Medicare Select and middle class welfare

  The Gillard Government’s squeeze on the private health insurance rebate has revived talk of Medicare Select. That was the radical health scheme proposed


The Gillard Government’s squeeze on the private health insurance rebate has revived talk of Medicare Select.

That was the radical health scheme proposed by the National Health and Hospital Reform Commission , an idea forsaken by Labor, but not forgotten by big players in the private health sector.

Below, critics of Medicare Select,  John Menadue and Ian McAuley,  fellows of the Centre for Policy Development   share their distaste for such a scheme.

What prompted their critique was an article by Rohan Mead, who chairs the Business Council of Australia’s Healthy Australian Taskforce.

The Government’s decision to index the health insurance rebate to inflation came as Treasurer Wayne Swan acknowledged the increase in the rebate’s cost, expected to hit $8 billion a year in a decade, was  “unsustainable”.

Mr Mead argues that Medicare Select would provide incentives
for the system to be more focused on health outcomes and would drive

That argument does not persuade Menadue and McAuley.


More Middle Class Welfare

John Menadue and Ian McAuley write:

Independent’s Tony Windsor and Rob Oakeshott have both called for a review of middleclass welfare in association with a GST rethink.

It is very clear that if the Government is to fund expensive fund expensive health, education and disability reforms it will need to clamp down on the public handouts to the middle class.

Last week Michael Smedes, an Assistant Statistician in the Bureau of Statistics, told the Economics Society of Australia that 12% of all government handouts in ‘social assistance benefits’ goes to the wealthiest fifth of Australian households. The next highest
quintile got 11% of those benefits.

One of the key vehicles for this middle class welfare is the Private Health Insurance rebate which costs the taxpayer $3.5 billion per annum even after the recent tightening of the means test.  Earlier this month, the private health insurance lobby was pressing for even more middle class welfare through ‘Medicare Select’.

Medicare Select was floated by the National Health and Hospital Reform Commission in 2009. The Commission suggested that  all Australians  be enrolled in a government-funded plan, but with the opportunity for members of the community to move to a selected non-government plan.

Government funding would be diverted on a capitation basis to those ‘plans’. The plans would be managed by private corporations or not-for-profits.

If the 45% of Australians who presently have PHI opted for Medicare Select, over $30 billion presently spent by the Commonwealth Government in health care would be channelled through high cost PHI.  Good night Medicare.

Subsidised PHI takes us down a slippery and expensive route. Every country that has widespread PHI without price controls has high costs.

Because of the market power of providers there is little competition or efficiency in health care markets.

President Obama may achieve a more comprehensive health service in the US, but without further action it will be horrendously expensive.

In his Affordable Care Act, he can sponsor at least two nation-wide
health insurance plans to be operated under contract with the federal
government and offered to consumers in all states.

Hopefully these two plans will morph into a more robust ‘public option’. Only a public option like Medicare can start to wind back the havoc which private health insurance has brought to America.

The impact of subsidised private insurance:

Favours the wealthy. Eighty per cent of the wealthiest 20% of Australians have private health insurance. Only 25% of the poorest 20% of Australians have private health
insurance.The subsidy is really middle class welfare.

Increases usage of health services.  As the Productivity Commission put it  in 2005 ‘increased levels of PHI have been associated with a marked increase in the number of
services performed and reimbursements of their services’.

Favours financial intermediaries whose administrative costs,
including profit margin, are about three times that of Medicare.  No wonder they keep raising premiums every year at more than the CPI.

Has not taken pressure off public hospitals and has allowed
private hospitals to attract highly professional staff away from public
hospitals with remuneration sometimes four to five times higher than
remuneration in public hospitals.  This has been facilitated by gap insurance provided by PHI. This gap insurance has facilitated the largest increase in specialist fees in Australia in the last 25 years.

Is a dishonest and inefficient way of promoting so-called
‘choice’. The Royal Automobile Club doesn’t need to enter into the crash repair
business to ensure consumer choice. We don’t need subsidies to PHI firms to
promote private health delivery. Medical services funded by Medicare and
Veterans’Affairs are overwhelmingly provided by private doctors.

Weakens Medicare’s capacity to control cost and quality. In
2003, the OECD published a case study on PHI in Australia . It reported
‘(private) funds do not exercise control over the quantity, quality and
appropriateness of care provided .. Private funds have not effectively engaged
in cost control’. By contrast, the Commonwealth, as the single buyer of
pharmaceuticals under the PBS has been remarkably successful in containing

We need less middle class welfare in health, not more.  Medicare Select would destroy Medicare. The $3.5 billion annual subsidy  that the PHI companies receive should be abolished and the funds transferred to a comprehensive dental scheme.












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2 thoughts on “Medicare Select and middle class welfare

  1. Doctor Whom

    The current PHI subsidy in Australia is absolute madness and should be discontinued but this is not related to a Netherlands style Medicare Select.

    Different beast.

    Naughty ideological sleight of hand to link them.

  2. Adrian

    As someone who is firmly in the middle class I’d argue that my benefit from the medicare rebate is near to nothing. I have private health insurance but I never make a claim. The real beneficiary is the private health industry. The government has made private health premiums “equitable” by preventing premium discrimination based on risk (i.e. the elderly pay the same premiums as the young and healthy). The elderly benefit on their car insurance premiums due to their low risk profiles but are protected on their health insurance. Every year my health insurance goes up – despite me not making claims, every year my car insurance goes up despite my car being worth less and less. And every time I take my family to the doctor I’m out of pocket as the fees are more than medicare rebate and my health insurance doesn’t cover the most common medical expense the average Australian incurs. I’d be very happy to see my rebate disappear and have a larger medicare rebate on GP visits – although I have a strong feeling that the GP fee will rise the exact same amount as the increased rebate from medicare. All these things point to some fundamental problems in insurance that I don’t see anyone in government doing much to manage. The only insurance premiums I pay that I don’t feel ripped off over are TAC and home contents.

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