the ‘world’s best health system’
Health ministers – past and present – like to say this.
Our system does some things very well (survival rates following stroke or heart attack are among the best). But keeping people healthy – kind of the whole point when you think about it – isn’t one of them.
Two recent studies show Australia performs poorly on the so-called sickspan – the amount of time people live with disease or disability.
2. Private health takes pressure off public hospitals
The received wisdom that private health insurance takes pressure off public hospitals implies that any reduction in PHI membership will increase pressure on the public system.
But there is little evidence for this.
PHI does not cover emergency department attendance, which means it has virtually no impact on how many people present to a public hospital in an emergency.
Rather than emergencies, private hospitals perform a large share of elective care. But evidence suggests this only has a small effect on waiting times for elective procedures in public hospitals.
The reason is straightforward.
The main constraint on how many elective procedures can be performed is the number of clinicians available to perform them – not hospital ownership. Surgeons, anaesthetists and theatre nurses cannot be in two places at once.
Rather than increase total capacity, expanding private activity simply shifts scarce clinical labour from one part of the system to another.
3. The private sector is more efficient
Public and private hospitals treat very different patients.
Private patients are generally healthier and more affluent. Public hospital patients are, generally, not just sicker but also more likely to be afflicted with social problems related to housing, unemployment and challenging domestic circumstances. Treating these patients is more complicated and expensive.
Private activity is also largely planned, while public hospitals must constantly absorb emergency cases alongside scheduled procedures.
And, as mentioned above, they do this exceptionally well – nine out of 10 stroke and heart attack patients are treated in public hospitals. But emergencies will inevitably create delay and disruption.
Private hospitals also have lower thresholds for elective admission.
A significant amount of procedures in the private sector are either unnecessary or low-value, and would rarely be done in a public hospital. (The main reason is that private clinicians are paid per intervention – which rewards doing more.) This also affects the efficiency equation. Performing an unnecessary operation – even highly “efficiently” – is a waste of resources.
4. Private health offers people ‘choice’
For a choice to be meaningful, information is needed.
For example, elective care patients need to know what different options are likely to cost, and what outcomes they can expect. But that information is remarkably difficult to obtain.
Patients already struggle to figure out what a treatment is going to cost them, let alone have the capacity to compare different surgeons, the risk of complications, or the likelihood that an operation will improve pain and function.
Without that type of information, “choice” is practically meaningless.
Asking the right questions
Australia spends enormous sums treating illness after it develops, while primary care, prevention, dental care and community services remain patchy or unaffordable for many people.
The $12 billion spent subsidising PHI (about 13% of what we spend on public hospitals) is $12 billion dollars that can’t be spent on these initiatives.
Removing the age-based uplift is hardly radical. But at least it’s prompting a question that successive governments have ignored.
Are the billions spent on private health insurance subsidies actually buying Australians better health?
Luke Slawomirski is a Senior Postdoctoral Research Fellow at The Australia Institute. He is a health economist, policy analyst and former clinician.
This article was originally published on The Point. Read the original article.
Republished under Creative Commons — Attribution-NoDerivatives 4.0 International — CC BY-ND 4.0.