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14 May 2019


In response to the Sustainable Health Review, the Western Australian Government recently announced a plan to increase spending on ‘prevention’ from the national average of 1.8 per cent up to 5 per cent of the overall health budget within a decade. This has been broadly welcomed, including by the AMA and the announcement has increased pressure on our Federal Government to follow suit.

However, the recent call by several bodies, including Public Health Australia to remove the means tested 30 per cent Private Health Insurance (PHI) rebate and redirect that funding to public hospitals and prevention ignore the complex interplay that underpins both the success and the challenges facing our health system.

Australia enjoys what is internationally recognised as close to the best health care in the world. In terms of outcomes, it is the best. Our overall life expectancy is fourth in the world, a remarkable feat considering our diverse population with high levels of migrants and our disadvantaged groups including indigenous Australians.

The interplay of our private and public systems is at the heart of this success. When looking at the hospital sector, we have a vibrant private sector that delivers high quality health care to those who can afford it, with minimal contribution from the taxpayer. The public sector, almost completely taxpayer funded is then able to focus on emergency care, highly complex care and care for those Australians who cannot afford PHI or choose not to pay for it.

The private sector delivers the majority of elective surgery and does so in an efficient and productive way. It offers patient choice regarding doctor, hospital and timing but the underlying value proposition is fragile as it competes with the public sector that provides care completely free.

The fact that the private sector has delivered profits to doctors, hospital and insurers whilst competing with a product that is free is testament to the efficiency of the sector and to the value that Australians put on that patient choice. However, the high levels of PHI in Australia are also due to specific policy decisions in the 1990s, a time when PHI levels were plummeting.

The three key decisions were the 30 per cent PHI rebate (initially not means tested), Lifetime Health Cover, which penalises those who take up PHI late and the Medicare Levy Surcharge. While the impact of each of these policies individually is arguable, together they rapidly turned around the trajectory of PHI in Australia.

Currently though, PHI is in trouble. Overall, PHI levels are falling, but importantly it is young people who are dropping their insurance and older Australians (those far more likely to claim) are actually increasing their coverage. This problem, if it continues, will threaten the viability of PHI and will cause rapid increases in PHI premiums at a time when wage growth remains very low.

Policy decisions like removing the 30 per cent rebate and capping premium rises risk causing catastrophic damage to the PHI industry and therefore to our private hospital sector. If older Australians are no longer able to afford PHI or if the insurers fail, those patients will be coming to the public hospital sector for their elective surgery and the cost of that care will far outweigh the savings from dropping the rebate. Not to mention the fact that there is simply no capacity in the public hospitals to take on this patient load.

Similarly, increased spending on health promotion and better public policy in areas like smoking, alcohol and obesity along with better management of chronic disease have the potential to significantly improve the health of Australians. However, to expect that will translate into decreased need for public hospital spending is naive and ignores the lessons of history. At best, savings will be many years into the future, but the aging of the population and advances in health care mean that the demand for spending on health will continually increase and threaten our ability to pay for it. We need to acknowledge that asking those Australians who can afford it to put their hand in their pocket to contribute to the cost of their health care actually improves equity in healthcare outcomes because the taxpayer can focus on looking after the disadvantaged.

We desperately need an informed discussion of the long-term financing of health care rather than politically motivated, knee-jerk or simplistic policies that ignore the realities of our system. The AMA, through its Health Financing and Economics committee, Councils and Federal Council is taking concrete steps to drive that discussion and ensure that Australians can continue to enjoy the best health outcomes in the world.

Published: 14 May 2019