Compulsory Health Insurance – Should government still be the health insurer of first resort?

Funding healthcare costs governments more and more each year. As our population’s wealth and life expectancy continue to improve, this doesn’t look like slowing down any time soon. Even so, private health insurers in Australia are currently prevented from directly funding key primary care services. Could and should insurers be given more of a role in the funding of primary care?

Primary care is the initial contact between a patient and the health care system. Key primary care services that health insurers are currently prevented from funding include all GP services and medical specialist services outside hospitals. The National Commission of Audit (NCoA) considered this problem and concluded that “governments should not act as the insurer of first resort. Governments should help families and individuals manage risk on their own behalf.” As a result the NCoA recommended:

  • health funds be allowed to expand into more areas of primary care; and
  • the purchase of private health insurance be a mandatory replacement for Medicare for high-income earners, as well as a number of other deregulatory measures aimed at improving efficiency.

Efficiency

When considering healthcare funding efficiency is what it all comes down to in the end. A mere shift of funding from public to private (individuals or insurers) is no better for society as a whole. But health insurers are incentivised to improve the efficiency of the system – healthier members mean lower claims costs and a better brand perception. Expansion into primary care could provide the catalyst for health insurers to deliver these efficiencies – for the first time, information would be available about the primary health services accessed by its membership which, along with pricing deregulation, should enable insurers to make more efficient risk management and pricing decisions.

This is why the NCoA said health insurers should be allowed to become “genuine health care partners that support their members to navigate the health system and assist them to better manage chronic conditions.”

Current insurer activities in primary care

Although direct funding is not allowed, most of the large health insurers partake in indirect funding of primary care activities. Examples include:

  • Medibank’s ‘GP Access’ trial in Queensland, which offered its members bulk-billed GP visits, guaranteed same-day appointments and after-hours access to GP home visits.
  • Bupa’s arrangement with Healthscope GPs, which also offers bulk-billed GP visits and other discounts.
  • HCF’s collaboration with the National Home Doctor Service to provide an after-hours, bulk-billed GP service.
  • A Bupa-branded GP clinic in the Sydney CBD.
  • Medibank and others collaborating with state governments to reduce hospital admissions through improved monitoring and preventative care for patients with chronic diseases.

We’ve investigated the viability of two scenarios, applicable to different income thresholds, at either end of the primary care spectrum:

  1. GP only – the most high-profile health reform proposal in recent years was the GP co-payment, and GPs have been the main focus of private health insurers’ primary care initiatives. Under this scenario, the government is no longer the insurer of first resort for any GP costs.
  2. All primary care – the government is no longer the insurer of first resort for any primary care costs.

GP only

We estimate that the government currently pays around $4.8 billion per year through Medicare rebates for GP services. However, transferring that full amount to the private sector would almost certainly be a ‘no-go’ policy zone for the government. Many of these services would be for people on low incomes who may struggle to afford insurance premiums or out-of-pocket costs.

In order to be more palatable from a fairness perspective, Medicare rebates on GP services could be removed only above a $60,000 income threshold (or the government purchases insurance for those earning less). However, driven in part by the number (and cost) of GP services for children and retirees, this reduces the potential government savings to a relatively modest $780 million – hardly enough to warrant such a significant change to the health system.

All primary care

The table below shows our estimates of the government’s overall annual contribution towards primary care costs for people above various income thresholds:
Threshold Government primary care cost

Threshold Government primary care cost
No threshold $21.2 billion
$60,000 p.a. $3.3 billion
$80,000 p.a. $1.9 billion
$100,000 p.a. $1.1 billion

 

This scenario results in significantly more dollars being transferred than the GP only scenario. The flip side is that it also faces more controversial fairness issues. Even so, it is possible that implementing such a change on people earning more than $80,000 or $100,000 a year could be perceived as being fair (although opponents would be concerned about the creation of a two-tier system). And the $1 billion to $2 billion savings to the government at these thresholds would certainly be meaningful enough for further consideration by policy makers.

Even if private insurance wasn’t compulsory, it’s likely that many higher-income earners would still purchase it, given the range of risks covered and the potential costs of self-insurance. As such, it would mean 5% to 10% additional revenue for the private health insurance industry. This may well be a large enough sum to entice insurers to invest in developing efficiencies in the pursuit of additional growth.

Conclusion

Health reform requires financially meaningful changes which both increase efficiency and are regarded as fair. We tried to find reform options that tick all the boxes and, perhaps unsurprisingly, didn’t find the magic bullet.

Across a number of spending areas, government has removed or reduced the level of support provided to those with higher than average incomes. For example, high income earners no longer receive health insurance premium rebates, certain family tax credits or the baby bonus. There are suggestions that high income earners may also lose other benefits, for example, with regard to superannuation. Some of these changes have resulted in fairly small savings for the Federal budget. Set against this background, it appears likely government won’t always be the insurer of first resort for primary care benefits.

However, our analysis suggests that there doesn’t seem to be much to gain from simply shifting GP rebates from government to private health insurance. But if only a small proportion of the population was required to obtain private health insurance for all primary care costs, this could have a meaningful impact on the private health insurance industry. As such, it could be an effective ‘pilot scheme’ for more significant health reform at a later date.

You can find the full paper on primary health care and other health insurance research at finity.com.au

Read paper

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