Can private health insurance escape the jaws of death?
Published by The Australian, 11 July 2019
Not a week goes by without yet another report about the woes of the private health insurance industry. This week’s was that a large insurer illegally rejected thousands of claims from its members. Last week’s was that the industry is facing the “jaws of death”, as consumers drop out of insurance or reduce their level of cover.
The causes of these crises are clear. Australia’s policy on private health insurance is a muddle, with policy layered upon policy in the naive view that more red tape will somehow fix the underlying issues. No political party has confronted the fundamental question: how does private health insurance fit with public health insurance (Medicare)?
After 35 years of unhappy coexistence, the private care industry is now like an Escher diagram — parts that look like they should fit together in fact don’t because it is an illusion. If the private health insurance industry puts too much pressure on doctors or private hospitals to keep prices down, we are warned to beware US-style managed care — and another page is added to the legislation. If prosthesis manufacturers charge too much, yet another page is added, with supporting regulations — and a committee is created that produces a spreadsheet listing prices for more than 10,000 separate prostheses. Soviet-era planners would swoon in admiration. And like their Soviet-era counterparts, the prosthesis prices don’t take quality — such as whether a particular hip prosthesis is more likely to need replacing — into account.
Both Coalition and Labor governments must accept responsibility for this policy mess. Ministers have waffled on with confusing rhetoric about the place of private health insurance and private healthcare, while creating a policy dog’s breakfast. At times, mostly in the days of Labor ministers, Medicare has been hailed as a universal scheme for all Australians. At other times we are told Medicare is merely a safety net that rich people should not access — hence the Medicare levy surcharge.
Policymakers also flip-flop about how private and public care fit together. Is private care something different — offering people choice of doctor and better amenities? Or is it the same as public care, but useful because it reduces the demands on the public system? Perhaps it is a confusion of both.
Muddled thinking leads to muddled policies. And yet, despite unclear objectives, we spend more than $9 billion a year of taxpayers’ money every year on subsidies to private health insurance and private medical care.
If private care is something different, and therefore a complement to Medicare, then the argument for subsidising it and private health insurance is quite weak. If private care is a substitute for public care, and so reduces demands on Medicare, then a case can be made for subsidies. But that case needs to answer the critical question of whether subsidies promote economic efficiency and the best use of government resources.
Despite the massive taxpayer-funded subsidy, membership of private health insurance is falling, especially among the young and the healthy. Premiums are going up much faster than wages, and older and less well people are a larger proportion of the insured population, which in turn drives up costs. But private health insurers find it difficult to respond because their hands are tied with an overkill of red tape. Private specialists issue surprise bills to patients, often quite large ones, and so people who have had private insurance for years find themselves with huge and unexpected out-of-pocket costs. The small print in private health insurance policies does not help either, as patients discover their policy doesn’t cover their particular operation.
For decades we’ve tried tinkering with these challenges, layering policy upon policy. It is time our politicians work out a regulatory framework for a private healthcare market that encourages good management, efficiency and competition. Billions of taxpayers’ dollars are spent on the private healthcare industry each year. That money needs to be invested wisely, not thrown into an unmanaged pit in which consumers’ demands remain unmet and the private market remains inefficient.