David Bushby (Tasmania, Liberal Party) Share this | Link to 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.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I support the second reading of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 but reserve my position in relation to the third reading. The stated purpose of the Medicare levy surcharge is to encourage higher income Australians to take up private health insurance and relieve demand on the public system. Can I say from the outset that I am uncomfortable with this sort of muddying of the waters around health and tax policy. The role of government in providing for and protecting the health of the public is paramount. A nation without high standards of health care is a nation constrained, a nation diminished. With this in mind, one of the pivotal roles of federal governments in health policy is supporting a sustainable balance between the private and public health systems. Without such a balance, the ability to meet the fundamental health needs of all will be sorely stretched, as will the capacity for choice in relation to other health needs.

What we should be speaking about today is how to promote the highest quality public health system for all Australians. We should be describing a situation where Australians have a real choice between a well-funded and high-quality public system and an equally competitive, equally well-funded and high-quality private system. Instead, we are debating a tax. Instead, we are discussing how best to drive health policy through the hip pocket.

I believe there is a bluntness, a hint of disingenuity about using a tax to push people into or out of health insurance. My fellow senators will be well aware of the historical blurring of tax and health policy in relation to Medicare. When the Hawke government replaced Medibank with Medicare in 1984, the scheme was part funded by the imposition of a levy. This was originally set at one per cent of taxable income with a low-income cut-off threshold below which no levy was payable. In 1995 the Medicare levy was increased to its current level of 1.5 per cent of taxable income and in 1997 the Howard government introduced a one per cent surcharge on taxable income imposed on so-called high-income earners who did not have private hospital insurance.

The purpose of the bill now before us is to increase the Medicare levy surcharge thresholds on annual taxable income from $50,000 to $100,000 for individuals and from $100,000 to $150,000 for families and couples. One of the government’s key arguments for this change is that, due to inflation, the average Australian income is now $58,000, which places many average Australians on the so-called rich list according to the current thresholds of this levy. Whilst I note the merit of this argument, I also note that, were the government serious about fairness, there might also be a proposal in this bill to regularly adjust the thresholds to take into account CPI and avoid this situation in future years.

Perhaps the real intent of this bill is to be found in the detail. In financial terms, the government expects to forgo income tax revenue of $660 million over the forward estimates due to the increased income tax thresholds that are proposed for the levy. But the government also forecasts a decrease in expenditure of some $959.7 million from a reduction in the payment of the 30 per cent private health insurance rebate due to an expected decline in private health insurance membership over the period. The result is approximately $300 million more in revenue to the government. Before supporting this bill we must be certain that this is not just a tax grab spun as health policy. We must ask: what are the implications of these changes for the sustainable balance between the public and private health systems in Australia? In recent weeks my office and I have been involved in extensive consultations with state and federal government advisers, health insurance advocates, representatives of the medical profession and members of the public to answer this question. I would like to take a few moments to canvass some of these diverse views.

First of all, there is significant disagreement about the number of Australians that will be impacted by these changes. Treasury figures estimate that approximately 485,000 people will drop out, and, when dependants are included, the government suggests that it will be more than 600,000 Australians. Meanwhile, industry figures estimate that around 613,000 people will have to end their cover to meet the government’s $300 million savings target, in effect, which would involve up to 913,000 people when you include dependants. Added to this is what the AMA has described as a ‘cascade effect’, where an initially conservative figure of 400,000 Australians could blow out to over 800,000 over four years.

If we are to plan for a sustainable balance between public and private health systems in the future then surely we must make our decisions based on evidence, not rubbery figures. That said, my office has been in discussions with various health insurance representatives highlighting their concerns, firstly, about a possible increase in insurance premiums and, secondly, about more demand on public hospitals. The rationale behind the first claim is that the exodus from private insurance—from which the government expects to save $960 million—will largely be by young people. Relatively speaking, this group are healthier and their premiums help fund the expenses incurred by less healthy members later in life. I should make the point that those younger people will be old eventually.

Further, as groups such as the AMA note, this loss of younger members, it is argued, may lead to a snowballing effect as higher insurance premiums turn people against private health insurance, which then leads to more premium rises to offset these losses. Ultimately, representatives of the health insurance industry indicate that premium inflation is inevitable, which the AHIA estimate to be around 10 per cent. I should at this point disclose that, along with millions of other Australians, I have private health cover. In contrast, the Australian Private Hospitals Association propose that the constantly improving quality of private health insurance services will see little impact on memberships. They argue that more people have higher incomes and are prepared to pay for what they see as more choice and better service, which will offset these changes.

There is also debate over the influence that the surcharge actually has over decisions about membership. Representatives of state departments and some insurance groups have argued that the initial impact of the Medicare levy surcharge was minimal in the take-up of private health cover and its removal would have a similar minimal impact. Others outside the private health sector have argued that later measures—notably Lifetime Health Cover and the 30 per cent private health insurance rebate—play a greater role in the decision to purchase private health insurance than does the levy. They point to the continuation in the decline in private health insurance membership after the introduction of the surcharge in 1997, with this only being arrested when these other measures were introduced in subsequent years. Meanwhile, insurers such as iSelect have argued that the three are co-dependent variables and it is impossible to ascertain the impact of the removal of any one variable on overall health insurance membership.

The second main claim by health insurance advocates is that these changes will result in unsustainable demand on public hospitals, which the AHIA estimate will have a national cost of around $1.8 billion and a cost to my state of South Australia of around $200 million. My office has put these claims to those representing public hospitals and they have been unable to confirm or deny the accuracy of these claims in the absence of modelling. Some believe that those who opt out of private insurance would be younger and minimal users of private health services. In many cases, these people may be users of public hospitals anyway due to the high costs of private health copayments. Others, including some state Labor ministers, have foreshadowed an increased burden and longer waiting lists, and have signalled the need to lobby hard for federal support for the costs attributed to these changes.

It is worth referring here to the comments made by the outgoing Western Australian Minister for Health, Jim McGinty. In an interview on the ABC PM program on 21 May he expressed concerns. He said:

... There is a critical mass of private health insurance which gives us balance within the system. I certainly have concerns that if there is a very high drop out rate and I don’t necessarily think there will be, then that will shift that balance in a critical way.

It’s come at an unfortunate time when a lot of people will be making economic decisions faced with higher mortgages, higher fuel charges, higher grocery charges. Is health insurance something that they should maintain?

If we have young people pulling out, then that will also add to the equity of the people who remain in private health insurance which will drive up the cost of private health insurance and perhaps have more people pulling out on economic grounds as result of that.

These are legitimate concerns. This culture of claim and counterclaim shows the need for an evidence based approach. I believe that such an approach is best made through the Productivity Commission. Early today I raised with the government the importance of a Productivity Commission inquiry into several key issues, including the comparative cost of clinically similar procedures, as per the current state hospitals’ waiting lists, performed in both the public and private hospital sectors. It is important that the accepted standards of the diagnostic related groupings are used so that we can have an accurate comparison of the two. The second issue is the rate of hospital acquired infections in private and public hospitals, including acquisition of methicillin resistant staph aureus—or golden staph, as it is commonly known. The third issue is the total number and percentage of patients, in both public and private hospitals, who were fully informed before providing consent. This is vital to reducing the number of cases where doctors do not inform patients fully about treatment and costs. I acknowledge the statements made by the health minister in relation to this and I welcome those statements. I think that this is an imperative reform, and it needs to be looked at and thoroughly canvassed.

If we are to shift debate from the realm of claim and counterclaim, proper inquiry into these things will be vital to sustaining the balance between private and public health services in the future. I cannot overstate the importance of having such a robust inquiry. I was surprised, when I raised this with those advocating for both the public and the private systems, at the lack of knowledge of what I consider to be key data that is essential to driving our decisions in the future—to making good decisions that will keep the balance between the private and public systems. A third issue is that of retrospective indexation. Estimates of the current threshold for individuals, indexed since its introduction in July 1997, are between $67,000 and $76,000 for individuals and around $134,000 for households. This could well be a more realistic figure for the proposed threshold of $100,000 for individuals and $150,000 for couples. Why increase the threshold by double the rate of inflation? It seems to be counter to all the other warning signs about having such a huge jump in the threshold. What Australia needs is an evidence based approach that supports a long-term vision of improving our health system, not quick fixes that will only make it sicker. That said, I look forward to fruitful discussions and debate with the government about these concerns as I reaffirm that I will support the second reading of this bill but reserve my position on the third reading.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

As with many issues that come before parliament, the key is working out who gets what and making sure that ordinary Australians get a fair go. The Medicare levy surcharge threshold issue is no different. In this case it is about who gets a tax cut, who can cobble enough cash together to afford health insurance and whether the government can squeeze even more cash into a huge budget surplus. It is our job in the Senate, the house of review, to make sure that the distribution of cash is fair. This Tax Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2008 is a lot of things to a lot of people. To the government it is a source of $300 million in revenue. To singles earning between $50,000 and $100,000 it is a hefty tax cut of up to $1,000. To families or couples earning $100,000 to $150,000 it is also a hefty tax cut—this time, up to $1,500. But there are many ordinary Australians who miss out. For all those who get a tax cut, there are more who get nothing. In fact, there are plenty who will end up paying for this tax cut out of their own pockets. Does that sound fair? Family First does not think so.

Those people who are below the original thresholds and who are paying for health insurance are going to be stung by an effective tax increase because the increases in the thresholds are expected to drive up health insurance premiums. The changes in thresholds may also lead to longer public hospital waiting lists as more people switch to the public system. Those earning less than $50,000 as a single and less than $100,000 as a couple or family who do not get the tax cut will end up paying higher health insurance premiums or queuing longer on hospital waiting lists. They are, in effect, facing higher costs as a result of the raising of the Medicare levy surcharge thresholds. These are people who can least afford to pay more for health insurance, but they are the ones who are getting the least help from the government under these changes. Family First is here to advocate for those families.

Families buy health insurance to ensure that they have access to health care for themselves and their loved ones. By dropping that insurance they lose that peace of mind. The government is encouraging people to drop their health cover without giving them the guarantee of better access to public hospitals. That is why this issue is complex. Reducing tax is one thing but reducing access to hospital care is another. There are more than four million couples or families earning less than $100,000 a year. Compare that to the 800,000 families who are earning between $100,000 and $150,000 who will get a tax cut. There are around four million single people earning less than $50,000 a year, some of them pensioners. Compare that to the 850,000 single people who earn more than $50,000 a year, many of whom will get the tax cut. Around 80 per cent of singles and about 80 per cent of families will not get any tax cut but, if they are paying for health insurance, they face a hike in premiums. It is good news that around 15 per cent of families and around 18 per cent of singles get a tax break, but Family First does not believe it is fair to give those tax cuts at the expense of lower income families and singles who are left to pay for higher health insurance premiums while others face the cost of increased public hospital waiting lists.

Most people giving evidence to the Senate committee that examined the increased Medicare levy surcharge thresholds agreed that the increases would lead to people dropping out of health insurance cover, which would lead to increases in the cost of health insurance premiums and would put pressure on public hospitals that are already buckling at the knees with huge waiting lists. Under the government’s proposal, any single person earning between $50,000 and the new threshold of $100,000 would get that tax cut of $1,000, while families or couples earning between $100,000 and $150,000 would get a tax cut of $1,500. For higher income families and singles that is good news. However, those on lower incomes already under the Medicare levy threshold will not get that tax cut but will be forced to pay higher health insurance premiums. Evidence to the committee estimated that there would be an increase in health insurance premiums of up to five per cent as a result of changes to the thresholds, let alone other cost increases to the health sector.

Family First wants to look after those ordinary Australians who miss out on a tax cut but are likely to be worse off under the increased Medicare levy surcharge thresholds. Health insurance is a huge cost to many Australian families. More than one in two adults has made the financial sacrifice to take out health insurance, with the highest take-up rates among couples with children. There is little statistical information available on how much families pay for private health insurance, but a quick look at the online calculators for various funds shows that a family could easily spend about $340 a month, or $4,000 a year, for health insurance. A five per cent increase would cost an extra $200 a year, which is significant to families already struggling with the cost of living.

Under the increases to the Medicare levy surcharge thresholds, some families, as I was saying before, get a tax cut of $1,500, while other families on significantly lower incomes get an increase in their premiums. Families buy health insurance for all sorts of reasons, and price is just one of those factors they take into account, but, in an environment where many families are doing it extremely tough under high mortgage interest rates, high petrol prices and high grocery prices, families are making a significant sacrifice to keep their health insurance. These families, struggling to pay for health insurance, are making a decision in the interests of their loved ones and their own health, but they are also taking some of the burden off the public hospital system.

Family First does not want these lower income families to be worse off and unfairly disadvantaged by the increased Medicare levy surcharge thresholds. Family First wants the Rudd government to ensure lower income families are not worse off and urges the Rudd government to amend the legislation to ensure lower income families and singles—and that includes pensioners—are not unfairly hit by increases to their health insurance. Family First has proposed to the government a simple way of ensuring lower income families are not worse off, by increasing the health insurance rebate by an additional five per cent. Family First wants the Rudd government to look after lower income families and singles to ensure they are not slugged unfairly with higher health insurance premiums.

Debate (on motion by Senator Sherry) adjourned.