Access - choice and value for money
At present private insurance in Australia is a misnomer because it does not offer comprehensive coverage. According to the National Health Act of 1953 private insurance can only pay for services not covered by Medicare. As a result the relation between Medicare and private insurance has always been complementary rather than competitive.
Sure, the private insurance industry by serving private hospitals fosters some competition with public hospitals. It is most revealing, however, that still many hundred thousand patients with private insurance attend public hospitals for free each year - not revealing their private insurance. The reimbursement of hospital services is very complex with Medicare paying on average 50 per cent for the surgeon and anesthetist and insurance paying for overheads.
Private insurance covers only about half of the cost of chemotherapy, joint replacement or other high-tech health care. This is reflected in the incongruence between the fact that half of Australians have private insurance but contribute just 11 per cent to all health care expenditure. As a result most patients use private insurance to jump the cue for elective surgery and for choice of their preferred doctor.
It does not come as a surprise that Australian private insurance tends to be cheap by international comparison ($300 - $3,000 per year). On top of that it is also subsidised by the government with the 30 per cent tax rebate on individual purchase. Given that health funds have to insure everybody at the same rate there is no space for competition and no incentive for efficiency. This has only recently been slightly modified by Lifetime Community Rating meaning that people who take out health insurance before they get to 30 years pay 2 per cent lower premiums.
The 30 per cent tax subsidy and the Medicare “Safety net” need to be reviewed because both create perverse incentives to spend more money than necessary. After the first year of introduction the “Safety net” blew out from $440 million in 2004 to $1.65 billion in 2005. It tempts people to spend above the threshold and then pay only 20 cent in every dollar they spend on their health care. In the long run Medicare and also private insurance need to be rearranged in one system of competing health funds with comprehensive coverage for catastrophic illness. It helps that a quarter of the privately insured have household incomes of less that $33,000 and half have less than $70,000.
Among the 37 Australian health funds only six account for almost 80 per cent of all contributors, just three are for profit. However despite the large government subsidies there has been little regulation on costs and efficiency. Tapay concluded: “Private funds have not engaged in cost control. Insurers are not exposed to the risk of managing the entire continuum of care.” (Colombo, F. and N. Tapay, Private Health Insurance in Australia: A Case Study, Health Working Papers No. 8, OECD). The market for health insurers needs to be deregulated to give them more flexibility with coverage and pricing. Since at the moment all Australians have to put up with the same substandard public ambulatory care there should be a role for the private sector outside the hospital gate. In Australia HSA’s (health savings accounts) would be an elegant way to let private insurance enter primary care markets.
For decades medical progress has been shifting more and more procedures out of hospitals into dedicated same-day outlets. Russell Schneider (ACHR research paper 2006) has published a proposal for the federal legislators to address this problem and open primary and preventive care for private insurance. Health funds should offer innovative consumer-directed health plans with flexible excess rates or deductibles that give patients more choices. Attached to those would be health savings accounts which I will explain in a later chapter.
Costs - the future of health insurance
The Australian health care system, as those in almost all other developed countries, has eventually to be rearranged if it is to survive the two main challenges of the 21st century: the deluge from retiring baby boomers and the emerging global competition in health care, notwithstanding costly technological progress.
True, the baby boomers have huge assets and have a lot money to spend for medical progress. However, none of the technological advances will solve the problem. It has to be organisational and business innovation that will transform health care into a consumer-driven market place. Cost shifting and cream skimming have to be replaced by wealth creation because improving our health care translates into customer value.
Health is highly valued by all humans. This value is not merely subjective it is also measurable in terms of workforce participation, workplace absenteeism and economic productivity.
According to Paul Kelly, editor of The Australian, it takes excellence in only three parameters to increase the “hard power” of this country. These are economic growth, population growth and technological innovation. Health care affects all three and has already become the industry with the biggest work force (600,000). It is also an export industry of growing importance. Driving this is the “people’s economy”. As Chicago Nobel economist Gary Becker says:
… 75 per cent of our wealth is not land, buildings, equipment and the rest but the “human capital” skills, health, and experience of our people. The best way to improve all that, though, is to get government out of the picture.
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
8 posts so far.