According to Harper (2003) health is a large component of the Australian economy currently involving well over $40 billion of public and private expenditure (or 8.5% of GDP), around 32% of which is privately funded. The cost to Government of the rebate must be seen in this context and reviewed against the contribution of the Commonwealth to the overall system together with other levels of Government and the private sector.
Cost of the rebate
Australian Bureau of statistics (2003) calculated that the gross cost of the Rebate was around $1.384 billion in its first full year of operation (1900- 2000), with a net cost to the budget of $1.084 billion. If the participation rate were to increase to 35% the rebate will cost the Commonwealth a total of $1.486 billion or $1.168 billion net, and cover another 380,000 people. However, this must also be counterbalanced by the relatively cheaper cost to the Commonwealth of private care.
There are savings arising from increased participation through the Australian Health Care Agreements. The Department has estimated that if the participation rate increased to 35% the Commonwealth would save around $155.2 million, partly offset by the impact on the MBS.
- If the recent policy measures were not introduced or are reversed in the future, PHI coverage would fall to unprecedented low levels, making it potentially unviable (Wilson, 1999).
- According to deeble (2003) without the 30 per cent rebate and without LHC, hospital coverage is projected to fall to only 18 per cent of the population by 2041-42. The viability of the PHI system would then be in question.
- According to deeble (2003) if the PHI system were to collapse, government budgets would come under enormous pressure. Commonwealth and State Governments together already face a considerable jump in health outlays from 6.4 per cent of Gross Domestic Product (GDP) in 2001-02 to 12.2 per cent in 2041-42. If PHI were to disappear, the jump would be even higher to 12.7 per cent of GDP, representing an additional rise of 0.5 percentage points of GDP. This is because while the government would “save” 0.4 per cent of GDP from the disappearance of the 30 per cent rebate, this would be out weighed by additional health outlays of 0.9 per cent of GDP in areas no longer funded by PHI benefits, especially hospitals.
- So PHI is a main source of funding of health costs. For each 30 per cent rebate dollar spent by government, it saves around two dollars of costs funded by private health insurers (Deeble 2003).
- An important issue to be addressed is whether current PHI policy arrangements will be sufficient to maintain a viable PHI system in the long-term (Wilson, 1999). This depends largely on whether PHI coverage rates will continue to be high enough to maintain a viable system.
- According to Australian Government Department of Health and Ageing (2001) the rebate recognizes the bond between private health insurance participation, the demand for publicly funded hospital and medical services, and the value of the private sector complementing to the public sector. Each and every fall in the private health insurance coverage, feeds directly through into the public system as more and more people become entirely reliant on the public system for their health care.
Critical review of key findings
- Harper (2003) states that the private sector plays a significant role in containing government spending on health and aged care. Each year, private hospitals share the burden of the national case-load with public hospitals. In 2001-02, private hospitals performed medical procedures that would have cost the public hospital system $4.3 billion to undertake. In other words, without the private sector, the cost of public hospital services would have been around one-third higher than they were, i.e., $18 billion rather than $14 billion.
- There is a rich debate going on the role and worth of PHI in Australia. Critics have mounted both vigorous attacks on and defenses of this component of Australia’s health care system, with the 30 per cent rebate a particular focus. Deeble (2003) criticized the rebate, claiming it had done little to boost PHI coverage of the population.
- On the other side of the debate, Harper (2003) suggested that any collapse of the PHI industry would add to government health outlays, with the saving from the disappearance of the rebate outweighed by increased spending on public hospitals to fill the gap left by the demise of private hospitals.
- These arguments have been backed by appeals to salient facts and simple figuring. However, since Australia’s health system is characterized by interdependencies among their various parts, both in terms of their operation and funding, proper illumination of the issues requires a quantitative framework which systematically takes these interdependencies into account.
- Deeble6 (2003) explains that, prior to the introduction of the 30 per cent rebate, he conducted a survey gauging people’s buying intentions before the effect of the rebate was in place. Deeble that the 30 per cent rebate would add 4 percentage points to hospital coverage and 5.6 percentage points to ancillary coverage.
- To assess whether current PHI policy schemes will be sufficient to maintain a viable PHI system in the long-term or not Schofield (1997) states that many factors influence decisions to take out PHI. These factors include income, gender and age. Age is a significant factor because the expected benefits from having hospital coverage increase with age. Further, according to Wilson (1999) there are some differences in the factors driving hospital and ancillary coverage. Both authors also consider premiums to be an important factor driving PHI coverage.
· It has also been argued by Cost (2003) that the private health insurance rebate is being $2.3 billion but the Health Economics Unit at Monash University has recently analyzed the actual cost of the PHI Rebate. Medicare levy from people taking up private health insurance, it comes to $3.7 billion.
· Cost (2003) further emphasizes that Medicare is tried and tested model and has always worked as a cost effective model. People do not go directly to expensive specialist care. They go first to their GP who, hopefully keeps them healthy and keeps them away from expensive care unless it is necessary.
· According to Cost (2003) at the moment you are free to walk into any public casualty centre if you feel sick, you are free to do it. If you see your doctor, he or she is free to treat you, without needing approval from the government or an insurance company.