The Role of Private Health Insurance in the Australian Economy - Example

THE PROPOSED AUSTRALIAN PRIVATE HEALTH INSURANCE POLICY (Student Name) (Course Number) (University) (Date) The health industry is one of the largest industries in Australia today. In fact, it is perceived to be five times greater than the defence industry and with greater opportunities for financial gain as compared to other sectors of the economy. There is also the possibility of regular increases in the health costs in Australia, caused largely by an increase in the use of modern technology and increased. Among the Commonwealth countries, the Australian health system is considered one of the most accessible and affordable health care systems. This complexity in the Australian health care system enables it to fit a web description of service providers, services, recipients and organizational structures such as hospitals. The department of health in Australia ensures that Australians have access to medical services such as aged and community care services, disability programs, public health initiatives, emergency services for people in crisis, medicare and pharmaceutical benefits as well as family and children’s services. The health care system in Australia is organised in such a way that the national health policies are administered by the federal government while the state and territory governments administers policies within their capacity such as hospital operation issues. Aside from having one of the most comprehensive health care services in the world, Australia faces peculiar challenges in healthcare. This is contributed to a large extent by the conflict of interest between the service providers whose main aim is maximising their profits. The country also has a universal healthcare structure in which the federal government takes care of the bulk of health care services including those in public hospitals. The remaining health care costs are catered for by the patients themselves. Individuals can also take private health insurance to cover their co-payments, plans of which can be full coverage or can cover specific medical services. Through policy measures, the Australian Government encourages its population to purchase private health insurance. This paper evaluates the role the private health insurance in the Australian economy and the potential impacts of the government rebate on the consumers. Discussion Background Information The private health insurance industry is one of the primary components of the Australian healthcare system. Today, almost all the Australian population have some kind of private health coverage. In an attempt to reduce the burden in public health care services, the government of Australia has over the years introduced many policy measures that encourage consumers to switch to the private health insurance services. In the late 1990s for instance, the government introduced a 30% rebate on premiums for Australians who opted for the private health insurance. The rebate was, however, increased to 35% for people between65 and 69 years and 40% for those above 70 years just five years after its introduction. Although the rebates were in place for several years, there were no means for testing them. The importance of the private health insurance in the Australian healthcare services is partly due to historical reasons. In the past, the Australian health care system depended on voluntary health insurance which was provided by the private funds which were endowed by the government and controlled by the National Health Act of 1953. During this time, the government supported PHI through monetary incentives and advantages. The government also barred rating of premium on the basis of risks and established funds requiring enrolment which accepted all applicants without judgement. 1974 saw the introduction of the universal public insurance after extensive debates concerning the role of the government in financing health care within the country. The insurance policy, however, did not last long and was re-introduced by Medicare in 1984. Even with the introduction of the universal public insurance, PHI still emerged as the mainstay of the health care with cover provision for a large proportion of the population. In Private health insurance, cover is given to patients seeking medication in private hospitals or those admitted to public hospitals as private patients. The private health insurance is, therefore, more advantageous than the public insurance because it covers necessities that are not catered for by the public insurance. The re-establishment of the public insurance led to a drop in the percentage of the population covered by PHI from 50% in 1984 down to 30% in the 1990s. This was partly due to the wide acceptance of the public insurance, the youngest and healthiest members of the Australian population also dropped the PHI cover since the premiums they paid were far much higher than their actual risks (Boxall, 2008,p. 10). As a result of this decline, concerns were raised over the impacts it would have on the private hospitals, with reduced choices for individuals and increased pressure on the public hospitals. To curb the declining trend, the government has since 1996 devised further policies to enable increased membership of PHI and to increase the sale of its products. For instance, in 1998, the government introduced a stick, which represented very high tax penalties for individuals without private cover and a carrot, which represented a 30% rebate on PHI premiums. Another regulatory penalty was introduced in 2000 that discouraged people from delaying the purchase of insurance. Australian Private Health Insurance The Australian private health insurance forms an integral part of the health care system as well as health policy debates within the country. According to the Australian Health Insurance Association (2011, p. 15), the private health insurance covered 44.9% of the Australian population as of December 2010 another half of the population had some sort of private general treatment. This is considered as one of the highest covers in the OECD countries following France, the United States, Canada and Ireland at 86%, 70.3%, 70% and 48% respectively, making it one of the countries in which PHI lays a financing role. The Australian health care system has established hospital policies that cover treatment in hospitals by the medical practitioners as well as other costs such as the accommodation fees and theatre charges. There are also general treatment policies with benefits for general treatment services such as optical and dental treatment as well as physiotherapy (Organisation de Cooperation et de Development Économiques, 2004, p. 25-30). Australia has a combination of both public and private health insurance funded health care system. The connection between the private and public insurance is that the access to public health services is open to individuals with private health insurance in a similar manner as the individuals that are not protected by the private cover. The purchase of a private health insurance, therefore, enables an individual to access either private or public health care services depending on the medical services that they choose to access. The array of health care services provided by the private sector are among others; heart surgeries and joint replacements with the consumer payments done through income taxes and private health insurance premiums, enabling reductions in the health costs in both private and public health care systems (Australian Centre for Health Research, 2011, p. 10-16). Since the private health insurance has been adopted by a large proportion of the Australian population, there needs to be a differentiation mechanism for the consumers which is mostly done based on the probability of an individual to access health care services in the near future. This is because different individuals have different health conditions thus the need for different levels of protection by the health insurance policies. For example, individuals that have stable health conditions and have no need of accessing health services in the near future are said to have low risks. However, individuals with very poor status of health or those that have predisposing factors to poor health such as old age and those that have the need to access health services such as pregnant women are said to have high risk. Within the private health insurance, most benefits accrue to the unhealthy individuals because they are commonly since they can gain more from purchasing private health insurance. The Australian private health insurance system is also synchronized, and insurers are deterred from discriminating the consumers on the basis of health risks, race, gender, sex, the general claiming history and the use of hospitals for medication purposes. One of the most important components of the Australian private health insurance is the community rating that requires individuals to pay according to their health risks. In essence, policies, where people pay the same amount, tend to attract more people with the result that many people with unhealthy status likely to have more benefits as compared to the healthy individuals. Healthy individuals, therefore, have the option of leaving the private health insurance leaving the unhealthy individuals, who are likely to accrue more benefits. The connection between the private and public systems within the Australian health care system functions in such a manner as; more consumer adoption of the private health insurance with an aim of reducing the pressure on the public health systems as well as premiums on the PHI. The adoption of the PHI has also increased within the healthy Australian population with an ultimate aim of decreasing premiums within the private insurance market. The 30% rebate on the private health insurance introduced by the Australian government also had some negative repercussions on the Australian population. For instance, it established a selection spiral in which the healthy members of the population paid for health care services through taxes only while the unhealthy proportion of the population paid twice through premiums and taxes. This was found to be quite unfair for the Australian population and since then the government has made a lot of policy developments in order to curb the situation with the aim of getting more Australians to use the private health insurance cover and providing incentives for those already covered to remain insured. Developments in the Australian Private Health Insurance The Australian private health insurance policy has seen a lot of changes in the recent past with the government providing incentives to the population to increase their adoption of the PHI. By 1984 for instance, 50% of the Australian population was covered by the private health insurance. The introduction of Medicare, which was an obligatory government controlled health insurance requiring the population to contribute to the scheme in order to access treatment. The result was that between 1984 and 1977, there was a reduction in the percentage of the population covered by the PHI to 30%. Since this decline revealed a looming danger in the Australian health care system, there was the need for the then Industry Commission to probe the private health insurance, resulting in a number of policy changes. For instance, in July 1997, the Commonwealth government introduced the Private Health Insurance Act with a fixed subsidy for private insurance and an additional charge of one percent imposed on high income earning individuals without private cover. 1999 also cane with the introduction of the Private Health Insurance Scheme, which provided a 30% discount for individuals that were under the private insurance cover. A further policy change called the Lifetime Health Cover was introduced in July 2000 in which premiums were expected to rise by 2% annually for ten years for individuals without private health insurance cover at the age of 30. The blending of the three policy changes resulted in the increased membership of the private health insurance. It is, however, not clear which policy change had the most profound effect resulting in this increase in PHI membership. Antagonists of the 30% government rebate on private health insurance argued that the discount had limited benefits to the public health systems and acted only as a replacement of the private funding. There was also the argument that the increased private health insurance is not attributed to the price but to the marketing associated with the campaign. Protagonists of the 30% rebate argue that the discount was efficient for people with very poor health conditions since it lowered the amount of money paid per individual covered by the private health insurance. The Suggested Policy Change The Australian government declared in 2009 the subjection to a means of test of the premiums paid by the holders of the private health insurance beginning July, 2010. This policy change came with the introduction of Private Health Incentive Tiers on the incomes of individuals within the country. The policy change requires that the rebates for the low and middle income earners remain the same while for high income earners, the rebates are lowered if they opt for private health insurance, an additional charge is also placed on those who choose not to use PHI (Bloustien et al., 2009, p, 150). The three levels of income introduced by the proposed policy change include; tier one in which, for singles earning more than $80,000, the 30% discount on the private health insurance will be reduced to 20 % for those up to 65 years, 255 for the consumers over the age of 65 and 30% for the consumers over 70 years. The consumers within this bracket without private health insurance will pay an additional Medicare levy of one percent. The second tier is for singles earning more than $93,000 and couples earning more than $186, 000 where the 30% discount on the private health insurance will be reduced to 10% for those consumers with age 65 and below, 15 percent for consumers above 65 years and 20% for the consumers above the age of 70 years. However, for this bracket of the population, the Medicare surcharge will be increased to 12.5% (Siciliani et al., 2013, p. 34). The other level of income threshold is tier 3 in which the singles with an income level greater than $ 124, 000 and couples earning more than 248, 000 will be subjected to no rebate and with an increase of 1.5% on the Medicare Levy Surcharge. The main reason why the Australian government came up with such policy changes is to increase the unbiased distribution of benefits, show the increased government support for the private health insurance and the provision of huge benefits to the low income earners. Also, the main aim for the introduction of the means of test is to enable payment of the private health insurance by people with high incomes and who are in a better position to do so (Miller et al., 2014, p. 27-35). Following the introduction of the policy change, there has been a lot of debates within the country with the supporters of the policy change arguing that the introduction of the means of test will increase the government savings by ensuring that those with the capacity to pay for their private health insurance do so. The opponents of the proposed policy change, however, argue that the private health insurance premiums are likely to increase following the policy change resulting in the withdrawal of the healthy individuals from the insurance. There is also the likelihood of increased overreliance on the public health systems which would result in increased pressure in the public health systems resulting from the withdrawal of individuals from the PHI cover. The Potential Effects of the Proposed Policy Change Since the Australian health care system consists of a combination of both public and private health care systems as well as care and insurance, the proposed policy change in the private health insurance is likely to have widespread effects on the other components of the health care system. One of the areas where the effect of the proposed policy change is likely to be felt is in consumer decision making. Regardless of their health status, the Australian health services consumers can be considered as the tired private health insurance population, which comprises of individuals with and fall within any of the , three income brackets targeted by the policy change. The second group of consumers is the general private health insurance population which comprises of individuals with the private health insurance but fall in none of the three brackets targeted by the policy change. The third category of consumers is those with no private health insurance but can fall within any income category. In all the above consumer categories, they have the option of choosing to purchase private health insurance depending on the costs and the benefits likely to be accrued. The cost of purchasing private health insurance is given by the premium cost less the health insurance discount. On the other hand, the benefits associated with the PHI include the health benefits, income and preference. All the above factors in consideration, it is the mandate of the consumers, therefore, depending on the income brackets, to make decisions as to whether or not they have the capacity to purchase private health insurance. With the policy change, consumers are expected to either continue with the PHI cover, withdraw or downgrade the cover. As a result of the proposed policy, the consumers are likely to increase their price elasticity of demand hence resulting in reduced use of the private health cover. The proposed policy change is also expected to have an impact on the private health insurance membership in terms of both size and membership. The size comprises of the consumers that acquire PHI while the composition refers to the ratio of the healthy and unhealthy individuals with the PHI membership. Since the consumers will make decisions in response to the new PHI prices resulting from the policy proposal, PHI membership is likely to remain constant or be impacted in both size and composition. Naturally, it is expected that with an increase in the PHI prices, the consumers with lower health risks hence reduced likelihood of access to the health care in the recent future are likely to withdraw from the PHI membership since most of the benefits are for the unhealthy part of the population with high chances of accessing health services. Another sensitive area that is likely to be impacted by the proposed Australian government policy change on the private health insurance premiums. The aging of the population and the increased technological advancements in medical health care in Australia has resulted in increased claims by the individuals insured by the PHI in the recent years. The proposed policy change is likely to affect the premiums in three different ways (Willis et al., 2012, p. 51). For instance, should the policy change affect the size and not the component of the private health insurance membership pool, there is likely to be no adverse impacts on the premiums. There, however, may be small differences in the premiums for covering the costs faced by the providers. On the other hand, should there be an effect on both the size and the composition of the private health insurance membership pool, there may be a decrease in the number of people privately insured because a large proportion of the healthy population is likely to withdraw from the insurance cover. Policy change and the public healthcare According to the proposed policy change, the means of testing for the rebate for the high income earners is likely to result in them paying more for the private health insurance cover. Depending on the resulting cost of the private health insurance, the consumers may choose to withdraw from the being privately insured or downgrade the insurance all together. This can cause an increase in the number of patients flocking the public health systems resulting in a lot of pressure on the public health sector. According to the Deloitte 2011 report, the data gathered between 2008 and 2009 showed that the separations in the public health systems during that period was 4.7 million with only 9.2% of the patients being treated in public hospitals being privately insured against 2.8 million separations in the private health sector with over 70% of patients in the private hospitals being privately insured. In response to the policy change, the consumers may decide to withdraw from the private health insurance cover thus seeking treatment in the public sector. If many consumers downgrade or withdraw from the private health insurance cover and begin seeking medical services in the public hospitals, there is the likelihood that the absorption capacity of these individuals by the public sector may reduce, thus impacting negatively on the health care access in the public sector. Also, very few consumers may also opt out of the private hospital insurance hence having little impact on the public health sector (Preker et al., 2007, p. 36) Government Budget One of the most important government budgetary allocations in Australia is the health care system. The proposed change in the Private health insurance policy is, therefore, likely to impact on the government expenditure in a number of ways. One of the ways through which the government is likely to be affected is through the private health insurance rebate costs. This is because the government contribution to the private health insurance is given by the number and the age of consumers with the private health insurance as well as the claims of the insured individuals which determine the premiums and the discounts paid. The other effect would be on the cost of the public health funding where the amount of money spent by the government on the public health is directly proportional to the number of individuals using the public health care system and the kinds of diseases being treated. The Medicare Levy Surcharge is also likely to be affected. Should the proposed means of testing the 30% rebate on the private health insurance have no effect on the PHI membership pool, the probability that the government expenditure will be affected is nil. On the other hand, should the proposed policy result in a decrease in the size of the PHI membership, the amount of money spent by the government on the PHI rebate is likely to reduce due to a reduction in the amount of money to be paid to the individuals in the different income brackets. Secondly, due to the withdrawal or downgrading of the private health insurance by the consumers in response to the proposed means of testing the 30% government rebate on the PHI, the number of consumers likely to claim the rebate will reduce hence reducing the government expenditure on the private health insurance. Conclusion From the above discussion, it is evident that the private health system is one of the most important contributors to the health economics of Australia. It is, therefore, an important move by the government to provide incentives to the public to adopt private health insurance to reduce the government expenditure on the health care system. According to the Australian Dental Association (2013, p. 3), however, some of the policies put in place by the government for the health care system are not properly communicated to the public. It is therefore, important that the government exercises transparency in the manner in which it communicates such policies to the contributors to enable them have an in depth understanding of the proposed policy requirements should there be need of PHI adoption by a large proportion of the population. References Australian Centre for Health Research. (2011). Health care in Australia: prescriptions for improvement. South Melbourne, Vic, Australian Centre for Health Research, p. 10-16. Australian Dental Association Inc. (2013). Competition in the Australian Private Health Insurance Market, p. 9-16. Australian Health Insurance Association. (2011). Economic Impact Assessment of the Proposed Reforms to the Private Health Insurance. Deloitte, Australia, p. 4-32. Bloustien, G., Comber, B., & Mackinnon, A. (2009). The Hawke legacy: towards a sustainable society. Kent Town, S.A., Wakefield Press, p. 150. Boxall, A.-M. (2008). Resolving tensions: the development of Australia's health insurance system, p. 10. Miller, C., & Orchard, L. (2014). Australian public policy: progressive ideas in the neo-liberal ascendency, p. 27-35. Organisation de Cooperation Et DE Development Économiques. (2004). Private health insurance in OECD countries. Paris, Organisation for Economic Co-operation and Development, p. 25-30. Preker, A. S., Scheffler, R. M., & Bassett, M. C. (2007). Private voluntary health insurance in development: friend or foe? Washington, D.C., Banco Mundial, p. 10-36. Siciliani, L., Borowitz, M., & Moran, V. (2013). Waiting time policies in the health sector what works? Paris, OECD, p. 34. Willis, E., Reynolds, L. E., & Keleher, H. (2012). Understanding the Australian health care system. Chatswood, N.S.W., Churchill Livingstone, p. 51. Read More