Why it is time to review the role of private health insurance in Australia

Abstract

The role of private health insurance (PHI) within the Australian health-care system is urgently in need ofcomprehensive review. Two decades of universal health cover under Medicare have meant a change in the function ofPHI, which is not reflected in policies to support PHI nor in the public debate around PHI. There is increasingevidence that the series of policy adjustments introduced to support PHI have served to undermine rather than promotethe efficiency and equity of Australia's health care system. While support for PHI has been justified to 'take pressure offthe public hospital system' and to 'facilitate choice of insurer and private provider', and the incentives have indeedincreased PHI membership, this increase comes at a high cost relative to benefits achieved. The redirection of hospitaladmissions from the public to private hospitals is small, with a value considerably less than 25% of the cost of thepolicies. The Commonwealth share of the health care budget has increased and the relative contribution from privatehealth insurance is lower in 2001-02, despite an increase in PHI membership to nearly 45% of the population,compared with the 30% coverage in 1998. The policies have largely directed subsidies to those on higher incomes whoare more likely to take out PHI, and to private insurance companies, private hospitals and medical specialists. Ad hocpolicy adjustments need to be replaced by a coherent policy towards PHI, one that recognises the fundamental changein its role and significance in the context of universal health coverage.