Have you ever heard a public healthcare system story like this: Aunty Jane needs an operation on her knee. She’s been on the public system waiting list for two years. Her surgery is booked for next week. She checks into hospital on the day of her surgery. She’s prepped and ready to go, but at the last minute her surgery is cancelled. The theatre that was to be used for her knee operation is required for emergency surgery. Aunty Jane still waits for her knee operation.

I hear many stories like this one, cases where the public healthcare system lets someone down. What I am struck by, however, is what usually follows. The person recounting the story laments the state of the public healthcare system. But what they usually see as the answer to Aunty Jane’s predicament is private health insurance. So the story goes, ‘If only Aunty Jane had private health insurance, then she wouldn’t have waited the two years; she would have gone in for surgery immediately; she’d be back tripping the light fantastic down at the local dance hall on Thursday nights’.

There are two problems with this response to Aunty Jane’s predicament, however.

First, the proposed solution to Aunty Jane’s predicament — private health insurance — fixes the problem of a failing public healthcare system by driving people into a private system. Second, private health insurance is a viable option for some people; it is not a viable option for all people. In Australia, private health insurance is one of the most expensive insurances. It should come as no surprise, therefore, that lone-parent and low-income families have low rates of private health insurance membership (Barrett & Conlon 2003, pp. 285, 289, 291) [1]. The premiums are simply beyond their means.

So let’s look at the first problem first.

A public healthcare system that improves by failing

Fixing Aunty Jane’s bung knee and fixing the public healthcare system are two very distinct but linked problems. The state of the public healthcare system is not Aunty Jane’s fault and Aunty Jane could avoid any further inconvenience by taking up private health insurance. These are two simple truths. But what happens when many people move to private health insurance to avoid a similar predicament?

Let’s say there are 150 people who at any one time require medical services but the public hospital system can only service 100 patients. The remaining 50 become Aunty Janes — they wait. Eventually they may go to private health providers to service their medical needs. This should lighten the load on the public system so that the public system can service the (100) people who require medical attention but who didn’t opt for private cover. You get improved service in the public healthcare system because many of the people who would otherwise have drawn on its services opted for private health care. But is increased uptake of private health insurance really linked to improvements in the public healthcare system?

In 1997-98 approximately 30% of Australians subscribed to private health insurance (PHIAC 2010). Given that private health insurance subscription has risen to 44.6% in 2009 one would assume that there would be an associated decrease in government funding as a percentage of total health expenditure over that period [2]. Not so. As the Health Expenditure Australia 2008-2009 report states, in 1997–98 Australian governments funded 67.4% of total health expenditure; in 2007-08 they funded 68.7% (AIHW 2009, p. ix; see also, Segal 2004, p. 8).

So, despite the hype, the shift to private health insurance over the past 12 years has not eased the financial burden on the public health system. The public health system burden may have been greater than it now is had private cover not been introduced, but the fact that the government funded a larger percentage of health expenditure in 2007-08 than it did ten years before shows that private health insurance will not cure the system and will not ease the burden on government finances. Indeed, of the 30% of healthcare funding that comes from the private sector less than 10% comes from private health insurance. The majority of private funding comes from out-of-pocket private expenditure (‘gaps’ and surgery paid for by the self-insured (approx. 15%)) and other non-government sources (approx. 5%) (Barrett & Conlon 2003, p. 279, fn. 1).

When many people move to private health insurance to avoid Aunty Jane’s predicament private health insurance membership increases but the public system remains overloaded. Even though on 30 June 2009 there were 9.7 million Australians with private hospital cover (DHA 2009, p. 152), the ‘Aunty Jane problem’ persists. Therefore, what we have is a public system that government is trying to improve by providing fewer services than are required — by letting it fail. However, as private health insurance membership increases that increase does not translate into reduced public waiting lists. Essentially, government’s bid to let the public healthcare system fail in the hope that increased private health insurance will ease the public healthcare burden is itself failing.

Now to the second problem with the proposed solution to Aunty Jane’s predicament.

A healthcare system beyond the means of many people

The rhetoric surrounding the private health insurance debate suggests that a private health insurance industry is required to direct private money into a healthcare system that will otherwise run short of funds. Government’s point is that a shift to private health insurance is necessary, and although some people will not be able to afford private insurance those who can afford it should be encouraged to take it up. To this end the government has offered a series of carrots (rebates) and sticks (lifetime loading penalties and an additional Medicare surcharge) to drive increased private funding (Palangkaraya & Yong 2005).

As we have seen, however, there is no necessary link between increased private health insurance membership and reduced government healthcare spending. Neither is there a necessary link between reduced private health insurance membership and increased government healthcare spending. Between 1991 and 1997 private health insurance membership rates dropped from 11.5% to 10.4% but there was no associated rise in government healthcare expenditure (Segal 2004, p. 9). Although there is little evidence that promoting a private health insurance industry reduces the strain on the public system, the private health insurance industry forges ahead. No doubt we’ve all seen the Medibank Private adds telling young, hip people that ‘Freedom is having options’ [3].

So, what occurs as a result of increased private health insurance? Well, a market is created for middle-class alternative therapies — a market that was created by government’s heavy promotion and subsidy of private health insurance. People with private insurance don’t simply opt to have procedures in private hospitals that they would otherwise have had in public hospitals. Rather, when a person purchases private health insurance out of their own pocket they feel compelled to get their money’s worth. This creates a demand for healthcare that did not exist before and, therefore, does not necessarily reduce the overall demand on the public system. Segal (2004) identifies this phenomenon as ‘supplier-induced demand’ (p. 8). To give but one example of the absurdity of this new market, in 2002-03 speech therapy, occupational therapy and dietetics — treatments with proven health benefits — received $5 million of government subsidies through private health insurance while natural therapies received $10 million (Segal 2004, pp. 11-12). We can only hope that this new market is an unintended consequence of government policy. Regardless, given that the cost of premiums effectively excludes people with lower incomes, private health insurance has become a form of middle-class welfare.

Our fiscal responsibility

During 2007-08, expenditure on health averaged $4,874 per person; that’s $103.6 billion Australia wide — 9.1% of GDP (AIHW 2009, pp. ix, 13). It is incumbent upon us to spend this money well; we are mistaken if we believe that increasing private health insurance membership is a means to improve the public system. As Sundararajan et al. have noted, although there has been a small increase in the share of the healthcare treatment burden (not funding burden) now covered by private insurers, this burden tends to be at the less severe end of the medical treatment spectrum (2004, p. 327). The public system continues to provide the bulk of emergency medical care and treatment of severe ailments.

This may be just what Aunty Jane needs, however. If the public system is backlogged with patients in a worse situation than her then the fact that private health insurance tends to service the less-severe end of the medical treatment spectrum will benefit Aunty Jane, if she can afford it. In her case, by taking up private health insurance Aunty Jane would lighten the load on the public system. But if private health insurance to date has barely reduced the strain on the public system and hasn’t led to those people who can’t afford private insurance being serviced in the public system, then what is its true value? You have to question the merits of a private health insurance system that despite membership increasing from 31% to 45% between 1998 and 2001 has only increased the private sector share of health services by 3% from 33% to 35% over the same period (Sundararajan 2004, p. 327). And here is where ideology comes into play.

The ideology behind private health insurance

In a bid to reduce the size of governments, advocates of liberal (in the sense of economic rationalist or ‘neo-classical liberal’) economic policies promote self-reliance. An ideology that promotes self-reliance will expect Aunty Jane to solve her own problems, including her bung knee. Aunty Jane has no right to expect that the state will fix her knee through the public health system [4]. Faced with her predicament it is incumbent upon Aunty Jane to pay the market price for her knee surgery. She may spread this cost by purchasing private health insurance. So she pays her premiums every year and when she does require surgery she gets it.

Self-reliance is an admirable trait. However, is Aunty Jane’s need of knee surgery a case when we should be encouraging her self-reliance? There are times when people require very basic services like medical attention, and to encourage self-reliance in such instances is, essentially, to absolve ourselves of any responsibility for ensuring their health. What happened to the idea of leaving no person behind? It is simply barbaric to expect Aunty Jane to be self-reliant when she’s in need of medical attention.

But the worst comes when the idea that self-reliance is a virtue relevant to such situations gets a firm hold on our minds. When we begin to take it for granted that people should seek private health insurance we begin to resent their dependence on the public health system. We’re out there purchasing private health insurance. Faced with a failing public system we’ve sought an alternative solution — we pay private insurance companies to cover the possibility that we’ll need knee surgery in the future. So why should others expect to be treated any different?

And this is when we develop a resentment toward those who cannot afford private health insurance. When the ideology of self-reliance takes a firm hold not only do we resent those who draw on public resources, we also resent them for being in a situation where they would even consider drawing on public resources. By turning to the public system they have either rejected the idea of self-reliance or have proven that they’re trapped in a state of dependence, like infants suckling on the teat of the state: the nanny state. And so we reach the modern disjunction: either you’re self-reliant or you’re dependent on the state and, thereby, trapped in an immature state of existence.

What ever happened to leaving no person behind?

As this ideology of self-reliance creeps into everyday language and ideas it implies and it leads to a view of those who draw on public resources that many of us would otherwise find repugnant, and even though, in appropriate situation, we praise the idea of self-reliance.

Conclusion

Many people are aware that private health insurance will not fix the public healthcare system and that private health insurance excludes people based on income. But they opt for private cover anyway. Faced with long waiting lists in the public healthcare system and the prospect of being in Aunty Jane’s position sometime in the future they see no other option but to take up private health insurance, if they can afford it. But when we look at the fact that private health insurance is exclusive and combine this with the fact that it doesn’t alleviate the strain on the public system, some very disturbing consequences follow.

Think of what these two problems with private health insurance entail. If you’re faced with a publicly funded system of any sort that fails you and you choose to simply opt out, you’ve taken charge of your affairs. This type of independence and initiative can be an admirable trait. Finding a solution to your predicament is praiseworthy. However, if you find your own solution and let the existing state of affairs in the public system continue — if you forget about the initial problem once your particular problem has been solved — then you’ve simply ignored the larger problem: the problem of what happens to other people who cannot afford private health insurance — the lone-parent and low-income families.

We are turning our backs on a public system based on a broken promise: the promise that by taking the self-reliant option we’ll play our part in easing the burden on the public system. The promise of a better public system allows us to swallow the exclusive access to private health insurance. We’re comfortable with a private system that excludes those who cannot afford the premiums when we know that moving to the private system will free up space in the public system. Now we know that this is not happening. And if it’s not happening then the only reason for continuing down the path of private health insurance is the ideological one: to promote self-reliance in all areas of life. The question we now face is whether we’ll let this ideology creep into health care — an ideology that would see many of our fellow Australians left behind.

Notes

[1] Interestingly, rates of private health insurance (PHI) increase with income only to a point. People with high incomes tend to ‘self-insure’; that is, rather than pay annual PHI premiums they pay for private treatment when they require it (Barrett & Conlon 2003, pp. 285, 289). Segal (2004) disagrees, arguing that people in the higher income brackets actually take out PHI with a low premium in order to avoid the extra 1% Medicare surcharge and then continue to use public services or fund the healthcare they require but which is not covered by low-end PHI (p. 8). [back to text]

[2] This figure of 44.6% of Australians can also be approximated by taking the Australian Bureau of Statistics’ 1997 population figure of 18.5 million and dividing by the number of people insured at that time as reported in the DHA 2008-2009 Annual Report (DHA 2009, p. 153). [back to text]

[3] Much PHI marketing is directed at young people, who were the largest group of subscribers during the Government’s PHI incentive period. However, young people place little strain on the public healthcare system (Segal 2004, p. 8). [back to text]

[4] The irony of the ideological drive for smaller government is that it costs the taxpayer a great deal. In 2001-02 Australian governments spent $2,500 million on policies to drive PHI subscription: $2,110 million on the 30% PHI rebate and $410 million in extra Medicare payments to people using their private cover (for which they are still entitled to a Medicare rebate). Effectively, the government spent the equivalent of 35% of the annual public hospital budget on PHI incentives. Furthermore the figure of $2,500 million does not include the cost to government of waiving the Medicare surcharge, conservatively estimated to be $760 million (Segal 2004, p. 6). [back to text]

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