CAN WE DESIGN A MARKET FOR COMPETITIVE HEALTH INSURANCE?
PRIVATE HEALTH INSURANCE IN AUSTRALIA
The role that private health insurance now holds in the Australian system is often regarded as a
peculiarity of our health care system. With the establishment of Medibank and then later Medicare,
health insurance moved from a voluntary, private but tax subsidised system to a universal, tax
financed scheme. Public hospitals remained owned and operated by the States and Territories.
Medicare provides universal cover and encompasses medical care, hospital care and pharmaceutical
benefits, including public hospital care at no charge to the patient. Private health insurance is now
limited to private in-patient treatment, and some ancillary services such as dentistry, physiotherapy,
and some lifestyle and fitness programs and products. However, compulsory community rating
was retained. This placed private insurance in a somewhat ambiguous role, as the justification for
community rating is equity based, while private hospital treatment could be seen as a luxury option
alongside universal access to free public hospital care.
The Macklin review of the Australian health system, commissioned under the Labor Federal Health
Minister, Brian Howe in the early 1990s, considered the extent and use of private health insurance,
at that time covering abut 40% of the population. It noted the ambiguity in the existing arrangements
but did not canvas the managed competition option and avoided reaching any definitive conclusion
about its future (Willcox 1991). However, this review did give serious consideration given to
introducing a purchaser-provider split. No such reform was enacted although there have been
gradual changes in the organisation and funding of Australian health services (Hall 1999).
The place of private health insurance remained contested. Prior to the 1996 election, this was the
major health policy difference between the two major political parties. The Liberal Party supported
the dismantling of universal tax-financed health care and its replacement with voluntary, private
insurance. The continuation of Medicare and the expansion of publicly financed health care was
associated with the Labor Party but the role of private insurance remained ill-defined. In 1996,
the Liberal Party changed its platform to support maintaining Medicare, although at the same
time promising more support for the role of private health insurance which had continued to fall
in its population coverage. The Liberal Party won that and successive elections and proceeded to
implement pro-private insurance strategies (Hall, De Abreu Lourenco et al. 1999).
Although the fall in private insurance coverage was substantial, it is remarkable that insurance
coverage remained as high as it did, as Medicare entitles all Australians to free public hospital
treatment. Even at its lowest point, over 30% of the population held private insurance (Private Health
Insurance Advisory Council 2002). In spite of its voluntary nature, private health insurance has
remained highly regulated with a form of community rating and open access mandated, and any rise
in premiums requiring Government approval. The private health insurance strategy has comprised
a mix of incentives and penalties which by 2003 was costing the Government some $2.3 to $2.4
billion each year, or around 7% of the Australian Government expenditure on health (Australian
Institute of Health and Welfare 2002). This is justified in pursuit of the objective of giving consumers
more choice (Australian Department of Health and Ageing 2003a) At this stage, although the 30%
subsidy of insurance premiums has been criticised widely, (Duckett, Jackson 2000) the Labor Party
is committed to its continuation.