Private Healthcare Australia chief executive Dr Rachel David deconstructs claims regarding the private health insurance rebate.
Perhaps one of the silliest myths ever run up the flagpole about private health, is that the private health insurance (PHI) industry is subsidised to the tune of a massive $12 billion per annum by the government.
This absurd claim was first aired by a small cabal of retired Canberra bureaucrats and academics pontificating about the health system from the safety of their armchairs and they repeat it at every opportunity. Truly the ‘Jurassic World’ of policy-making.
Here is how they propose this works:
- First, they take the private health insurance rebate, which is paid on premiums. They claim this is $6.6 billion;
- They then claim the rebate should attract income tax so they count this as $1.6 billion in lost revenue;
- Next, they suggest everyone on high incomes (who already have private health insurance) should be paying the Medicare Levy Surcharge (MLS), so they count this as $1 billion in lost revenue; and finally,
- They count what they claim is the cost of ‘unnecessary treatments’ in the private sector as a ‘subsidy’ of $2 billion.
All this apparently adds up to around $12 billion per annum once premium growth and inflation is factored in.
But wait....not only is this argument intellectually dishonest from an economic perspective, this is simply not how the government or the tax system works.
Let me break it down for you.
There is a rebate paid by the Federal Government to low and middle-income earners with private health insurance. Originally 30 per cent of the premium, it has been frozen for some years now and so represents just over 25 per cent of the premium at a total spend of $6 billion per annum.
This is the extent of the government subsidy for health insurance.
The rebate is paid as an incentive to help low and middle-income earners access essential non-emergency surgery, mental health care and allied health in the community. It is not additional income for tax purposes, which would be a case of double-counting.
This equates to the government giving with one hand and taking away with another, which is contrary to the principles of our tax system. So too, health payments are exempt from GST across the board. When a household’s income begins to exceed the higher tax thresholds, the rebate tapers off.
The MLS is a specific penalty, which encourages people on higher incomes to take out private health insurance. To suggest everyone should pay it regardless of whether they have PHI is as silly as saying we could fund roads by getting everyone to pay speeding fines. If there is a hidden agenda behind this claim to massively increase income tax – just say so!
The claim low-value care (‘unnecessary treatments’) predominantly occurs in the private sector and therefore constitutes a subsidy is bizarre, and not borne out by any objective analysis of the facts. It is prejudice - pure and simple. It is also difficult to understand, as it is unclear how the $2 billion in unnecessary care is calculated, and what its sources are.
‘Low-value care’ is a clearly defined phenomenon where the benefits of medical interventions are outweighed by the costs. It is measured locally and internationally for particular treatments by academic groups like the Choosing Wisely initiative. Low-value care occurs throughout the health system, regardless of the setting or the funder and the onus is on policy-makers and providers to understand the evidence and weed it out, not engage in ineffective finger-pointing.
At no point is any economic benefit from either the healthcare gains in the private sector, or the gains from reducing pressure on the public sector acknowledged or discussed. Private health provides close to two-thirds of all the non-emergency surgery and the majority of inpatient mental health care in Australia. This increases the economic benefit for those who can’t afford PHI and must rely on the public sector.
From an economic perspective the $6 billion private health insurance rebate is an efficient way of funding access to hospital care, compared with simply providing the money to state governments.
Successive governments have supported private health and the rebate, because the economics stack up, and there is overwhelming public support for Australia’s mixed private and public health system. People inside and outside the sector have no desire for Australia to hurtle towards a ‘US-style’ system which is costly, fragmented and inequitable.
Furthermore, there is no appetite for an ‘NHS-style’ health system with poor consumer choice, long wait times, a demoralised health workforce and well-documented quality and safety issues.
Many people with PHI are retired and place a high value on PHI due to age or disability. They are already making sacrifices to afford the premium, despite the rebate. The specific age-related aspects of the rebate make this affordable for them. Kicking these people to the waiting list or impoverishing them by radically increasing their contributions is just cruel.
The Australian health system is one of the best in the world in terms of clinical outcomes, and to date, the Medicare system has been a fantastic asset and a trusted brand. It does, however, need a pragmatic policy approach to keep it up-to-date and sustainable.
We are not living in the 1970s any more. People have stopped smoking, are starting their families later, are living until their nineties or even longer, and cancer is becoming a mostly chronic disease. In the 1970s there were 10 working people supporting every one dependent on the health and welfare system. Today there are five, and by 2040 there will be three. It is clearly time to move on from the futile and simplistic theoretical ideologies that characterised the health policy debate in a bygone era.
As the baby-boom population enters the age of peak health interventions, with high expectations of the frequency, affordability and sophistication of services, now is not the time to be pouring scorn on private health in the absence of sound logic.