On the private health insurance rebate means test…

Personally, I think it’s a good idea. And not just because I’m a slavish fan of every utterance of the Labour government. Which of course I am. Except when it’s trendy and hipster not to be, of course. Because that’s how I roll.

More to the point, I actually think private health insurance in Australia is a screwed up business model that survives only with government support in the form of the aforementioned rebate and the regulation that allows insurers to charge discriminatory prices based on pre-existing conditions (those conditions being age and lack of continuous coverage). This support is wrong, and needs to be removed.

When the Howard government introduced the health care “reforms” in the 1990s, the stated promise was that private health insurance would – as long as it had sufficient membership – reduce health care costs and promote greater efficiencies. In particular, the reforms were going to encourage the health care funds to grow to a critical mass so that they could achieve economies of scale. This would reduce overheads and allow premium prices to drop. To ensure that, the government was going to regulate price increases – they’d only be allowed if they were shown to be needed.

It’s funny, though – every year since then, health insurance premiums have increased, usually by more than CPI. No fund has shown any breakaway improvements in administration costs. There has been relatively little consolidation in the market place, and private health care has not taken on a large share of the health care market. Instead, what we have seen is the public system continuing to take on more and more of the burden, despite a huge uptake in private health membership. This problem was identified back in 2003 – we’ve known for over 8 years that subsidising private health insurance has been a failing experiment.

The majority of health care costs are borne by the elderly. 5 out of 6 patients in hospital care are over 65. But the elderly aren’t as likely to have health care – people living on fixed income arrangements can’t afford it, by and large. In case you haven’t noticed, Australia – like most of the Western world – has an ageing population. So the number of old people are growing, and so are their medical expenses. This is why the public health system is struggling.

Private health care in Australia, by contrast, is a joke. I have private health insurance – just under the best possible to get. And I find it useless. My son broke his arm a few years back. He is autistic and non-verbal, so we went for a private hospital for the two nights he had to stay in (they needed to operate it and set it) so that he could have a private room and one of us could stay with him. The private hospital costs were reasonable – all we paid was the excess. We got to pick the surgeon – and we picked one who charged a small gap so it wasn’t a very large costs. But the only anaesthetists available – at a hospital recommended by our health care fund! – charged thousands of dollars over the rebate, and we were not informed that would be the case until after the operation. Had we known, we would have opted for a private room at a public hospital.

A similar situation occurred with my wife (though at least this time we went into it knowing that there would be extra costs). A broken knee 18 months ago costs us – _after_ insurance – almost $10,000. Plus she needs another operation to put an implant in which we have been told isn’t covered by our medical insurance (apparently prosthetic implants are only covered on the very best level of coverage, where they are described as “geriatric care”). So if we want them, it’s twelve months waiting to qualify on the coverage – which will let us pay through the nose for care again. Elective surgery through the public system would be free, and with a similar wait – though the post-op rehab wouldn’t be as good.

Nearly every single time I have to use my health insurance, I find the same thing – massive costs which are unexpected and which make having the insurance pointless. The only area where I feel I get value for money is with optical care – and that’s because of discounts offered by optical stores, not rebates. (I just bought new glasses last week – the insurance policy covered about 40% of the cost, while the store discount for members of my health fund was 20% on top! And it wasn’t the frames – the frames were covered 100% by insurance).

This is why private health insurance in Australia is a failure – it provides an expensive level of coverage, and when it’s needed you still end up thousands of dollars out of pocket. It provides little to no financial security. My car insurance gives me financial security: I know that if my car gets written off or stolen, I will get compensation enough to get a new one. My home and contents gives me financial security. My health insurance gives me no financial security – in fact, I can contribute many of my financial problems over the last twenty years to using private health care.

You may wonder why I still have private health insurance – and the answer is simple: my wife and kids. But I’d rather have a solid public health system than have private health care.

In 2003, the government subsidies had a direct cost to the budget bottom line of $3.6 _billion_ dollars. That was over 8 years ago – it’s grown since. That is  billions of dollars every year taken out of the public health system, and given mainly to the upper quartile of income earners (which includes me, BTW). This contributes to growing economic inequality and isn’t needed – the system enables a relatively small slice of Australian society who couldn’t afford private health insurance otherwise to obtain it. Neither the carrot of the rebate or the stick of rising premiums if you decide to join later in life (when you are more likely to need it!) have resulted in private health funds becoming efficient or providing solid value.

The entire system represents a subsidy to high income earners and wealth transfer to the medical system. It does not result in reduced health care costs to society, or better care in general, which should be the goals.

The private health care rebates, and the government support to private health insurance in general, is a failure. Take it away, and let it die – the only downside is that the removal of easy money might actually make private health funds have to become efficient to survive.

 

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Author: Robert Watkins

My name is Robert Watkins. I am a software developer and have been for over 18 years now. I currently work for people, but my opinions here are in no way endorsed by them (which is cool; their opinions aren’t endorsed by me either). My main professional interests are in Java development, using Agile methods, with a historical focus on building web based applications. I’m also a Mac-fan and love my iPhone, which I’m currently learning how to code for. I live and work in Brisbane, Australia, but I grew up in the Northern Territory, and still find Brisbane too cold (after 16 years here). I’m married, with two children and one cat. My politics are socialist in tendency, my religious affiliation is atheist (aka “none of the above”), my attitude is condescending and my moral standing is lying down.

2 thoughts on “On the private health insurance rebate means test…”

  1. You have captured the inequalities in the Health System but like me you feel the need to have a backup. I sometimes wonder if these medical specialist are over charging because we have a private fund. Technology is great but the great costs come with it. I don’t know the answer as I think we can’t win. We pay a high premium for our families – hoping it gives us health security but the member is nearly always out of pocket after the exorbitant fees charged by the medical profession. I hope those on $160,000 will not lose their whole rebate and we need this to be explained. Those on $250,000 and over I believe do not need a government rebate.

    1. The stated policy is that the means test will cut in at $160,000 (for families – $80,000 for individuals), with the benefit being phased out entirely at $250,000 (or $125,000 for individuals). This implies that the benefit is reduced as income goes up, which would be normal for most means-tested benefits. As a rule, Australian government subsidies try (but don’t always succeed) to avoid hard cutoffs.

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