Health insurance faces ‘death spiral’ without urgent reform

The research paper warns of an impending crisis in Australia's heath system.

The research paper warns of an impending crisis in Australia's heath system. Photo: Getty

Australia’s health care system is in urgent need of reform, according to a new report into private health insurance, which has declared the Federal Government is facing an impending crisis.

In a new paper, Grattan Institute analysts Dr Stephen Duckett and Kristina Nemet warn the sector could be at risk of a “death spiral” if the trend of young, healthy people dropping their cover continues.

The “unhappy mix” of partially public and partially privatised health care in Australia has led to a system “riddled with inconsistencies and perverse incentives”, they write.

This means a new framework is urgently required.

But they said the government must decide whether the purpose of the private health system is to complement or be a substitute for the public system before considering if further subsidies are the best solution to save the industry.

If it’s meant to be complementary – offering “add-ons” or services not available under universal public health – then the argument for increasing public subsidies is weak, the paper said.

More than half of all Australians have private health insurance which covers services not taken in by Medicare, including dental, optical and allied health services such as physiotherapy.

“If government is not prepared to provide those additional services universally, it is illogical to subsidise for a subset of the population through (insurance), especially when that subset is not the most disadvantaged in the community,” the Grattan paper argues.

But if it is seen as a substitute for the public system, perhaps offering faster care to those who can afford it, then the argument for increasing subsidies is stronger – as long as the private system can show it is cost-effective, it states.

However, Dr Duckett and Ms Nemet said it was hard to compare the efficiency of the two sectors and previous studies have produced contesting findings.

But they conclude that, overall, it is unlikely that taxpayer subsidies of private health insurance reduce the total spending on health.

“Ultimately, the final judgement about the value of subsidies for PHI (private health insurance) will involve balancing the net benefit relative to the net costs, both to government and society, taking into account who pays, the role of government, and the value placed on the complementary role of private care,” the paper said.

-with AAP

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