Last week the ALP government achieved one of its goals — the private health insurance rebate will be means tested from July 1, 2012.
For many this was a simple issue of removing middle-class welfare. Tanya Plibersek made the point that people earning $50,000 a year shouldn't be subsidising the private health care of individuals on $250,000 a year.
Well said. Individuals on $50,000 shouldn't be subsidising anyone. The problem is Plibersek's argument works too well. Are we to believe that people on $50,000 are subsidising all government services that are not means tested? On that logic public education and public health could be means tested too.
Private health insurance is something of a bug-bear for social democrats who believe that everyone should have equal access to health care. That belief implies a fully public health system. Let's be clear — that is perfectly respectable policy position. But it does raise some thorny problems.
A public health system must have politicians and bureaucrats making choices as to how much health care everyone gets. It must ignore the personal preferences of those who would like a little more and even those who would like a little less. Such a system is a wealth transfer from the young and healthy to the old and unhealthy. To be fair, however, that is a price social democrats are prepared to pay.
Public health systems are likely to be quite expensive. Not just in monetary terms. Money can be saved by having long waiting times for treatment. Economists can put a monetary value on pain and suffering, but that figure never turns up in a budget. So public health incurs a cost to the public purse, and imposes pain and suffering on patients who have to wait for treatment.
A private health system can relieve some of the pressure on a public health system. Those who are willing and able to pay more for their health care can exit the public system and incur less pain and suffering. Given the fewer patients in the public system waiting times are reduced (for a given level of expenditure) and/or the monetary cost of public health is reduced too. Everyone is a winner.
It is this kind of logic that underpinned the private health insurance rebate. The government shared the budget cost saving with the taxpayer who generated the saving by buying private insurance. Some readers, of course, will view that argument with some suspicion. Quite rightly so. Yet in a 2003 analysis, Ian Harper produced an astonishing graph that supports that story.
The other criticism is that the Howard government never told that story — or if it did, didn't tell it well. The rebate was always sold as being some sort subsidy to the private health care industry. All industry subsidies should be removed — not just for health care but the motor industry too.
So when evaluating means testing of private health care we need to consider what has actually happened. If this is eliminating an industry subsidy then it is good policy. But if there was a cost sharing arrangement in place then it might not be good policy.
For those who retain their private health insurance the cost of living has increased. There are three mechanisms driving that increase; the loss of the rebate, the potential for increased insurance premiums, and the increased monetary cost of the public health system.
There has been a lot of schadenfreude — social democrats sniggering that families on incomes more than $166,000 can't really be doing it tough. Maybe not — but they vote and a minority government has to gain votes, not lose them. Essential Media reports that while 76 per cent of Labor voters support the policy only 33 per cent of the population intends voting Labor. Only 38 per cent of Coalition voters support the change.
What about those who drop out of private health insurance? (If thinking about doing so, you should first evaluate the impact of the Medicare levy surcharge. The ATO has some tax calculators that should assist in making the decision. You may find that even though you would like to drop out that financially you would worse off. If so, then your cost of living has increased.)
For those people who do actually drop out, then the net cost or net benefit depends upon the interaction of the saving from not paying for private insurance against the increased cost of the public health system and the additional pain and suffering incurred by increased wait times in the public health system. Those who are young and healthy (and on low lifetime incomes) may find a net benefit to dropping out.
Drop-outs, however, will impose a cost on those who remain (increased premiums) and those already in the public system (increased pain and suffering while on waiting lists). The increased budget cost of public health gets shared across the tax system in proportion to the overall tax burden.
For those who never had private health insurance they now have to share the public system with those who drop out of the private system and, to the extent they pay tax, they will pay more for the public system.
So in summary — what is really happening? On the assumption the private health insurance rebate was a sharing arrangement, the means test is actually quite regressive. Everyone experiences an increase in the monetary cost of public health, those who remain experience an increase in the cost of private insurance, everyone else experiences an increase in pain and suffering while waiting for public health care. The drop-out rate, that the government hopes will be low, will determine how regressive the policy is, not whether it is or is not regressive.
If the objective of a public health system is to minimise the incidence of health related pain and suffering, this policy is unlikely to be good policy. If on the other hand the objective is to minimise the incidence of private health care and democratise pain and suffering in waiting lists, it is more likely to be good policy.
No comments:
Post a Comment