Treating Australia’s Health Insurance System: Palliatives or Radical Surgery?

V 1 seems to be an unfortunate fact of life that getting elected requires political parI ties to make sweeping promises in relation to any issue on which they feel vulner^ able. Such promises then have a strong tendency to stifle debate and creative thinking in areas where these are plainly needed. One such area in Australia is the goods and services tax, so closely associated with the failure of the Liberal-National Coalition to win government in 1993. 1 his article concerns two of the Coalition’s campaign promises at the March 1996 election: to retain community rating in private health insurance, and to retain Medi­ care in its present form. These promises have led to an absurd state of affairs in which the recommendations of the current inquiry by the Productivity Commission into the seriously ailing private health insurance industry are expressly required to take the promises as given. Constraining the inquiry thus ensures that its recommenda­ tions will be nothing more than palliative — although the Commission’s draft report (Productivity Commission, 1996) makes some effort to escape from these confines. Australia’s health insurance system comprises both private insurance and public insurance (through Medicare), and should be seen as a whole. In 1983, two-thirds of die population was covered by private health insurance; now only one-third is. The exodus from private insurance is directly attributable to community rating and Medi­ care. 1 he present government’s response, apart from setting up the inquiry, has been to announce that, from July 1997, it will (i) subsidise through tax rebates the purchase ol health insurance by those on low incomes; (ii) penalise failure to purchase it by flic wealthy through a tax surcharge; and (iii) raise the threshold for the medical expenses income-tax rebate. But these moves are unlikely to reduce budgetary outlays on health significantly, il at all, and more radical surgery is needed. It is important, there­ fore, to open up debate about the possibility of switching from community rating to actuarial rating and, at the same time, to rethink die role of Medicare. 1 his article proposes a radically different health insurance system which, while sharing the broad objectives of the present arrangements, promises far greater effi­ ciency, far less reliance on tax revenues, and far wider individual freedom of choice. I hese ends can be achieved quite easily, by moving to a competitive, market-based insurance system, without turning our backs on the less fortunate members of soci­ ety.