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Timely lessons from America on the dangers of a system dominated by PHI.

Yesterday on Radio National’s Health Report, Dr Norman Swan discussed the impending Private health reductions in public hospital funding. In a timely article below, Ian McAuley warns of the potential dangers of a health system dominated by PHI.

Ian McAuley writes:

Alan Kohler’s Eureka Report this week has a link to an article “Bitter pill: why medical bills are killing us”, from that right-of-center magazine Time.

It’s a very long article, drilling down into the factors, which have driven US health care costs to such high levels – 20 percent of GDP compared with a developed country norm of 10 percent  (a figure we all know but a reminder is useful).

Lest any Australian feel smug about our costs in comparison, it carries a strong warning about the consequences of a system dominated by private insurance facing the power of strong service providers, particularly corporate hospitals, medical appliance firms, imaging services and drug companies.  Just as Eisenhower 60 years ago warned about the “military-industrial complex, so is the author, Steven Brill, warning about the health care complex.

He points out the widespread price discrimination practiced by providers.  The highest prices are those on hospitals’ schedules (“chargemaster” prices), but, apart from being used to extort payments from the uninsured and foreigners, they have little connection to prices paid. In relation to our concerns in Australia the more significant difference is between the prices charged to private insurers and to Medicare for the same services. Even though hospitals are free to refuse to provide services to Medicare patients (apart from emergencies), and even though their lobbies complain about Medicare payments, all hospitals welcome Medicare business. Medicare is a strong and effective single payer system.

He is particularly scathing about the not-for-profit hospitals, including university and church hospitals. Revenue from over-servicing and over-charging is churned into expansion (leading to more over-servicing) and high management salaries.  In the church hospitals, such as those ostensibly run by the Mercy order, there is now hardly any charitable work which was their original raison d’etre – they are simply like the other big businesses.  (In this regard, it is notable that Catholic Health Australia is showing enthusiasm for “Medicare Select”.)

His ideal is a single payer system with strong monopsony powers.  He is also strongly in favour of such a system incorporating compulsory non-insurable co-payments. (Medicare has a 20 percent gap).  It’s all sensible economics, which combines the best of single-payer arrangements, which can stand against the power of service providers and can act in patients’ interests, with the best of markets in setting some price signals at the time of service.  He also points out that while private insurers can pass their costs through to the insured, Medicare is subject to the discipline of appropriation.  Unfortunately, consumer lobbies oppose prohibition on gap insurance.

This last point is the most important one for us in Australia. I, and others, have long pointed out the moral hazard of all insurance – the idea that “HCF/BUPA will pay for it ” is no different from the idea that “Medicare will pay for it”. Nothing new in that, except that health insurers try to pretend that, being private, they somehow bring the discipline of market forces into play. Absolute humbug!   Australians, including older Australians, are generally wealthy, and can afford reasonable co-payments, provided these are capped by the strength of government power  – the PBS is a good model.

Yet the prevailing thought in Australia is that somehow PHI is a “good”. There is hardly any acknowledgement of the way it contributes to health care inflation, and, because of our particular arrangements, how it sucks resources out of public hospitals and subsidizes queue-jumping.   It’s a disgrace that over the five years Labor has been in office PHI membership has risen from 43 to 47 percent or by 1.5 million people.  The Liberal Party is even more in support of PHI, but it did have a brief moment of economic sanity in the 1987 election campaign when it went to the electorate with a proposal for a $250 uninsurable co-payment (equivalent to about $600 now), but an unholy alliance of health insurers and consumer groups opposed this proposal so vehemently that the Liberal Party abandoned the proposal during the campaign. That was the last time the Liberal Party entertained the idea of price signals – since then it has unashamedly gone for subsidizing PHI, even while reasonably opposing most other forms of industry subsidy.

 

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  • 1
    Trevor Kerr
    Posted February 26, 2013 at 6:47 pm | Permalink

    I sent a letter to a newspaper, not long after reading Brill’s article.
    Good on Greg Sheridan for exposing his chest so we can see the scars from his heart surgery. It’s a rivetting account, perhaps with too much detail for some. He left out one detail, though. He doesn’t say anything about costs. Neither to his private insurer, nor to him as out-of-pocket expenses.
    Judith Sloan (‘Blame game on steroids as health reform founders’, 23/1) writes about ‘cuts’ to expenditure on health as though she was a surgeon, herself.
    In those two articles, rather by what they omit, is a prime reason why our health care “system” is so mangled. Consumers, ie, taxpayers, are totally oblivious to the real costs of events in their own health care. Without that information, the electorate is unable to make sense of the roiling arguments, let alone make informed decisions at the ballot box.
    A book-keeper could do the public a great service by extracting those costs, because they must be itemised somewhere, and listing them. Even if it’s only for Greg Sheridan’s procedures. While they are at that, compare the real costs to what they would be in a public hospital. To top off the exercise, set those costs against what they are in the US system, because that’s where ours is heading.

    It didn’t see the light of day.
    Does anyone know whether any of the PHI brands is actively promoting preventative health?

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