David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I rise today to speak on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008. The impact of the federal government’s proposed changes to the Medicare levy surcharge thresholds in the public hospital system are of serious concern and should frighten all Australians who care about the public health system and all state governments due to the impact on their responsibility for delivery of primary health care. The government’s proposal to increase the Medicare levy surcharge thresholds from $50,000 to $100,000 for singles, and from $100,000 to $150,000 for couples and families, risks undoing a decade of careful policies that rescued private health insurance from a catastrophic downward membership spiral.

By the late 1990s, private health insurance membership had collapsed to around 30 per cent of the Australian population. In the June 2008 quarter it was 44.7 per cent. This is a remarkable turnaround which did not just happen in a vacuum. The turnaround was achieved through deliberate and persistent introduction of measures in the first few years of the Howard government. Upon its election in 1996, that government saw the need for urgent and decisive action to redress the neglect that the private health insurance sector had suffered under 13 years of Labor government which had led to the numbers of privately insured falling consistently for many years prior to 1996.

It is important to remember that this is not just about the health of the private insurance industry or even about those who can afford private cover. This issue is of huge importance to all Australians with health care needs and those who are close to them. Put simply, as the number of Australians and their families with private health insurance falls, the number of Australians needing to access their healthcare needs through the public system will increase, with consequent increases in demand for those public services and greater inability for the public system to cope. In the early to mid-1990s, the more people who dropped out of private cover and took their chances on the public system—and who, for obvious reasons, tended to be those with no immediate healthcare needs—the more expensive the premiums became for those who remained in the private system, who tended to be those who did need to call on their insurance, and the more likely that those remaining would also drop out, including those who had immediate healthcare needs.

The result in the 1990s was an explosion in demand for public health care, with detrimental consequences looming for the healthcare needs of all Australians. Wisely, the Howard government sought to address this through a series of three targeted measures now known as the three pillars: the 30 per cent rebate, Lifetime Health Cover, and that which we are looking at today, the Medicare levy surcharge. Between the three pillars and the delicate balance it provides, the decline in private health coverage was arrested and we are now back at the levels of private health cover that we see today. But changes proposed by the government in this bill threaten to undermine the effectiveness of the three pillar approach, with enormous potential consequences for public health care in this country.

There are a number of facts that are relevant to this debate that have become apparent in the course of the inquiry of the Senate Standing Committee on Economics and its processes. The Private Health Insurance Administration Council provided data that indicated that it is in particular younger people who have been taking up private health insurance over the past two years. In part this is because their incomes fall within the surcharge threshold. Encouraging young people who can afford to make a long-term commitment to private health is good for the overall viability of the health insurance system built on the community rating approach under which insurers are prohibited from charging premiums assessed on the basis of risk—that is, they cannot price discriminate on the basis that a potential insured person is a smoker or because of their age, family background, medical history or current medical conditions. Indeed, having young and healthy people participate is a vital component of a system based on the community rating approach.

It is also important to note that private health insurance adds money to the health system overall. Currently, 9.4 million Australians have private health insurance. This means that 9.4 million people are adding an amount generally equal to 70 per cent of their private health insurance premiums to the overall amount of money available to fund health care across Australia. Yes, the government also pays 30 per cent of each premium. As such, for every 30c in the dollar the government spends on health care supporting the privately insured, a further 70c is contributed to the overall amount of money being spent on hospital health care across the country.

Looking at it the other way round, on the fairly sound assumption that, without the delicate balance provided by the three pillars policy, people will drop out of private cover, they may, sooner or later, require hospital care and that will need to be entirely funded from the public purse. The government is getting a return on its expenditure of over 200 per cent through the 30c rebate—that is, for every dollar that the government spends assisting the privately health insured, it saves another two dollars. In a sense, rather than the federal government subsidising people’s private healthcare needs, the system is actually subsidising the expenditure of all Australian governments on primary health care to the tune of 70c in the dollar for every privately insured person in the country.

But the government is prepared, through the measures contained in this bill, to put all of this at risk. As a result of this bill, the delicate balance achieved through the three pillars process would be destabilised, leading to a mass exodus—by the government’s own figures, and I will get back to that later—from the private health system mainly by those with little immediate need for hospital care. This will then lead to the semi- or complete failure of the community rating system. The loss of premiums provided by those with little need for current care will leave a greater proportion of those privately insured who do have high-care needs, thereby leaving the private insurers with the majority of expenditure while suffering a severe loss in income.

As such, the only option is for private health insurance premiums to go through the roof. This in itself is bad. In the short term it will lead to far higher premiums, but it will probably have little impact on the public health sector as the vast majority of those leaving initially will have little immediate need to call on public health resources. But what will be the further consequences? As private health premiums rise, the number of insured persons with little ability to pay higher premiums but who have high hospital care needs, particularly older Australians and pensioners on fixed incomes, will increase and, shamefully, many will be forced to abandon their private cover. This is when the public health system will start to feel the full consequences of this measure and when the loss of the 70c in the dollar subsidy privately insured persons provide from their own pockets to the overall healthcare costs of the nation will come home to roost.

Rising premiums will also increase the cost to the government of its 30 per cent subsidy. The fact is that Treasury and the Department of Health and Ageing did not conduct a proper assessment of the overall impact of this measure on the Australian health system. By their own admission, they did not look at the second- or third-round effects of the measure. The first-round effects showed they expected to save $959.7 million over the forward estimates from not having to pay the private health insurance rebate to the people leaving health insurance and from a $300 million net saving over the forward estimates after taking into account the higher premiums that would ensue.

The consequences for the private health sector, not just private health insurance but the providers they fund, and the public hospital system were completely ignored. Through questioning of a range of federal departments, including the Departments of Prime Minister and Cabinet, Finance and Deregulation, Treasury, and Health and Ageing as part of the budget estimates process and through the economics committee inquiry, a number of facts were uncovered that I consider to be quite alarming. These include the astounding admission that the federal government did not ask either Treasury or the health department to model, cost or in any way assess the impact of the change to the Medicare levy surcharge on public hospitals across Australia. The government said that 2.4 million people will be saved from paying the Medicare levy surcharge—in fact, only 465,000 people currently pay the surcharge, and each one of them could have avoided it by taking out private health insurance. If up to one million people now give up their private cover, as has been suggested by credible witnesses, such as the AMA, during the economics committee inquiry, the Prime Minister and his government will be directly responsible for a massive blow-out in public hospital waiting lists.

At this stage there is no indication that any meaningful compensation or allowance will be made by the Commonwealth to compensate for the impact of this measure on states and territories. The arguments about the level of indexation that have been put forward by most government speakers during this debate also do not add up. If the Medicare levy surcharge threshold for singles had been indexed since its introduction in 1997, it would be at about $75,000 to $78,000 today, according to Treasury evidence provided at Senate estimates, and not the $100,000 threshold the government wants to impose.

As mentioned, the Australian Medical Association has estimated that close to one million people will drop their private health insurance, while the Treasury department’s own estimate is that around 485,000 policyholders—which represent around 700,000 people—will drop out of the private system. That is right: Treasury itself estimates that 485,000 policyholders will drop out. We heard Senator Cameron talking earlier about the fear factor that we were trying to inject into this debate, but look at what Treasury itself is saying—that 485,000 policyholders will, by its estimates, drop out. They did not go the extra step of actually looking at what impact that would have on the public health system. It is amazing.

Labor clearly stated prior to their election that they would keep the Medicare levy surcharge, yet by increasing the threshold at which singles would be required to pay the Medicare surcharge they have now opened the door for hundreds of thousands of mostly young people to leave private health insurance. Sick people already wait for hours in public hospital emergency departments, despite the big increase in bulk-billing since 2003. Australians still wait months if not years for elective surgery, despite the 16 per cent real increase in federal funding for state run public hospitals made by the previous government under the present healthcare agreements. People who leave private health insurance as a result of these changes will now add more waiting time and more people to these lists.

Having fewer people covered by the surcharge means less money invested in the health system. At present, a family on $100,000 a year has the choice of either taking out private health insurance or paying an extra $1,000 through the Medicare levy surcharge. Statistically, most families in this situation have private insurance, which means that they do not compete with less financial people for elective surgery in public hospitals but can contribute to public hospital revenue by electing to be treated as private patients. Under the measures contained in this bill, these families will have far less incentive to be privately insured.

Based on the figures in the budget papers, answers to questions from Treasury and Department of Health and Ageing officials, otherwise available public data—for example, from PHIAC—and reasonable assumptions where no official was able to provide a proper answer, it appears that the increase in the Medicare levy surcharge thresholds will lead to a reduction in funding for hospital treatment in the order of more than $2.7 billion. That is right—this measure will directly remove $2.7 billion from the overall amount of funding that is in the total healthcare system at the moment. Page 33 of Budget Paper No. 2 shows a $959.7 million saving over the forward estimates from no longer having to pay the private health insurance rebate to people leaving health insurance.

The Treasury was not able to answer the question as to how many of the 484,000 adults it expected to leave were 65 years or over and would therefore attract the 35 per cent or 40 per cent rebates. In an effort to downplay the impact on public hospitals, however, the Minister for Health and Ageing, Nicola Roxon, has repeatedly told us that she expected the people who leave to be the young and healthy—and the young and healthy attract the 30 per cent rebate, not the 35 per cent or the 40 per cent. We also know, based on health department evidence, that out of all the privately insured people 86 per cent are on the 30 per cent rebate, as opposed to the 35 or 40 per cent rebate. Based on the minister’s public statements and the fact that the overwhelming proportion of those privately insured are on the 30 per cent rebate, it is fair to assume that $959.7 million is 30 per cent of the total contribution income lost as a result of this measure, because $959.7 million is 30 per cent of $3.199 billion.

To find the amount lost in funding for hospital treatment, we have to deduct a proportion for health fund administration costs and net margins—that is, the gross margin. All hospital insurance revenue that does not go into either the cost of administration or the net margin goes into funding hospital treatment in both private and public hospitals. According to PHIAC data, health funds on average across the whole industry have a 15 per cent gross margin—that is, the cost of administration and the net margin. Fifteen per cent of $3.199 billion is just under $480 million, and $3.199 billion minus $480 million is $2.719 billion. This is the amount that will be withdrawn from total hospital funding as a direct result of this measure.

Working families, low- and fixed-income earners, the elderly and people living in rural and regional Australia will be hardest hit by the consequences which flow from this ill-conceived policy. The most vulnerable and most isolated in our community will suffer from longer waiting times for surgery, reduced services in rural and regional areas and a reduction in healthcare and outreach services. This bill represents bad policy, appears hard to justify on any of the measures put forward by the government and will ultimately lead to the undermining of the public-private healthcare balance achieved in this nation. Whether this is the intention of the government is unclear but, having had the benefit of listening to the previous speaker, it appears likely that it is more about class warfare and the politics of envy than any other issue. But, regardless of the reason why they brought it before us, the bill should be rejected.