Private health funds free-riding on the Medicare Gravy Train

Private health insurance funds are ‘free-riders’ on Medicare, according to Harvard-based academic Dr Matthew Anstey, who has proposed that health funds be required to take financial responsibility for the costs of treating members in either public or private hospitals. His proposal in the Australian Health Review has drawn the fire of the private health care sector with private hospitals chief Michael Roff saying that he had never heard of ‘a more preposterous proposition’.

Far from preposterous, Dr Anstey’s proposal reflects the way private health insurance works in most countries which also have a public health system. Australia is unusual in that people with private health insurance are also covered by the public insurer Medicare. This means they are in effect insured twice. This would not necessarily be a problem if the private health system operated as a   self-funded system independent from public subsidies. However, in Australia private health care receives substantial government funding.  Medicare pays part of the medical costs of all private hospital services and people with private health insurance receive premium subsidies costing an estimated $4.5 billion a year.

The Government’s stated goal for these subsidies is to provide people with choice and to take pressure off the public hospital system. This only occurs to the extent that the subsidies prompt people to change their behaviour – shifting demand from the public to the private sector. There is little evidence that this has occurred. Research conducted during the period covering the introduction of the rebate shows that it had little or no impact on the numbers of people with private health insurance. The introduction of lifetime community rating (which imposes no cost on the public purse) has been proven as much more successful in encouraging uptake.

These findings were confirmed recently with the introduction of means-testing of the rebate which reduced or removed the premium subsidy for high income earners. Despite the private health funds’ that this would lead to up to 20% of people dropping their cover, the data from the first six months after the introduction of the means-test shows that the number of people insured has actually risen.

Dr Anstey points out the inconsistency of subsidising private health insurance in order to take pressure off public hospitals while still allowing people with insurance to use public hospitals as Medicare-funded patients. This is more than just a technical loophole, he estimates that even if a quarter of the total number of insured people admitted to public hospitals did not use their insurance, the cost to the public would be around $588 million a year.

His proposal to close this loophole is to force private health funds to take complete financial responsibility for their insured populations by requiring them to fully fund treatment in public hospitals. This would involve a compulsory register of all insured people which public hospitals could access and use to bill the relevant fund for treatment. It would also involve a requirement that private funds do not charge any out-of-pocket costs for people receiving care as public patients.

Of course, the crucial element of this proposal is that consumers should not be disadvantaged in any way or have their freedom of choice restricted by their insurance status. There are a number of reasons why consumers may choose to seek treatment in a public hospital, even if they have private health insurance. One may be to avoid the out-of-pocket costs associated with private care. Another may be due to the location of the hospital or the facilities available there. Regardless of the reasons, consumers should retain their right to receive care at no cost to them in a public hospital. Funding arrangements between hospitals and private health funds should be administrative only and occur at arms’ length from the provision of care. In fact, there would be no need for any medical or nursing staff to know whether or not a patient is being funded publicly or by a private insurer.

Paying private health funds subsidies for patients who use the public system undermines the objectives of the Government’s private health insurance policy and compromises the sustainability of the public hospital system. This proposal would close the existing loophole and stop funds from free-riding on the public system while preserving the rights of consumers to access care from either public or private hospitals.