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Running for cover - private health insurance

By Stephen Leeder - posted Friday, 2 December 2005

Publicly funded subsidies for private health insurance are used by the federal government to strengthen private health care. The argument that they were introduced to “take pressure off the public system” never made any sense, any more than direct federal support for private schools took pressure off the public education system.

The subsidies were in line with the political ideology of the federal government to strengthen private sector competitors of public sector services, usually provided by state governments. This is a rational policy response from the federal government: why pick a fight over Medicare when you can use tax dollars to strengthen competitors with it?

Public subsidies for private (factually, private hospital) “health” insurance have led to an increase in federal government spending on health care. They have dragged in more dollars from the subscribers as well. Overall national outlay on health spending has increased.


What should private insurance cover? This question assumes fresh importance now that the taxpayer contributes a third of the cost of the product. Clearly, there are private health insurers and there are other private health insurers, and so comments about their performance are not “one size fits all”. However, once public subsidies started, the public had a reason for new interest in what was being paid. As a result, a range of blandishments (gym shoes being the icon) that were previously on offer to attract subscribers were removed from the list of benefits. The assumption was that private insurance should be used to pay for private hospital care and a few generally accepted ancillary services (a little help for dentistry, physiotherapy and so forth).

There is no clear-cut line of demarcation. Some medical and surgical procedures of questionable merit are covered. Proof of efficacy is not essential for them to be included on a list of rebatable items from private health, but there is an assumption that what is paid for is generally accepted by mainstream medicine as fair trading. Homeopathy and naturopathy and related alternative approaches do not conform to this definition.

A market-oriented private health insurance industry uncontaminated by public subsidy could cover anything and everything its subscribers fancy - gym shoes, organic foods, relaxation, Zen - the works. But when the “private” insurance is one-third paid for by tax dollars, the public has a right to ask about the value of what they are paying for. When the subsidies and tax fiddles for private insurance were introduced, a scare campaign told us to “run for cover” and take out private insurance. Presumably this is because without it, essential health care could no longer be guaranteed. But homeopathy? I think not.

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About the Author

Stephen Leeder is professor of public health and community medicine at the University of Sydney, and co-director of the Menzies Centre for Health Policy.

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