DOCTORS REFORM SOCIETY

DRS Submission
Senate Committee into Surcharge Amendment
August 2008

I would like to quickly address 4 questions about which you seek answers and about which you will not receive any definite answers. Then I would like to talk about the effect of the changes on patients attending public hospitals. That is the serious issue.

Firstly, determining how many people will leave PHI, who will leave, what effect this will have on premiums, and what effect any possible rise in PHI premiums will have, are questions without answers. This is reflected in the range of responses received and publicised, all of which depend on modelling which depends on assumptions. We don’t know, and we shall have to wait to see the effects.

It is worth noting a few things however.
Firstly, those who do drop out may well be predominantly people who currently don’t use the private system and are only in PHI because of the tax costs. But we simply don’t know and cannot predict accurately how many who do use private hospitals will drop out, we will have to see what happens. If anyone drops out and it’s inevitable that some will, then that will indeed be a financial loss to the PHI industry. Being as inefficient as they are with 10cents in the dollar spent on administration costs, they will demand higher premiums. How great an impact this will have on their costs is unknown.

If premiums rise, will more people drop out? We don’t know. We do have some indication however, of how insensitive to premiums the uptake of PHI is. PHI uptake does not appear to be price sensitive. Coverage continued to decrease after the Medicare Levy surcharge was introduced in 1997 despite the substantial cost to individuals who continued without PHI. After the 30% rebate was introduced in 1999, coverage continued to fall. It rose dramatically following changes to Lifetime Health Cover and an advertising campaign which emphasised ‘security’. This campaign direction fitted with research showing that the largest single reason for PHI coverage was Security, protection, peace of mind  at 47%, and price as a reason hardly rated.

That’s uptake. What makes people drop their insurance? How sensitive is that to price? Despite premiums rising several percentage points above inflation every year for 7 years, percentage cover has been between 42.8 and 45.7 since 2000, currently at 44.6%.

Whilst ‘choice’ has been one of the mantras put forward in support of taxpayer funded subsidization of PHI, the choice for many has been a Clayton’s choice. Thus, on a Prime Ministerial salary of over $300,000, avoiding a 1% surcharge is worth $3000, and a 30% rebate on top cover of $4000 is $1200 which means a tax rebate of $200. No one smart enough to earn that much would see any choice between a tax rebate of $200 or paying $3000. Even on just $150,000, the surcharge would be $1500, whilst taking out PHI would only cost $1300, thus putting the punter $200 ahead with PHI. Even the OECD has expressed its amazement at this scheme.

The big issue however, is what will happen to patients dependent on public hospitals. When the various measures to support PHI were introduced in 1997-2000, other policies were already working to help uptake of PHI. For years patients have been faced with delays getting access to public hospitals for elective surgery and one of the claims of the Government in introducing such extensive support for PHI was ‘to reduce the load on public hospitals’ This was never intended to happen and it hasn’t. There are at least 4 reasons for this. Firstly, the Federal Government failed to fund public hospitals adequately through the Aust Health Care Agreements. Secondly, the Federal Government failed to adequately address Aged Care so that up to 10% of public hospital beds were taken by patients waiting for placements in Aged Care beds. Thirdly, the Federal Government failed to fund and resource primary care adequately and we now have 9% of patients in hospitals who, with adequate care in the community, would not need admission. Fourthly, the huge expansion of the private hospital industry requires doctors. The only place from which such specialists can come is from the public hospitals. They can’t be in 2 places at once. So doing more in private cannot happen without having less time for the public.

Let me expand on the first point re funding under the AHCA, as I noted from the records that one of the committee was under the impression that States had underfunded public hospitals. AIHW figures show that since 2003 States and Territories have increased public hospital funding by $2.3 billion whilst the Federal G has only increased by $1.1 billion, leaving the States contributing 50.9% of public hospital funding cf 41.5% from the Federal G. Thus, the previously even split of contributions from Federal and State Gs has fallen by the wayside to the tune of a $2.2 billion shortfall. This includes private patients in public hospitals contributions as raised by Terry Barnes, your previous guest.

With that detail out of the way, what can be done to address any increase in the number of patients wanting treatment at public hospitals? Essentially, all of the 4 issues which have lead to a decline in capacity in public hospitals must be addressed.

The current Fed G has not committed to making up the $2.2 billion shortfall although it has moved towards it, committing to $1 billion direct extra funding, and $150 million for its elective surgery blitz. It has addressed primary health care but that’s a long term project and even if perfectly done it will only help public hospitals some years after implementation. Both the previous and the current Fed G have expanded Aged Care but not enough, and so called ‘access block’ continues to be a problem. It might help to focus Federal G efforts if patients awaiting Aged Care placements became the financial responsibility of the Fed G if they are still in a public hospital 2 weeks after applying for such a place.

Importantly however, there has been no willingness to address the issue of PHI support dragging crucial medical staff from the under-resourced, low morale public system to the convenient and comfortable taxpayer funded private system.   To do that immediately would break an election promise of maintaining the rebate as is. However, in the interests of both economic efficiency and equity, taxpayer support for PHI must be abolished. We are not naïve enough to suggest that PHI support should be abolished overnight, any more than in the 1980s and 90s anyone suggested tariffs on manufacturing goods should be abolished overnight, but in the interests of sound evidence based, economically rational public policy which is also equitable and socially inclusive rather than exclusive, we believe that taxpayer support for the inefficient private health insurance industry and the potentially dangerous and very expensive private hospital industry does need to be transferred to the public hospital system.