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The elephant in the hospital

By Richard Di Natale - posted Wednesday, 22 August 2007

Health care in Australia is in bad shape. We have an ailing acute health care sector, declining rates of bulk billing and a growing rural doctor shortage. The Australian Health Care Reform Alliance, a collaboration of 43 member organisations recently declared that “up to 40 per cent of people do not get the care they need; many people get care that is not needed or is harmful; 10 per cent of people admitted to hospital suffer harm directly related to their health care; up to 40 per cent of people are at risk of adverse events and almost 200 people are dying every week as a direct result of the health care they receive.”

The statistics are alarming so it is surprising that health care has not been more prominent on the national agenda. Then along comes a federal election and health is back in the spotlight, but not in a way that addresses the key issues.

The Howard Government’s announcement that the Commonwealth will take over the Mersey Hospital in Tasmania is pork barrelling at its worst. Rather than knee-jerk responses with a political motive, what is needed is a comprehensive plan to allocate public health money in the most efficient way. And the area demonstrating some of the worst inefficiencies is the private health insurance sector.


Huge changes to private health insurance were made in 1997. The Government was concerned that the proportion of the Australian population purchasing private health insurance had declined so it introduced a range of reforms. These included a $3 billion government-funded rebate for people taking out private health insurance, an exemption from the Medicare surcharge levy for high income earners taking out private health insurance and the so-called Lifetime Health Cover, which penalises people for each year they fail to take out insurance.

The changes initially saw a jump in the uptake of private health insurance. The number of Australians taking out private health insurance rose from 33 per cent to 46 per cent over the first few years and the Government was quick to claim success.

However this figure tells only one small part of the story. It was the stick, and not the carrot, that proved to be the motivator. Significantly for a Government that prides itself on its economic record, research demonstrates that Lifetime Health Cover, rather than the rebate, was responsible for the initial rise in membership. The rebate is effectively a large but completely unnecessary $3 billion bonus for people who have already decided to purchase private health insurance.

Despite the increase in uptake there has been no corresponding decrease in public hospital use. This makes sense when one considers that the young and healthy, who are infrequent users of health services, were responsible for the initial uptake.

The reforms have had a number of important equity implications and the effects on the public health system have been profound. Private health insurance is strongly associated with income and almost half of the taxpayer-funded rebate for private health insurance goes to the top 20 per cent of income earners; nearly three-quarters goes to the top 40 per cent. The $3 billion government-funded rebate, a huge subsidy by any standard, has resulted in a massive redistribution of public funding away from the public hospital system to high income earners.

Then there is the regional impact. People living outside capital cities have significantly lower levels of private health insurance than those living in capital cities. The lower levels of membership are largely due to the limited availability of private hospital services in country areas, making it less attractive. As a result $100 million is also being diverted away from the regional health system, further exacerbating regional health disadvantage and once again dudding regional Australians.


When medical, pharmaceutical and depreciation expenses are included, public hospitals provide better value for money. Once again politicians are using taxpayer dollars to bet on the wrong horse.

Decisions involving health care are more serious than most because people’s lives are literally at stake. In the debate over the funding of health care, the private health insurance rebate continues to be the elephant in the room. The rebate strips away more than $3 billion from our public health care system; it is inequitable, inefficient and has not taken pressure off the public hospital system. It must be abolished.

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About the Author

Dr Richard Di Natale (MBBS, MPH, MHSc, FAFPHM, FACRRM) is a public health specialist and health spokesman for the Australian Greens.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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