Opinion & Commentary
No radical departure in our mixed health system
Fortunately, the Budget decision to means-test the private health insurance (PHI) rebate from next July appears to be driven by fiscal, political, and policy pragmatism rather than hackneyed health ideology – as is revealed by the accompanying decision to increase the tax penalty for high income earners without private cover.
The government needs the expenditure saved by gradually withdrawing the 30% rebate for individuals and couples with incomes over $75,000 and $150,000 respectively to partly fund the pension rise. It also, probably, needed to throw its political allies in the public health sector a political bone.
In these quarters, the PHI rebate was the Howard government’s most hated health measure. The budget decision to means-test the rebate hasn’t satisfied its critics, who have been quick to suggest the Rudd government hasn’t acted as ‘true’ Labor government should. They have attributed the failure to entirely abolish what they consider an egresses example of so-called ‘middle class welfare’ to cynicism and the government’s desire not to offend ‘aspirational’ swinging voters.
This shows how out-of-touch the critics are with the realities of the public hospital system which have led the Commonwealth to subsidise the private health industry.
The rebate – which costs over $3 billion a year – has long been wrongly blamed for purportedly starving public hospitals of much needed resources and for all the ills that beset dysfunctional State hospital systems around the country.
This is far from the truth. The last problem in public hospitals is lack of money. Over the previous decade, real expenditure on public hospitals, mainly funded by taxpayers, has grown by 64%.
The Labor state governments, especially in NSW, spent the windfall GST and housing boom revenues principally on boosting the wages of unionised public sector employees and creating sinecures in the health bureaucracies. They failed to either control costs or boost productivity in the public hospital sector.
As a result of the spending explosion, the share of Commonwealth funding for public hospitals, set under the previous Australian Health Care Agreement, declined over the five-year course of the ACHA.
The unofficial premise of the Howard government’s policy was that it served little purpose to poor larger amounts of money into the black of holes of public hospitals, when the government would not get the bang – a commensurate increase in hospital services delivered – for its bucks. This approach was justified considering the big spending track record of Blair/Brown New Labour in the United Kingdom, which has transformed the low cost, poor performing NHS into a high cost and still underperforming system.
The Howard private health strategy had three-prongs: the PHI rebate, the Medicare levy surcharge, and the introduction of Lifetime Cover arrangements which, in particular, restored the health funds ‘community rating’ by coercing the young and healthy to join earlier than they otherwise would have and cross subsidise the elderly. The dual goals were to enhance the sustainability of the health funds and to shift demand for hospital care, principally for elective surgery, into the more productive private health and hospital sector.
It worked. Private health coverage has recovered to over 44% of the population, and the majority of elective surgery (60%) is now performed in private hospitals.
This has taken pressure off public hospitals and reduced waiting lists, though this is hard to credit because of the ongoing crisis caused by rising demand for care from an ageing population and the inadequate supply of acute beds in public hospitals.
The Rudd government has already massively boosted public hospital funding by $4.5 billion a year under the new AHCA. Combined with the changes to the rebate, it will be much harder for all the ills of the public system to be blamed on the wicked private health sector.
It will also be easier to defend the rebate when it can’t be characterised as ‘welfare for millionaires’, and when it is targeted at making health fund membership more affordable for the taxpayers of low and middle income Australia and partly subsidising the choice of those who go private and pay twice via taxes and premiums for health and hospital care.
The most important point is that the changes announced in the budget do not seem calculated to undermine the private health sector, nor engineer a major shift in demand from private hospitals back to already struggling public hospitals. It would make no sense for the government to do this when it has given the states a truckload of money to inefficiently expand public hospital services.
This is why the budget has withdrawn the subsidy but has raised the Medicare levy income tax surcharge imposed on higher incomes earners who do not take out private insurance. For this reason, together with the likelihood that higher income earners will keep paying their premiums anyway, the Treasury is betting the changes will have a negligible impact on the level of coverage, particularly when people will also be compensated by tax cuts taking effect this July.
Sure, the government looks like its slugging the rich, and it is withdrawing the carrot but it is also strengthening the stick. It wants to contain the damage to the deficit and keep its most important political promise to the aged.
But contrary to all the pre-budget huff and puff, in health the government has hardly touched ‘middle-class welfare’, and has not at all mounted an attack on the principle of choice. It therefore is not a radical departure from the Howard government’s policy of supporting a strong private health sector as a key pillar of Australia’s ‘mixed’ health system.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies.
