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 impendingÂ Private health reductions in public hospital funding. In a timely article below,Â Ian McAuley warns of the potential dangers of a health system dominated by PHI.
Ian McAuley writes:
Alan Kohlerâ€™s Eureka Report this week has a link to an article â€śBitter pill: why medical bills are killing usâ€ť, from that right-of-center magazine Time.
Itâ€™s a very long article, drilling down into the factors, which have driven US health care costs to such high levels â€“ 20 percent of GDP compared with a developed country norm of 10 percent Â (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. Â Just as Eisenhower 60 years ago warned about the â€śmilitary-industrial complex, so is the author, Steven Brill, warning about the health care complex.
He points out the widespread price discrimination practiced by providers. Â The highest prices are those on hospitalsâ€™ schedules (â€śchargemasterâ€ť 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. Â 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 dâ€™etre â€“ they are simply like the other big businesses. Â (In this regard, it is notable that Catholic Health Australia is showing enthusiasm for â€śMedicare Selectâ€ť.)
His ideal is a single payer system with strong monopsony powers. Â He is also strongly in favour of such a system incorporating compulsory non-insurable co-payments. (Medicare has a 20 percent gap). Â Itâ€™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 patientsâ€™ interests, with the best of markets in setting some price signals at the time of service. Â He also points out that while private insurers can pass their costs through to the insured, Medicare is subject to the discipline of appropriation. Â 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 â€“ the idea that â€śHCF/BUPA will pay for it ” is no different from the idea that â€śMedicare will pay for itâ€ť. 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! Â Â Australians, including older Australians, are generally wealthy, and can afford reasonable co-payments, provided these are capped by the strength of government power Â – the PBS is a good model.
Yet the prevailing thought in Australia is that somehow PHI is a â€śgoodâ€ť. 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. Â Â Itâ€™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. Â 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 â€“ since then it has unashamedly gone for subsidizing PHI, even while reasonably opposing most other forms of industry subsidy.