The Guardian July 19, 2000

For-profit system hurts public health

Kerry Ans

The interim report of the Senate Inquiry into Hospital Funding 
confirms that the publicly funded rebate scheme for private health 
insurance does not take any pressure off the public hospital system.

The rebate scheme offers those taking out private health insurance a tax 
rebate of 30 percent on the insurance premium, regardless of how much they 

Senator Crowley, chairperson of the inquiry, claimed that its 90 
submissions indicated little support for the Howard Government's assertion 
that the rebate would ease funding pressures on public hospitals.

These findings vindicate claims by opponents of the scheme, including the 
CPA, that it is merely designed to prop up the private health insurance and 
hospital systems.

According to the Democrats, the scheme was originally to cost taxpayers 
$1.7 billion per year, but this has increased to $2.3 billion, on current 

Dr Peter Davoren, of the Doctors' Reform Society, claims the $2 billion 
would fund sixteen 500-bed hospitals every year. The amount of money going 
to the rebate is almost as much as the entire general practice payments 
under Medicare, according to Dr Davoren.

The rebate is a very cost ineffective mechanism that acts as a tariff for 
the more expensive, profit-driven private sector.

It more than covers the cost of administering the many private funds  
each with their separate administration costs.

The inefficiency of the private system is seen in their high administration 
costs which absorb 12.5 percent of premiums compared with Medicare which 
spends 4.7 percent of its income on administration.

There was a rapid decline in membership of private health funds between 
1984 and 1998 since the introduction of Medicare with its free public 
hospital care and bulk billing.

Efforts by the Government to encourage people to retain or resume private 
insurance have been made more difficult by the rapid rise in premiums over 
that period.

The premiums of the largest insurers in each State increased (in real 
terms) by between 58 per cent and 173 per cent.

Prime Minister Howard's 30 per cent rebate (public subsidy) is designed, in 
fact, to counteract the unaffordability of private insurance, not to take 
the pressure off the public system.

The shocking truth of the matter is that the new Health Act, which enabled 
the rebate scheme to go ahead, contains a mechanism that claws back funding 
to the public sector as increases in private insurance membership occur.

People who join funds thinking they are taking the pressure off the public 
system (like some in union-run health funds), are actually triggering this 
clawback mechanism, and unknowingly adding to the funding crisis of the 
public hospital system.

The rebate is one of the ways of propping up the private system, as is the 
Lifetime Healthcare Cover plan (the younger you sign up, the cheaper your 

Another, more covert, way is the recent NSW Government agreement to let 
public hospitals contract local private hospitals (which have been under-
utilised and making losses for many years) to provide public health 
services in peak periods.

According to Dr Christley, Chief Executive of Sydney's Royal North Shore 
Hospital, their contract with the private Catholic Mater Hospital to take 
his hospital's excess patients is efficient and cost effective.

In reality it serves to disguise the shortage of public beds and other 
resources as cutbacks continue. It is privatisation by stealth.

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