Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Hansard source

I rise to speak on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. Less than three weeks ago the Senate voted down the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 because it was a fundamentally flawed piece of legislation. It would have put pressure on private health insurance premiums. It would have put additional pressure on public hospitals. It would have seen hundreds of thousands of Australians drop their private health insurance. It would have taken billions of dollars out of our health system. The measure would have remained fundamentally flawed even if the amendments circulated by the government at the time to reduce the proposed threshold for singles only to $75,000 had been successful.

The government introduced this measure without any attempt to assess its impact on our health system. For us to properly consider the merits of this measure, we have to assess it in the health policy context in which it was introduced. The overall health policy objective of a government is to ensure that all Australians can have timely and affordable access to quality hospital care. That is a challenge. In Australia we seek to achieve that through a mixed health system. For our unique health system to be successful, it needs a strong and well funded public system and a strong and well supported private health system.

Our private health system is also underpinned by the principle of community rating, which means that health funds across Australia are not allowed to charge more because a person is sicker, older or more likely to need access to hospital care. They are not allowed to charge more for an old, sick person than for a young and healthy person. That makes it harder to keep young people in private health insurance, making sure that private health insurance premiums remain affordable. To maintain the balance in our health system, to ensure that private health insurance remains a viable and affordable option for older Australians, we need to ensure that as many Australians as possible participate. We need to make sure that many young and healthy people as possible choose to take up private health insurance.

In 1996, when the coalition came into government, the system was totally out of balance. Private health insurance membership was in freefall. Membership was at 63 per cent in 1983. By the time we came into government it was in the low 30 per cent range. It went down to 30 per cent before we were able to turn the ship around through a range of policy measures, one of which was the Medicare levy surcharge as it exists today.

Lifetime health cover, the 30 per cent rebate and the Medicare levy surcharge were the three policies that worked together to turn around private health insurance membership, which had been in freefall before that. What has been the experience? Membership went up by 13 per cent and, in recent years, it has started to go up again with 400,000 additional Australians choosing to take out private health insurance in the 12 months to June 2008. I put it to the Senate that in the last two or three years it has been the Medicare levy surcharge thresholds in particular that have been driving the increase in private health insurance membership.

When I say that in 1996 the system was out of balance, do not take my word for it. We were not the first to realise the problem at hand. After 10 years of failed Labor Party policy on health, the then federal Minister for Health, Senator Graham Richardson—and I am sure that Senator Carr would remember him well—actually realised that things could not continue the way they were going. You would remember Senator Graham Richardson, Mr Acting Deputy President Hutchins, I am sure. I will read out a few quotes of what then federal health minister Graham Richardson said in 1993:

We cannot continue to have private health insurance bleed in the way that it has in the past years, because this does increase the strains on the public system. That being the case, one of the things that I will probably be suggesting—

listen to this—

in a package that I shall put to my party later on in the year will include a levy for those on higher incomes in lieu of private health insurance.

Sound familiar? I will read a couple of other quotes from that period 1993-94:

One of the ways we will have to explore in making sure that some of the pressure is taken off waiting lists is at least to put a floor under private health insurance and try to get the numbers back up.

When he said that, private health insurance membership levels had just fallen below 40 per cent. They were at 39.4 per cent. He essentially warned what would happen if the government were not to go along with his proposals:

There ought to be a commitment by sensible thinking people to looking at the numbers in private health insurance and understanding that you cannot have those numbers in free-fall. If it is two per cent a year, that means by the end of this decade only 25 per cent of Australians are covered by private health insurance. You are starting to get below a critical mass point for private medicine. You will see the closures of many private hospitals or many beds in private hospitals.

Thank God there was a change of government two years after he said this so that there was a government that actually was able to make some decisions to restore the balance in the health system. Former Senator Richardson went on to say:

As everyone drops out, you are seeing healthier, younger people drop out, and that feeds into higher premiums. So as the two per cent go out each year they will push premiums up much higher. By the end of the decade, those premiums will be so high that the increase in the numbers leaving will not be two per cent; it will be more like three or four or even more than that. That is what I fear, the free-fall in the numbers in private health insurance.

Former Senator Richardson had a solution:

Single people earning $50,000 a year or families on $74,000 a year who did not have private health cover would pay about double the Medicare levy under plans drawn up by the then federal health minister Graham Richardson.

He took that proposal to cabinet. Do you know what cabinet said to him? ‘Take it to an ACTU-caucus working party so that they can tell us what they think.’ The ACTU-caucus working party of course sank that proposal because, on ideological lines, they have never liked private health and there was no way that an ACTU-caucus working party on the reform of private health insurance would support a proposal like that, however sensible it was in terms of restoring the balance.

Senator Richardson released a discussion paper called Reform of private health insurance. I really urge the now Minister for Health and Ageing to have a very close read of the things that were said then, because those who cannot learn from history are doomed to repeat it. This minister for health would do very well to have a read of the very sensible comments that were made by Senator Richardson at the time and to remember that she is not some sort of Assistant Treasurer running a Treasury line without any regard for the impact on our health system. This is what Senator Richardson said in his discussion paper:

We have now reached a point where private coverage has fallen below 40 per cent. This is not an immediate problem, as those who have dropped out are mostly young and healthy. However, as time goes on, an increasing number of older, higher users of health services will give up their insurance.

That is a no-brainer, yet these days Treasury officials, health officials, the government—everybody—are trying to tell us that what happened last time will not happen again, that there will not be a new downward spiral. Of course there will be. If you push up the price of premiums, it becomes less affordable for the most vulnerable in our community—those older Australians who are most likely to need access to quality hospital care. To introduce a measure like this without even attempting to consider the impact on them is, quite frankly, incredible. I quote again from Senator Richardson’s discussion paper:

There are also a great many low-income families who maintain private health insurance. As premiums continue to rise, these people will come under increasing pressure to drop their cover.

I would like to think that the minister for health is listening to or reading this. I quote further:

This gives rise to the real possibility that a flashpoint will be reached where the gradual decline of the last couple of years becomes an avalanche.

And further:

As discussed in the introduction, declining rates of private health insurance membership have significant implications for the public system. As more people drop out of private insurance, the demands on the public system grow.

That is a no-brainer. I am quoting from the 1993 discussion paper called Reform of private health insurance released by the then federal Labor health minister, Graham Richardson:

Already there are problems, the most obvious being waiting lists. There are too many people waiting too long, in pain, for vital operations.

I conclude my quotations from the discussion paper with this:

Despite a perception that private health insurance is solely the province of the rich, this is not the case. Nearly one million families with incomes of $40,000 or less have private cover, as do 800,000 single people earning $25,000 or less. Many of those who maintain private insurance are pensioners or self-funded retirees with relatively small fixed incomes. Older Australians are particularly high users of health insurance.

Senator Fielding in the past said that he could not support this legislation because of the particularly harsh impact it would have on low-income earners and he said that he would be insisting on compensation from the government. I will be very interested to hear what sort of compensation the government has offered Senator Fielding for the impact on low-income earners of this very bad public policy measure.

In concluding on former senator Graham Richardson’s comments, here is a little bit of a history lesson. In 1983 the government introduced Medicare and said, ‘Yes, some people will leave private health insurance.’ Sound familiar? This is the experience of what happened, and I quote from an opinion piece in the Canberra Times,  written by then Senator Richardson, who was then the Minister for Health:

Medicare was never intended to totally replace the private system. Medicare’s architects, including John Deeble, always assumed that a healthy private system would exist alongside the public sector. Certainly it was anticipated that there would be a decline in numbers with private health insurance. This occurred most dramatically between 1983 and 1984, with a decline from 63.7 per cent of the population to 50 per cent. Since then the numbers have continued to drop steadily and are now doing so at about 2.2 per cent a year. That 2.2 per cent drop means that every year $85 million worth of private insurance contributions are being lost to the national health budget.

How much private insurance income will be lost as a result of this measure? I have asked the government. Have the government provided an answer? No, they have not, but we can come to our own conclusions.

The general point that I would make on the comments that I have just read is that at least Senator Graham Richardson was focused on what was best for the health system. He was focused on what was best for patients across Australia, who needed timely and affordable access to quality hospital care. That is in stark contrast to the current minister for health, who is out there selling Treasury propaganda without even trying to attempt to explain how this fits in with the government’s policy on health.

Let us reflect on the process. Did the government announce this policy before the election? If it is really a tax relief measure, surely it would be popular—surely it would help them win some votes. They were quiet about it. Do you know why they were quiet about it? Because before the election they actually wanted to make people in private health insurance and in the broader private health sector believe that they now liked private health and that they were no longer driven by their ideological dislike of the private health sector—they were now committed to the sound policies of the Howard government. The then Leader of the Opposition, Kevin Rudd, wrote a letter to anybody who was interested in the private health sector telling them about how he was committed to maintaining the 30 per cent rebate to Lifetime Health Cover and to the Medicare levy surcharge.

Earlier this year in estimates I asked the senator representing the minister at the table, ‘Is the government considering any changes to the Medicare levy surcharge?’ No, they were not. Did any of the health officials at the table correct the minister? No, they did not. They knew the implications of this for the private health sector and they kept their plans secret. They announced it in a pre-budget leak and they were desperate to downplay the impact. I asked the question of the minister in question time on the day of the budget: ‘What about this pre-organised budget leak announcement? This is going to be bad for the health system.’ He said, ‘Oh well, some people will leave private health insurance.’ Two days later that had become, ‘485,000 people will leave.’ Then, during the Senate inquiry, which the government said was a waste of time and was tantamount to economic vandalism, all of a sudden—oops!—‘We forgot to take children into account. It is actually 644,000 people who will be leaving the health system.’ Even with this slightly watered-down measure, which was introduced in the Senate yesterday, a staggering 583,000 people are expected to leave private health, according to the government. These are the government’s own estimates. So that is a reduction of less than 10 per cent compared to the measure that the Senate voted down three weeks ago.

In terms of process, there was no consultation with the states and territories, even though the Rudd Labor government was elected on a promise to end the blame game and to start a new era of cooperative federalism in health. They pursued a policy measure at the federal level which clearly is going to have some negative flow-on consequences at the state and territory level in terms of the states’ and territories’ capacity to provide adequate levels of hospital services to their constituents. Despite those flow-on consequences, the government did not consult; the government did not provide access to their modelling to ensure that the states and territories could properly assess the flow-on implications and prepare for them and ensure that they could provide timely services.

The government did not do any modelling, costing or assessment of the impact on public hospitals themselves at all either. The only thing that the Commonwealth costed was the impact on the Commonwealth budget bottom line. How much money is this going to save us because we do not have to pay the private health insurance rebate to those who will be leaving? How much is it going to cost us because we lose the revenue from those who will no longer be caught by the Medicare levy surcharge? That was the only thing that the Commonwealth was interested in. Initially, the original measure was expected to save $959.7 million from not having to pay the private health insurance rebate. What is the change now in this revised measure? You would think that reducing the $100,000 threshold for singles to $75,000 would maybe create a bit of an impact. It is less than 10 per cent—in fact, it is 8.3 per cent. Now, the government still expects to save $879.3 million from not having to pay the private health insurance rebate to people it expects to leave private health.

That was a very difficult figure to get hold of, by the way, because if you look at the government’s explanatory memorandum there is hardly any information in it at all. You have to sort of go across to the press gallery and get the government’s propaganda sheet to get any information, even though a lot of the stuff in there is pretty misleading. But here we go. The government says, ‘We expect to save $879 million from not having to pay the private insurance rebate.’ Let us just reflect on that for a second. What does that actually mean for the health system, because that $879.3 million only represents the 30 per cent rebate? The government tells us that it is the young and healthy who leave; the young and healthy attract 30 per cent of the rebate, so this only represents the 30 per cent rebate. There is also the 70 per cent currently being contributed or that otherwise would be contributed by those people with private health insurance. That is another $2 billion. We have a measure here that is going to lose the health system nationally nearly $3 billion. It was to be $3.2 billion; it has now gone down to $2.9 billion. This is $2.9 billion that, as a result of this measure, is no longer going to be available to fund hospital treatment. Where is that money going to come from? There are only two ways: either it will have to be the states and territories who cop it sweet, without any commitment so far for any compensation by the Commonwealth, or it is going to be the pensioners and the older Australians, the sicker Australians, who will not dare to leave private health insurance who will have to make up the difference through increased premiums.

It is an absolute disgrace that in introducing a measure like this the government would not seek to properly assess the impact on older Australians, on people needing access to public hospitals and on those who might choose to keep private health insurance. The government then says, ‘We have an overall saving of $354 million—because $960 million becomes $879 million and we now expect to lose $525 million worth of revenue.’ Well, that is actually totally misleading and it is a furphy because the government did not cost the impact of this measure on future premium increases. Premiums only need to increase by 2.43 per cent for that $354 million to be totally wiped out. You make the calculations. The government has allocated $14.5 billion over the forward estimates for the private health insurance rebate, 2.43 per cent of that without any compounding or anything, and that alleged saving is wiped out. I hope that Senator Fielding has a very close look at this because he has told us that he thinks that he needs to support this measure because it is going to help build a surplus. It will not do anything of the sort.

Professor John Deeble of Access Economics told us that under the original measure premiums would have gone up by about by at least an additional five per cent. Industry experts said possibly up to 10 per cent. A five per cent increase would equal $728 million in additional expenditure on the rebate. And where is that? It is not in the budget; it is hidden in the contingency reserve—very convenient. So we can make this measure look like a win-win situation—people have tax relief, we are going to save some money, it is going to be good for the economy. Never mind all these pensioners who will have to pay five to 10 per cent more for their health insurance premiums, because there is a saving. And the true cost of the measure is hidden in the contingency reserve. I am close to running out of time so I will just sum up. (Time expired)