Baby Steps Forward On Health Reform


You wouldn’t know it from most of the media coverage, but Julia Gillard had an important win yesterday.

After four years of trying, the Labor Government has passed a bill to means test the private health insurance rebate. The amendment to the scheme means that high-income earners will no longer receive a 30 per cent public subsidy for their health insurance costs, saving the government an estimated $2.4 billion over the next three years.

The decision was a long time coming for a government that has required the support of the Greens in the Senate to pass the contentious bill. The Coalition under Tony Abbott remains bitterly opposed to means testing the public subsidy, a measure introduced by the Howard government and championed by Abbott when he was Health Minister.

Under the existing scheme, families and individuals who take out private health insurance are able to take advantage of a insurance rebate in which the government pays 30 per cent of the cost of monthly insurance bills, straight to the health insurer. The new scheme will start to pare back that subsidy for individuals earning more than $83,000 and families above $166,000, and it cuts out completely above $129,000 and $258,000 respectively.

Source: Federal Minister for Health

For families on high incomes and with private health cover, the changes will mean a significant hike in their private health insurance bills. Low and middle income earners will still enjoy the rebate.

Health Minister Tanya Plibersek was pretty happy about the passing of the means test. "The legislation is a win for low and middle income earners, who for too long have been forced to subsidise the private health insurance of higher income earners through their taxes," she said in her media release.

Plibersek is right. The private health insurance rebate is certainly a subsidy, and because it is not currently means tested, it is a highly regressive subsidy. This means that the wealthiest in our society — who could easily afford to pay for private health insurance, or indeed simply private health care, out of their own deep pockets — are getting a large subsidy at the expense of other taxpayers, including low income taxpayers.

Of course, what you mean by "wealthy" can change from suburb to suburb, and newspaper to newspaper. The Australian has already exposed one unfortunate Sydney family to national ridicule by slapping them on the front page. Kylie Richards and her husband earn a combined income of more than $258,000, and are understandably a little bit annoyed that their health insurance bills will go up.

"Mr Richards, an ironman triathlete, regularly uses his cover to pay for physiotherapy, and Josh has dental braces," The Australian’s Verity Edwards reported, gushing over the middle class ordinariness of the Richards, even while failing to point out that their income put them comfortably into the top 10 per cent of Australian family incomes.

Although the multi-billion dollars savings accrued by the government has been the main game for those focused on the positive impact of the amendment on the federal budget, the Greens secured a modest win for affordable dental care as part of the legislation. $165 million in dental care funding has been brokered by Adam Bandt and Richard Di Natale as a sweetener, in return for their support of the Government’s bill. The new dental spending will be a down-payment on the Greens’ plans to convince the government to introduce a version of "Denticare", the incorporation of basic dental care into Medicare.

What does the means test mean for the broader Australian health system? Despite Labor’s bold claims of "landmark reform", it’s a largely incremental change that merely nibbles at the edges of what has become a very significant federal entitlement program. Many economists and health policy experts would like to see the subsidy abolished altogether, arguing that the funds would be put to far better use if they were simply directly injected into in the public health system.

Subsidising private health insurance is a clumsy and wasteful way of spending money on health care. The Centre for Policy Development’s Ian McAuley and John Menadue point out in a recent paper that while private health insurers received about $16 billion in premiums last financial year, they only paid out about $13.2 billion in health expenses. The remainder, nearly $3 billion, was simply skimmed off in the form of administration costs (including things that have nothing to do with health care provision, like advertising) and, of course, profits. (I should disclose here that I am a Fellow of the Centre for Policy Development).

Because of its big reach and centralised nature, Medicare has far lower costs as a competing system of health resource allocation. For instance, the sheer size of Medicare means it can effectively set the rates it is prepared to pay for most medical services — a fact perennially hated by doctors and specialists, who would of course prefer to compete in a market where they could use their own collegial advantages to negotiate increased fees. In contrast, highly privatised health systems see rapid cost inflation from health providers.

This is because health is quite unlike many areas of economics, as McAuley and Menadue write today. For instance, customers often have very little information when it comes to making health care consumption decision, but are nonetheless prepared to spend their life savings. The power of doctors to determine the spending of their patients means that over-servicing in many health systems is rife. As a result, health is one of those areas of human life where public provision is generally cheaper than private provision. You only have to look to the US for the key example.

So there’s no doubt that paring back the health insurance rebate is a step in the direction of a fairer health system in Australia. But it’s merely a small step, characteristic of a government that has talked big when it comes to health care reform, but has mainly delivered incremental change.

Labor can claim some significant health policy achievements on this watch, including big new investments in local and primary health, in mental health at the last budget, and in reform to the Commonwealth-state financial arrangements under which public hospitals are funded. Nicola Roxon, the previous Health Minister, also fought and beat the big tobacco companies on the key public health issue of tobacco packaging.

But the truth is that this current amendment is far more precious to Labor for its budgetary implications than for the polish it adds to Labor’s health reform credentials. The extra $2.4 billion is like manna from heaven for Wayne Swan and Penny Wong, who have repeatedly (and rather foolishly) staked their economic credentials on Labor’s long-cherished dream of a budget surplus. Given the projected surplus was razor-thin, the roughly $800 million that the means test will add to the bottom line will make a big difference when it comes to getting that all-important plus sign in from the numbers on budget night.

Tellingly, the private health insurance victory has been only grudgingly conceded by much of the national media, which has preferred to concentrate on the ongoing fixation with Labor’s leadership tensions. Last night, for example, the ABC’s 7.30, which should be favourable terrain for a Labor government announcing a progressive health reform, actually led with more unsubstantiated rumours about the leadership non-challenge, relegating the main legislative event of the day to a subsequent story.

Even some of Labor’s former supporters in the media seem to have turned against it lately. Crikey’s Bernard Keane, for instance, has been running the line that the only thing that Julia Gillard is any good at is passing legislation. It’s a passing strange criticism for a woman who is, after all, a legislator. But the criticism and noise over Labor’s performance — driven in no small part by the enmities surrounding the June 2010 leadership change — is now so loud that its very hard for the Government to get any credit, even on its good days.

Despite this, some incremental reform is certainly better than none. I suspect the legislative and reform credentials of the Rudd-Gillard government, when they are finally assessed (perhaps in 2014 amid the smoking ruins of a Labor defeat), will seem rather more substantial than many currently assume.

At any rate, the Government again has little choice to go about doing what it says it is, which is getting on with the job of governing. Next week, for instance, the Gonski Review into schools funding will be handed down, along with the government’s response. It’s another perilous opportunity for Julia Gillard’s administration to show it is serious about addressing some of the hard-wired inequalities in public policy baked into the system during John Howard’s reign.

The Gonski Review is likely to be highly controversial, especially if it recommends fewer public subsidies to private schools, as public education proponents fervently hope it will. The politics of envy never plays well for Labor, particularly as the media is so good at skewing the direction of that envy downwards. But Labor rarely gets credit when it chalks up a win for the battlers either.

Ben Eltham is New Matilda's National Affairs Correspondent.