The Private Health Insurance

The Private Health Insurance

Introduction to the Industry

Private Health Insurance in Australia has a very long history, starting in the early 1800's with the importation of friendly societies from Britain (Hopkins et al, 2001). In 1952, the National Health Act was introduced which has since governed the private health insurance industry. It is noted, however, that private health insurance funds are not insurers in the generally accepted sense of the term. They are closer to co-operatives with all members' contributions being pooled and substantially paid out as benefits (Quinn, 2002).

The history of private health insurance in Australia is a chequered one, due in part to both the existence and nature of publicly financed and/or provided health care (Hopkins et al, 2001). Australia had, at one point in time, the distinction of being the only country to have instituted compulsory universal health insurance and then removed it (Hall, 1999), only to have re-instituted it with the introduction of Medicare in 1984.

By 1997 only about 30% of the Australian population was covered by private health insurance and using what has been labelled as a "carrot and stick" approach, the government implemented three policies to alternatively entice and coerce Australians into joining private health funds (PHIAC, 1997). These were the Private Health Insurance Incentives Scheme, the Private Health Insurance Incentives Act 1998 and lifetime community rating. They were essentially either financial or equity incentives.

Since the introduction of Medicare, private health insurance has diminished considerably in terms of its coverage of the population, but has maintained its contribution to the funding of health care.

Discussion

“Imagine if car insurance provided rebates for fuel expenses and the Government subsidised the cost of that insurance. What would result from this (thankfully) hypothetical situation? People would use more petrol than they do currently (since they don't incur its full cost), petrol would become more expensive (due to the increased cost of administering the scheme as well as the blunting effect of subsidies on price signals); and richer people, who have bigger cars (on average) and more money to purchase fuel, would benefit disproportionately from the subsidy than those on low incomes. It's an absurd proposition but it's exactly what happens in relation to health care funded by private health insurance. Nicola Roxon's attempt last night to reduce the rebate subsidies for high income earners with private health insurance is one small step towards minimising the adverse impact of this costly policy on the public purse. The fact that it was defeated in the Senate demonstrates how little understanding the Opposition has of health funding issues.

Private health insurance is one of the most inefficient and expensive mechanisms for paying for health care. Private health insurance funds spend about 13% of revenue on administration, compared with the 3% spent by Medicare. Partly this is due to the economies of scale of Medicare but also because private funds have to spend money on advertising to compete against each other. Higher administration costs drive up premiums which ultimately come out ...