New report backs spending on PHI rebate

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One dollar spent by government on the private health insurance rebate is up to 15 per cent more efficient than a dollar directed at the public health system.

According to the study commissioned by Private Healthcare Australia and conducted by social policy research firm, Evaluate, government spending on the rebate is economically efficient, both in terms of direct economic costs and overall welfare gains.

Central to the report's finding is that private health insurance makes a lower call on the public purse because of user-funded premiums - the rebate essentially leverages a significant additional consumer contribution. In addition, it redirects patients away from the public system, reducing demand and overall waiting times, while ensuring people receive treatment earlier.

The rebate has undergone significant reform in recent years with means testing, changes in indexation and its removal from Lifetime Health Cover loading. The result has been an ongoing annual reduction in its value and emerging affordability issues for Australians with private health insurance.

In July, the Australian Competition and Consumer Commission released its annual report to the Senate regarding the private health insurance industry. The report confirmed affordability is a significant concern for consumers. Over 60 per cent of people who dropped their insurance blamed the cost of premiums.

The Evaluate study’s conclusions are largely based on an economic model. However, it says private health insurance provided 'potential welfare effects' not captured in its model, including choice as well as expanding the range of options available to consumers.

"...we expect that PHI yields benefits through the competitive effects of the private sector which it supports, and which acts as a discipline on the public sector," it says.

Private Healthcare Australia CEO, Dr Rachel David, said the report confirms the current mix of expenditure is getting the balance right between the public and private system.

“The PHI Rebate allows a greater proportion of the population to access private health care, which benefits the wider community by reducing waiting times in public hospitals. A healthy private sector is essential to the sustainability of Australia’s health system and the Private Health Insurance rebate is a key component of this,” said Dr David.

“The volume of incorrect information being circulated by people with a vested interest or a particular philosophical barrow to push against the PHI rebate needs to be challenged. This study confirms that further change to the current mix of expenditure would have a detrimental impact across the Australian health system.

“In the interests of maintaining affordability of PHI for low and middle income earners, no further reductions should be made to the rebate on PHI premiums for either hospital or ‘extras’. Doing so will not benefit public hospitals or Medicare," added Dr David.