Howard’s tax incentives won’t save the private health funds - but are they really meant to? One third of the Howard government’s $1.8 billion handout to the private funds has already been spent with no benefit to the private or the public system. The only achievement is to further starve the cash strapped public hospitals on which we all - including the private patients - depend.

Meanwhile the private hospitals are doing a booming business despite continuing falling numbers in private health insurance. People are choosing to "self insure" and when confronted by a "supposedly" long public waiting list they are electing to pay and go in the private system, bypassing the private funds.

So the current paradox is falling private health insurance rates at a time of rising activity in the private hospital sector. And a federal government that is so ideologically bound, it prefers to throw away taxpayers money on the failed private funds than give it to the public system.

The only result will be the demise of Medicare and the Public hospital system while encouraging the entry of big private corporations - such as Mayne Nickless and overseas players including Columbia Health (US).

(Dr Catchlove, former senior executive of Mayne Nickless was recently appointed to head the Health Insurance Commission. Mayne Nickless has already over one billion dollars invested in health including large interests in pathology which is paid for by the HIC.)

Australias Private Health Funds

Australia’s existing Private Health Funds are a failed system. Bipartisan parliamentary committees in the 1960’s said as much, and Medibank and later Medicare were developed because of their shortcomings.

The private funds have never been more than a passive conduit of money from patients to the doctors and the private hospitals - "an inefficient system that anaesthetises market forces and cannot integrate, nor deal with, larger issues of the health system"- Professor Jeff Richardson, health economist.

Instead they generate their own perverse incentives with no attempt at cost control. Professor Richardson has described them as, at best, "a system which allows doctors to make some extra money". (MBF was partly founded by doctors from the AMA.)

The continuing decline of the private health funds puts them in a no-mans-land where continual taxpayer hand-outs and more "reforms" are futile. Yet the Howard government is planning further handouts to the private funds - another $1.2 billion in incentives, not to mention "health" being promised GST free status in any new tax system. ( In effect another taxpayer handout to the private funds because public health is not paid for directly by patients.)

In any event, taxpayer rebates for private health insurance are a highly inefficient way to pay for health care - "politically popular but economically stupid" - according to Prof. Jeff Richardson, health economist at Monash University - "because they go to those people who are already insured."

There are now only 2 alternatives for Australias future health - to build on the fairness, equity and cost effectiveness of Medicare as a national insurer, or to remainder Medicare as a second class system for the poor and build the private health system into the dominant player - the US health scenario/ see below.

Of the $1.8 billion (over 3 years) of taxpayers money that the Howard government has given to the private funds, $600 million has already been spent to no benefit - not even to the private health system. Truly money down the drain as even notable conservative, Jeff Kennett has conceded.

The Public Health System has been denied $1.8 billion and the irony is that, even if a few more people WERE encouraged into the expensive private health system, they would still depend upon the public hospitals in an emergency. The democratic thing would have been for that money to have followed the people leaving private health insurance into the public system. (It is estimated that $600 million per year would have eliminated all the public waiting lists around Australia.)

Yet the Howard government is already looking for new ways to prop up the private sector, more ways to give more taxpayer dollars to the private funds , more bureaucratic energy and more legislation being spent to revive the " dead cat" that is private health insurance. (If it looks like one, smells like one etc.") At the same time the Howard government allows the system everybody depends on to continue its slow haemorrhage.

"Taking pressure off the Public System"

Conservative politicians use double-speak to hide their agenda to privatise the health system. They talk in terms of "taking pressure off the Public Hospitals" - but they are doing the opposite.

Instead of respecting the choice of the people ie let the taxpayer funds follow the patients by increasing funding to the public system, they are further weakening Medicare and starving the hospitals of cash at a time when massive cuts to public hospitals have already gone too far.

"Taking the pressure off the Public System" or "taking the rich out of the public system so that there is room for those who really need it" are just different ways of privatising our health system - taking the vocal middle classes out of the public system so it can be quietly remaindered.

To understand where this is all leading we can learn a lot from looking at the recent developments in the US private health system. And remember, despite Medicare as the national insurer, Australia has already one of the most privatised health systems in the world.

Extra ordinary changes in the US health system

Reports from the United States show that the private health system is reaching new heights of absurdity. Despite health costs now pushing 15% GDP (almost double that of Australia’s "free" system -8.6% - and most of the OECD countries), many of the sick are being refused health insurance cover by the for- profit corporations.

Health Maintenance Organisations (HMOs) - which were first started in the US decades ago with the support of labour organisations as a progressive reform to counter the abuses of private fee-for-service medicine, have now been taken over by for-profit corporations.

In the hands of the profit hungry health corporations, "Managed Care" - the grouping of health providers to achieve better health outcomes and rationalise health care provision - has quickly come to mean the perversion of any original group-health goal into minimising costs (patient services) and increasing profits.

The drive by the private corporations to maximise profits is now reaching absurd levels. The acronym HMOs is now quoted as "Healthy Members Only", as the major health corporations squeeze extra profits from the health dollar by discouraging their sick members from staying by providing inferior services. As a result, medical care in the US has become expensive, impersonal, uncomfortable or risky, and sometimes, degrading.

In the US there are now almost 1,000 different private health providers each offering packages with over a hundred different health plan options. (Compare this with "hassle free Medicare.") Between 1990 and 1995, for-profit HMOs grew 15 fold in both market value and membership. At the beginning of 1996 there were 630 HMOs in the US and 459 were for-profit.

The complexity of screening new members as well as complex claim verification procedures is estimated to cost almost $1,000 per fund member. Administrative costs in the US private health system now average 20%. (This compares with 3% administrative costs for a single national payer such as Medicare or Australia’s private health funds which spend 13%.) Shareholders in the US have come to expect returns of 30% on funds invested and this, together with the high administrative costs, significantly erodes the value of the US health dollar.

The squeeze for more profits for their shareholders has resulted in an absurd situation where only the "fit and healthy" are accepted into private health insurance.

Physicians who handle chronic illness eg AIDS specialists are shunned by the health corporations as they attract high cost, high dependancy patients - "the wrong type of customer ". They are forced to find work in the under-funded public system - and are followed there by their loyal patients thus further helping the private funds boost their profit margins.

Middle classes also locked out

The number of uninsured in the United States has now reached almost 50 million with another 60 million under-insured. Sadly, the large majority are children. In New York 25% of the population and 20% of children are uninsured and 60% are under-insured. In the US, if you don't have money to pay for health care you get sick and you die.

But even the middle classes and the wealthy are now tiring of the private corporations running the health system. Under- servicing and dumping of sick patients on carers - usually women-through early discharge, interference with doctors decision making and lack of choice of hospital and service provider are just a few of the complaints.

One major US medical accounting firm provoked considerable controversy by declaring mastectomy for breast cancer a "day only" procedure. The firm glibly said that the patients can be given oral pain killers and family members can perform other deeds such as changing the tubes that drain blood from the surgical wound into a pouch that must be emptied many times a day following the operation.

Loss of freedom for patients under for profit private health We think nothing of going to our local family doctor or the local hospital emergency department if taken ill.

But in the US, despite paying twice as much for their health care, patients must ring their fund for approval before attending the Accident and Emergency department (A&E) of their local hospitals. And getting this approval is no foregone conclusion. A&E departments are well known to the "bean counters" as the most expensive part of the health system. And if you decide to go to a hospital without approval, the private insurers can refuse to pay. And when you ring the insurers, at the other end of the telephone line an accountant or bureaucrat with no medical expertise, will determine whether your chest pain warrants a visit to the emergency department or whether you wait and see the primary care physician the next day!

Another development infuriating patients and both Republican and Democrat sides of Congress is the increasing inflexibility of Managed Care under the corporations. Because HMO's link up with "approved" providers there is a limitation as to which facility/hospital can be approached when you are sick. Your HMO could direct you to a hospital across town or, if you live in an outer suburban or rural area, you may face a trip of 15 or 20km to an "approved" urban facility - even though your town has its own hospital!

Over-servicing rampant in the Private Sector Visiting doctors from the US report many private health providers, including the larger corporations such as Columbia/Health Corporation of America are currently facing charges of medical fraud/ for double and triple billing. Indictments are pending in more than six US states for alleged medical fraud.

Stories abound of patients being hospitalised until their health insurance runs out. Mental illness is one particular area where such widespread abuse has been reported.

Little wonder health costs in the US private health system are out of control, growing at positive 23% per year /compared to NEGATIVE 1.6% growth in health costs in Australia’s Medicare system*. US State prosecutions do little to stop the large health corporations in the US which can make billions of dollars out of health care but face fines of only tens of millions of dollars if found guilty.

The paradox is that the sicker you are, in the US for profit health system, the less chance you have of getting health insurance. And even if you do manage to get insurance and get terribly sick, you might find that the service is not as good as you expected . The corporations are hardly going to be upset if you leave!

The private corporations are not stopping there. They are currently pushing to take over the federally funded Medicare and Medicaid systems in the US which are limitted government schemes for the elderly and the poor.

What is the relevance to Australia?

Rather than a system that controls costs through one single national payer, the Howard government has an ideological commitment to the private sector as the provider of services - despite its election promises that "Medicare stays".

Thus the present round of savage funding cuts and the recent stalemate with the states on the future Medicare funding agreements. (Interestingly, it was the last Labor government which introduced legislation in 1995 that has paved the way for Managed Care in this country.)

It should be remembered that Medicare is only a National Insurance Scheme ( albeit with all the economic advantages of a single payer system). It is not a National Health Scheme. In fact, Australia, despite Medicare, has one of the most privatised health systems in the world . A private health system which continues to do a booming business, despite the falling numbers of people in private health insurance. (And the greater the market share for the private sector in the health system, the more expensive that health system becomes.)

While Medicare covers us for the cost, most doctor visits are still characterised by a private fee for service payment. This small business, fee-for-service system has many faults which also can make medical care "impersonal, uncomfortable or risky, and sometimes, degrading". But turning the system over to "big business" will take the exploitation of patients to new heights and with the further loss of basic freedoms for the doctor and the patient.

Many of Medicare's opponents - big business, vested interests, conservative politicians and the treasury - wage a continuous disinformation campaign. We are told Medicare is too expensive or advised to panic about falling private health insurance rates.

Yet, Canada which has a national health insurance scheme very similar to Australia's Medicare, has virtually no private health system - other than for extras such as dental or optometrical services. When Canadian Medicare was originally set up doctors were asked to opt either for working in the public or the private system - but not both. As a result Canada has developed with only one public system.

People are not being silly in preferring the public system. They know that Medicare gives them a good deal. It is very affordable, freely available and it is open to full public scrutiny. So it is perhaps not surprising that with every day we see a federal gvt. more and more desperate in its attempts to change things.

The Howard government ran an advertising campaign to encourage people into private health - " to jump the queues in the gvt’s own public hospital system". Punitive measures were introduced with the threat of economic penalties if we didn’t take out PHI. And now we see the goverment using taxpayers money to pay for private insurance advertisements!

"Can we afford NOT to have Medicare?"

Medicare has kept down medical costs and doctors fees - except for the specialists who continue to control their workforce numbers to their own economic advantage - as well as controlling drug costs.

Medicare saves us a minimum 10% over the private sector just through administrative cost savings. (Medicare has 3% administrative costs versus 13% in the private system - an immediate 10% savings on costs. And in a 34 billion dollar a year industry that is quite a lot!.)

It is Medicare’s economic savings that will assist us to continue to provide for our aging population, meet the increasing costs of newer generation treatments and technologies and to expand vitally needed rural health and Aboriginal health services.

Not only is Medicare cheap by international standards it also allows patient and doctor a lot of basic freedoms which are unavailable in a private health sytem.

Although proponents of private systems often claim that they offer the consumers more freedom, the reality is that under Medicare, there is in fact more freedom than under the expensive US model. In Australia your doctor is able to choose the treatment you need without getting approval from an accountant. What use is choice if decisions are going to be made about your health in terms of shareholder profits? Health needs an informed professional input first and foremost uncorrupted by the corporate philosophy. Any other approach subjugates patient's needs to corporate profits.

Talk of two insurance systems side by side - a National Health Insurance scheme as well as a multiplicity of thriving private funds, is foolish and dishonest. And the federal government cannot continue to bankroll both the private and the public system.

The reality is that we have only 2 choices - a single national payer such as Medicare , which guarantees public control of health financing, equity, affordability and freedom of choice, OR hand over control to a dominant private sector that needs to make 30% profit and spends around 20% on administration".

The Conservative’s agenda for health is thus NOT, as it is simply stated, to help the traditional private funds such as HCF and MBF to get more members. Their agenda - whether Howard realises it or not - is inevitably leading us to super-expensive kentucky-fried health with Managed Care cost controls.

And the government’s tactics are also becoming more obvious - squeeze the Medicare rebates in order to encourage doctors to charge their patients but STOP BULK BILLING from falling "too fast" to avoid an electoral backlash, CREATE a sense of CRISIS IN THE PUBLIC HOSPITALS while diverting money to the failed private health funds. Mount a scare campaign about falling private health insurance and long waiting lists in the public system to force those that can ill afford it into private health and shift the BLAME on to THE STATES for "running down the Hospitals"

The consumer backlash in the US as well as their burgeoning health costs twinned with falling health standards should be adequate warning to all Australians, particularly the aging baby boomers, that Medicare’s benefits are much more than just the convenience of the little green card.

19 August, 1998

Dr Con Costa ,
Doctors Reform Society

(Aknowledgements to Professor Jeff Richardson, Monash University)