Academic journal article Australian Health Review

Why It Is Time to Review the Role of Private Health Insurance in Australia

Academic journal article Australian Health Review

Why It Is Time to Review the Role of Private Health Insurance in Australia

Article excerpt

Abstract

The role of private health insurance (PHI) within the Australian health-care system is urgently in need of comprehensive review. Two decades of universal health cover under Medicare have meant a change in the function of PHI, which is not reflected in policies to support PHI nor in the public debate around PHI. There is increasing evidence that the series of policy adjustments introduced to support PHI have served to undermine rather than promote the efficiency and equity of Australia's health care system. While support for PHI has been justified to 'take pressure off the public hospital system' and to 'facilitate choice of insurer and private provider', and the incentives have indeed increased PHI membership, this increase comes at a high cost relative to benefits achieved. The redirection of hospital admissions from the public to private hospitals is small, with a value considerably less than 25% of the cost of the policies. The Commonwealth share of the health care budget has increased and the relative contribution from private health insurance is lower in 2001-02, despite an increase in PHI membership to nearly 45% of the population, compared with the 30% coverage in 1998. The policies have largely directed subsidies to those on higher incomes who are more likely to take out PHI, and to private insurance companies, private hospitals and medical specialists. Ad hoc policy adjustments need to be replaced by a coherent policy towards PHI, one that recognises the fundamental change in its role and significance in the context of universal health coverage.

Background

The private health insurance system in Australia is unusual and possibly unique. It is neither a self-contained system, as in much of the US where managed care organisations have responsibility for all 'core' health care services for members. Nor is it purely supplemental like the Canadian system where private health insurance is confined to 'non-core' health care services, those not covered by the universal health scheme. Rather, in Australia, private insurance is both supplemental to and a substitute for universal cover - with individuals able to opt in and out of the publicly funded system, whenever they choose. Also unique is the level of government support for private health insurance, alongside publicly funded universal health cover.

The role of PHI has not been comprehensively reassessed since the introduction of universal health cover gave Australians free access to public hospitals and free or subsidised access to medical and pharmaceutical services. Universal cover was available temporarily under Medibank (1975), and reintroduced in 1984 under Medicare, resulting ultimately in bipartisan support for universal health cover, in recognition of widespread community support. The role of private health insurance is undoubtedly different in the context of universal health cover compared with the situation in which free access to a hospital bed is restricted to eligible low-income individuals, as was the case prior to 1984 (except briefly under Medibank). Prior to 1984, in the absence of universal cover, a range of policies were introduced to improve affordability of PHI and private hospitals. These have included subsidies on private hospital bed-days, community rating of private health insurance, government subsidy to a reinsurance pool for high-risk claims (and the elderly) and a 32% tax rebate on public hospital ('basic') cover.

In recent years new policies have been introduced to support PHI, in response to falling PHI membership, despite this fall being a logical consequence of universal cover. These policies can be judged in terms of their capacity to achieve their purported objectives and for their impact on the efficiency and equity of the Australian Health care system. This paper presents an analysis of the evidence which suggests that the recent policies have served to undermine rather than promote the efficiency and equity of Australia's health care system. …

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