AUSTRALIA’s private health insurance industry is reported to fear it is in a death spiral. Premiums are rising much faster than wages or inflation. People are dropping their cover, especially the young and the healthy. Those who are left are more likely to get sick and go to hospital, driving insurance costs up further.
Australia’s health system is the long-suffering victim of an ideological battle between free marketeers and supporters of essential services being tightly regulated by government.
From this tug of war, perhaps the greatest resulting weakness in Australia’s health system is that the funds going into the health system (Medicare levy, tax, rebates, premiums) are tightly regulated, while the funds going out are a free-for-all where specialists, private hospitals set their own fees, charges and prices.
Australia has two health insurance systems. One system is the public health fund Medicare and the other system is administered by private health funds.
Medicare is funded through general tax revenue and cost the public purse $23 billion in 2017-2018.
Private health funds generate $25 billion in revenue made up from about $16 billion of actual premiums paid by customers, $6 billion from Australian Government health insurance rebate subsidies. Add to that $3 billion of Government subsidies on private medical services for inpatients.
Private health funds, whether for-profit or not-for-profit, don’t pay out all they collect from premiums, keeping about 5 per cent or $1.25 billion, which is their (reasonable) operating margin.
Out-of-pocket expenses paid by public and private patients alike is estimated at $12 billion. It is not known how much of this $12 billion is from private patients and how much from public patients.
The private health insurance industry, so often the bogey man in the public debate about rising healthcare costs, is not the real culprit and not the real victim here.
Obviously, the victims are the people needing healthcare beyond a GP visit or a simple procedure.
The culprit is your friendly specialist, who charges a bomb and the hospitals in which they work.
They are the system-enabled profiteers driving Australia’s health system into the ground. What doesn’t help either is the freezes that have been applied to Medicare rebates over the years, which have caused out-of-pocket expenses to soar.
One obvious and simple step to restore Australia’s health system to a semblance of sanity would be to regulate private medical charges and prices and practice regular indexation of Medicare rebates to ensure their adequacy.