Dissenting Report by the Australian Greens
1.1
The Australian Greens have been campaigning for significant reform to
the private health insurance market for some time. As noted by Mr Alan
Kirkland, CEO of CHOICE:
It's hard to imagine any other area of public expenditure
where you have the same number of Australians contributing from their own
pockets, with significant public expenditure and subsidies backing that up,
without us having clear data on what we're getting in return.[1]
1.2
Private health insurance premiums continue to climb for consumers, with
greater exclusions meaning policyholders receive less care for their money, and
with scant evidence the subsidy is taking any pressure off the public health
system. The government's bill attempts to deal with a public policy failure of
an enormous scale by tinkering at the edges.
1.3
This inquiry has shown that this series of reforms, ostensibly designed
by the government to address rising premiums for consumers and restore value to
private health insurance products, will have little effect in improving the sustainability
of the market. What we are instead seeing is an ideological commitment to throw
good money after bad. The private health insurance system operates only through
the generosity of vast public subsidies of more than $6.5 billion each year.
There is no argument that without these subsidies, the market would collapse.
Increasing maximum excess levels
1.4
Schedule 1 of the bill increases the maximum excess permitted in a
complying private health insurance policy that provides hospital cover, from
$500 to $750 in any 12 month period for a policy that covers an individual and
from $1000 to a maximum excess of $1500 for any other policy.
1.5
This will allow consumers to take out products that are low-premium and
low-value. The prospect of a high excess will deter consumers from utilising
their cover. While the Committee notes that this may promote choice, we argue
that this is not the form of choice the Private Health Insurance rebate is
intended to promote. Instead, this change pushes consumers towards taking out
low-value options that are designed purely to avoid the Medicare Levy
Surcharge, while policyholders continue to rely on health care through the public
health system. As noted by Mr Michael Roff, CEO of the Australian Private
Hospitals Association:
Senator SIEWERT: So would it be fair to say that it
would be fairly rare for somebody with a basic policy or low-premium policy to
be using that policy in a private hospital?
Mr Roff : I think that would be fair to say, yes.
1.6
The effect is to make tax minimisation easier. Lower-premium products
simply require a greater share of the cost of a procedure or admission to be
covered at the event point, rather than across the life of the product. The
greater the share of costs to be met at the incidence of an unforeseen health
event, the lower the probability that the policyholder will opt to claim
against their product. This does not take pressure off the public health
system. It directs tax dollars away from the public health system towards the
private insurance market, without reducing the demand for the public health
system itself. This is the only stated reason for the subsidy. It is misaligned
and misguided.
Product design reforms
1.7
CHOICE, the Australian Medical Association, the Australian Private
Hospitals Association and Day Hospitals Australia made clear to this Committee
their objections to the inclusion of a 'Basic' category of cover on the basis
that these policies provide low value cover to consumers and exist to take advantage
of the financial incentives provided by government.
1.8
The Committee's view, that the Basic category of product should be
included because some consumers find this product to have value, is simplistic
and misleading. There is no 'inherent' value to these products. They exist to
reduce tax for consumers. The rationale that they should continue as a way to
maintain a broad distribution of risk throughout the insurance pool simply
points to how poorly the current system is designed. The government is encouraging
low-risk consumers to take up a form of private health insurance to prop up
higher-risk consumers, using tax penalties and price rebates. They do this at
enormous cost to the taxpayer. The risk pool is artificially inflated with
low-value products simply because these premiums contribute to the financial
viability of private health insurers. The role of supporting the cost of older
or less healthy Australians in living long, meaningful and productive lives is
one for government, not for companies.
Aged-based discounts
1.9
The Australian Medical Association has made clear its concerns about the
risk to community rating posed by the provision of aged-based discounts for
private health insurance customers between 18 and 29:
Senator SIEWERT: I want to go back to the community
rating issue. Do both of your organisations acknowledge that the young people's
discount will undermine the concept of community rating?
Dr Bartone: It certainly has the potential if not
implemented correctly or if not further reviewed carefully in the fullness of
time to see the effect it's having. It is a watch-out area; it is a risk area.[2]
1.10
The Committee argues that aged-based discounts are necessary to improve
the appeal of private health insurance for young people. Fundamentally, there
are two key ways to boost take up of private health insurance amongst young
people, who are critical to the sustainability of the market overall. The first
is to reduce the cost of participation, which aged-based discounts are designed
to do. The second is to improve the value of offerings. Combining the impact of
aged-based discounts with increases to maximum excesses, we see the preferred
approach of the Government is the former rather than the latter. This is
disappointing. A product with little value is not appealing at any price point.
Value seems to be artificially produced by various carrots and sticks within
the tax system, along with the Lifetime Health Cover Loading. In this way,
young people see value in private health insurance principally as a tax
minimisation vehicle. To this point, there is no value in the product itself.
It is only what purchasing the product allows the consumer to avoid that any
value is realised. The same impact could be achieved by strengthening the
'stick' of the tax penalty. This is not the preferred approach of the
Australian Greens, but it demonstrates how little is actually achieved by these
reforms.
1.11
The principle of community rating underpins the functioning of our private
health insurance market. The impact of allowing discounts to certain cohorts
based on demographic factors such as age has potentially no impact on
participation in private health insurance. If there is no improvement in
participation among young people in particular, then the provision of aged-based
discounts will have no benefit from a public policy perspective. It will have a
potentially deleterious impact on the market as a whole (by eroding the
principle of community rating), as well as represent a greater cost to the
taxpayer, with no demonstrable benefit for these significant costs.
Inspection powers
1.12
While it is supported that oversight of private health insurance
companies should be increased for the benefit of consumers, it is quite unusual
to grant the Private Health Insurance Ombudsman the power to enter a private
premise without requiring a warrant beforehand. Arguments proposed by the
Department that these powers are justified because there is an equivalent power
available to the Australian Tax Office are alarming. The Australian Tax Office
has a far broader remit than the Private Health Insurance Ombudsman. Their
powers and their responsibilities are not equivalent. The Tax Office frequently
cooperates with law enforcement agencies in criminal investigations. It is
imaginable that such an investigation may necessitate the power of inspection
without warrant, in extraordinary circumstances. No evidence has been submitted
that the Private Health Insurance Ombudsman would require similar powers under
anywhere approaching similar circumstances.
Conclusion
1.13
The Private Health Insurance Rebate represents a transfer of wealth from
the taxpayer to the private health insurance industry. It has been justified by
the government on the grounds that we need a well-functioning private health
insurance system to take pressure off the public health system. There is no
evidence that this is achieved, or that this package makes any reforms which
can be said to take pressure off the public health system.
1.14
Through the rebate, taxpayers subsidise the taking out of private health
insurance products. Taxpayers cover the cost of these private health insurance
customers nonetheless opting to use the public health system. Finally, the $6.5
billion in taxpayer dollars which is currently diverted to private health
insurance companies, could be better spent in the public system, improving the
care available to all.
1.15
The cumulative cost to the taxpayer is tremendous. It is unprecedented
that such a cost would be inflicted on the taxpayer with so little evidence to
suggest that any value is being created from such an investment of public
money.
Recommendation 1
The Australian Greens recommend that the Senate does not
pass these Bills.
Senator Rachel Siewert Senator
Richard Di Natale
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