Real problem with private health insurance

The trouble with private health insurance is that it’s not particularly private and doesn’t entail much insurance.

The private health insurance rebate is a health hazard. Picture: Thinkstock

The problem with private health insurance is that it’s not particularly private and doesn’t entail much insurance.

It was good of Bill Shorten to allude to problems in health policy this week. However unfair he thinks the outcomes are, they can’t be sheeted home to anything vaguely resembling a genuine private health insurance market.

The government shovels about $6.5 billion a year at the sector via premium rebates, which make the sort of subsidies the old car industry used to get look miserly.

Then, Soviet-style, the federal health minister must approve premium increases, which can only occur at scheduled times each year. On top of that, the conditions on what insurers can insure and how they do it makes a ­mockery of free market decision-making. Policies are arbitrarily classified as “extras” or “hospital”.

“No frills” policies have developed simply so policy holders can avoid paying another policy: the Medicare Levy Surcharge.

Then there’s the “insurance” part. I wear glasses, which I know I’m going to have to replace. I also run, so I’ll need visits to the physio. Hardly insurable events.

Yet, when I get sick through no choice of my own — the costs of which I would like to insure against — I can’t claim any GP or specialist fees on insurance, if they occur outside hospital. My choice is to queue for hours at a bulk-billing doctor, or pay a high fee to see one who doesn’t — and whose fee I can’t claim on any policy.

This isn’t the insurers’ fault. They aren’t allowed to insure anything that happens outside a ­hospital. There’s no rational reason for this, beyond a 1970s dislike of private health insurers. This has been a poison pill for efficiency, vastly curbing the appeal of ­private health insurance policies.

An ageing population with high expectations will push healthcare costs up even more, for government, insurers and individuals alike, so ensuring the incentives are right is crucial. They woefully aren’t. The health system is structured to maximise providers’ incomes, mainly doctors, prostheses manufactures and the private hospitals groups like ­Ramsey that have mastered the art of milking the system.

Health insurance premiums have risen by a cumulative 40 percentage points since 2010, while private health insurers’ profit margins have barely moved. Labor’s attempt to impugn the insurers is avoiding the real problem.

Blaming insurers is just shooting the messenger. They ratchet up premiums to maintain the multi-billion-dollar growth torrent of income to doctors, private hospital providers and device-manufacturers, which regulation helps avoid the sort of competition that is normal in other sectors.

It’s not through globally unique levels of effort or innovation that the top 10 highest paid professions are almost always, year after year, specialists. There is extraordinarily little price transparency and competition among doctors or private hospitals. For example, the prohibition on ­insurance of services outside hospitals has introduced a gross inefficiency whereby doctors and hospitals want as many services as possible to occur within hospitals, because then the health insurers rather than the patients must cough up. Even though much ­rehabilitation, mental health treatments and many routine ­operations would much more ­effectively occur outside hospital, they don’t. We even see woodwork classes and horseriding trips take place from private hospitals because the insurers are paying.

We have too many hospitals. They were meant to quarantine sick people’s diseases from the public, not be $1000-a-day temporary nursing homes. The ­insurer has no choice but to pay, and naturally passes on the cost of dubiously beneficial services or costly services to policy holders.

How to fix all this? Labor doesn’t appear to have any solutions yet. The government has curbed the burden of the prostheses list a little, but has little appetite for taking on the doctors and private hospitals.

The carrot should go and the stick should stay. The private health insurance rebate should be phased out. All the money should be used to cut marginal income tax rates lower down the scale. If doctors are going to receive a cent of public money they should be forced to price clearly and upfront.

At the same time, governments must give insurers much greater scope to offer the products and services they think people will want, including insuring whatever medical services and goods they think appropriate.

Federal governments must allow state governments to charge modest fees as they once did to stop patients abusing emergency rooms for free GP services.

At the same time, doctors and the medical services industry must learn they can’t earn as much as they used to. The economy can’t afford it. Taxes, and that includes premiums charged by insurers which in effect are taxes given the Levy, are already too high. Perhaps society simply can’t afford to pay anaesthetists $1 million a year when $500,000 would be ample to entice enough people into the job.