Who will stand up for private health insurance in Australia?

Cuts to middle class welfare are pretty palatable in Australian politics. They allow governments to balance their books while also showing they are after a fair go for working families.

But when these cuts start to have a negative impact on people in a way that undermines the public health system in Australia – and also when they are implemented by an administration that was originally founded to provide support for the working classes – then something is seriously wrong.

Let’s look at what is happening in private health insurance in Australia. A raft of policy changes was recently introduced by the Federal Government and this will have a huge impact on the attractiveness (and long term viability) of private health insurance in this country.

As a tactic for attracting Australians into private health insurance a rebate for consumers on premiums was introduced in the late 1990’s. People have been able to claim this rebate as a reduction on their premium, a tax break when lodging an annual tax return or as a payment from Medicare. Now, the current government has decided to apply an income test to the rebate. So what you get back is determined by your family’s income. Some will receive a smaller rebate while others will get nothing.

Notwithstanding the importance of a viable private health sector to the overall health system in this country the government argues that this is a legitimate cut to middle class welfare.

More worryingly though, the Labour government is now looking to exclude the rebate for any additional premium that you incur on top of your base premium. Previously, the rebate was calculated on your premium plus any Lifetime Health Cover loading which is an additional premium for not taking out hospital cover prior to your 31st birthday). So instead of the rebate being calculated on your total private health insurance premium it is now calculated on the base amount alone.

But it gets worse.

As premiums rise to pay for the increased use and cost of healthcare for our ageing population, from 2014 the rebate will not apply to premium increases above the Consumer Price Index. Advances in medical technology, new drugs and so on mean health inflation has and will continue to run at 6.5-7% pa compared to the current domestic inflation rate of 2%. The effect is that every year the rebate will reduce from the 30% of total premium that the Liberal Government introduced under Tony Abbott as Health Minister. In five years, if you are fortunate enough to qualify for the 30% Rebate and have no loadings on your premium, the actual rebate will be no more than 25% of your premium.

So there is more money being siphoned out of consumer’s pockets by penny pinching on the rebate.

This additional move is particularly damaging for lower socio-economic Australians covered by private health insurance. It effectively makes health insurance more expensive regardless of your income level. There is no excuse in this one by referring to “cuts in middle class welfare”.

With tight economic times and depressed consumer confidence private health insurance consumers have already become much more price sensitive in recent times. The income testing of the rebate from 2012 and further restrictions on the availability of the rebate for consumers from 2013 onwards is set to make this situation far worse.

The government is quick to downplay the impact of these changes on the overall percentage of Australians who have private health cover. This glosses over the fact that many people have scaled down their cover so as to limit the impact of the changes on their weekly budget. It used to be that around 15% of those with private health cover had “cut down” policies with multiple exclusions. This is now up to 25% and growing.

The problem here is that – because of the exclusions – many of these people will be dissatisfied with the level of cover they have the next time they have to go to a private hospital for surgery.

At the same time, people with full non-exclusion policies have dropped from around 60% to less than 54%.

So the signs are there.

People are dropping back on their cover and as they age they will find themselves needing procedures that unfortunately for them are excluded from the only policies they can afford.

Next stop for them will be to rely on the public health system. They will be joining all the other uninsured ageing Australians clambering for access to ever-dwindling public health services.

Private health funds and previous governments worked hard together to develop a sustainable private health insurance industry in this country. By the late 1990’s only 30% of the Australian population was covered by private health insurance – a level that was clearly unsustainable in the presence of a public system that was already under immense pressure.

Through a series of policy initiatives the percentage of the population covered has grown to around 47%. But making private health insurance less attractive by attacking families of all socio-economic levels – and fuelling the pressure on public hospitals that will naturally result from that – is no way to build a sustainable health system in this country.

It is clear that the government should ditch these proposed changes to private health cover lest they act as a catalyst for exacerbating the already unsustainable long term demand in the public system.
By Howard Fisher, Former National Vice President of Miners’ Union and Chairman of the Board for Westfund