The federal authorities has, for a very long time, inspired Australians to get personal medical health insurance, in an try to scale back the monetary burden on the general public well being system.
To make personal medical health insurance extra engaging, the federal government has a method of carrots and sticks. Low-income and older individuals obtain subsidies via “premium rebates”. Excessive-income earners with out the suitable coverage face the Medicare Levy Surcharge, starting from 1 to 1.5% of their taxable revenue.
The effectiveness of those subsidies is commonly debated, with questions on whether or not the A$6.7 billion of taxpayer cash that subsidises personal medical health insurance premiums could possibly be higher spent on Medicare or straight financing hospitals.
We got down to reply this query: do the financial savings from elevated participation in personal medical health insurance outweigh the prices the federal government incurs by subsidising personal medical health insurance rebates?
Our evaluation, which was commissioned and funded by the Division of Well being and Aged Care, discovered massive advantages to the federal government, particularly when older individuals join personal insurance coverage. On common, the federal government saves about $554 for every individual it helps with these subsidies a yr.
However rebates might be higher focused for Australians who usually tend to want and use well being companies.
How did we work this out?
To evaluate if the cash spent on subsidising personal medical health insurance pays off, we examined each the prices (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge) and the financial savings.
To calculate the financial savings we checked out how a lot cash the federal government would spend if these individuals didn’t have personal medical health insurance and used the general public well being system as an alternative of the personal system. We name this the “offset”.
This can be a key metric for the success of the carrot and sticks, as it will likely be in a position to inform us the health-care prices saved by the federal government when somebody has personal insurance coverage.
Utilizing personal medical health insurance spending information from 2019, we made assumptions that someday in a non-public hospital prices equal to someday in a public hospital, primarily based on findings from the Productiveness Fee.
We additionally factored within the authorities’s 75% Medicare Advantages Schedule price contribution, and greater costs for prostheses (for hip replacements and different implants) within the personal system.
On common, we discovered that non-public medical health insurance offsets public health-care prices by about $1,400 per individual, with higher financial savings for older individuals than youthful individuals, reaching $4,000 for these aged 75 and above.
To reply if the financial savings from personal insurance coverage take-up outweighs the prices incurred, we would have liked to have in mind what the federal government spends to subsidise insurance coverage.
We used the usual premium rebate percentages the place an individual aged 70 or above incomes as much as $90,000 attracts a 32.812% rebate, whereas an individual aged below 65 making $105,001–$140,000 would obtain a 8.202% rebate.
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With a mean annual personal medical health insurance premium of $2,300, this could imply the federal government incurs prices starting from $755 to $189.
As individuals who enrol in personal insurance coverage don’t need to pay the Medicare Levy Surcharge, which helps fund the general public well being system, we discovered that the forgone tax quantities vary between $970 and $2,400 for single people topic to the penalty.
Combining the prices (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge), and subtracting the financial savings (the offsets), is how we discover that the subsidies are a great monetary deal for the federal government. The subsidies are lower than the price offset by about $554 per one who has personal medical health insurance.
Is there room for enchancment?
This raises a query: what if we may change these subsidies primarily based on who prices extra to supply well being take care of and who saves the federal government extra money? As our findings reveal that some teams save the federal government extra money than their subsidies value, what ought to we do with the subsidies? If we improve their subsidies, it prices taxpayers extra – until extra of them change to non-public medical health insurance.
For example, a person aged 75+ incomes $105,001 to $140,000 receives $1,877 in subsidies and offsets $5,268 in public well being spending, saving the federal government $3,391. Given the roughly 6,000 individuals on this age group at present in personal medical health insurance, solely two further enrolments would make it budget-neutral.
How can the financial savings be used?
A greater technique to subsidise personal medical health insurance is to present additional subsidies to people who find themselves sicker and want extra medical care. These are generally known as “risk-adjusted subsidies”.
A risk-adjusted subsidy can be primarily based on an individual’s traits akin to their age, gender, revenue, the place they reside and their well being historical past (akin to prior hospitalisations, or use of companies). These are individuals who want personal medical health insurance probably the most, and in addition would save the federal government probably the most cash by having personal insurance coverage.
This subsidy could possibly be computed by a system that makes use of individual-level spending to determine how a lot well being care the individual is more likely to want and the way a lot it’s anticipated to value.
Current work in Australia has proven how this may be developed, whereas international locations such because the Netherlands, Germany, the USA and Switzerland present such a system is possible.
The Australian well being system, and personal medical health insurance regulation particularly, is ready for a shake-up, with the Division of Well being and Aged Care looking for enter on its choices. Our analysis may also help inform a path ahead.
