Mr SIDEBOTTOM (8:49 PM) —The member for Corangamite, in his selective quotations of the member for Werriwa, forgot to point out that in the same article the member for Werriwa said he believed Graham Richardson was wrong in 1993. The second reading speech on the National Health Amendment (Lifetime Health Cover) Bill 1999 says:

The government is committed to ensuring a balance between public and private health sectors. This balance will ensure Australians have a level of choice as well as universal access to excellent health care.

The government then goes on to claim that it has demonstrated this commitment through recent reforms to private health insurance. In the light of the commitment I cited above, I question the government's motives in this legislation and its priorities.

I would like to deal with these issues in turn. What exactly does the government claim? The government announced in its recent 1999-2000 budget that it would introduce Lifetime Health Cover from 1 July 2000. Essentially, Lifetime Health Cover is an extension of the carrot and stick philosophy, designed to allow private health insurance funds to charge different premiums depending on the age at which people take up private health insurance. It is based on age rating rather than risk factoring. Anyone in future who joins under the age of 30 will pay the base premium. Existing members are protected, no matter what their age, and will pay the base rate set for people of 30 years-of-age for the rest of their lives provided they remain insured.

A carrot at the end of this health insurance stick is the sunset clause, with a commencement date of 1 July 2000. After all the incentives thrown at people over the last four years by this government, this allows a 12-month period in which people who are not currently members of private health insurance funds to join and pay the rate for a 30-year-old. Anyone else who joins after 1 July 2000 and after the age of 30 will pay an additional two per cent for every year they wait. This increases to a maximum of 70 per cent for people joining at age 65 years or older. However, people born before 1 July 1934 will be able to join a fund at any time and pay the rate for a 30-year-old.

This is an interesting choice of age rating. Industry analysts suspect that 65 years as the maximum age threshold has been chosen probably for political rather than actuarial reasons. The same could be said about the special treatment of those over 65. So what is the logic of choosing 30 as opposed to, for example, 25? To date there has not been an announcement by health insurance funds on the actual new base rate premiums for health insurance policies.

In order to rationally debate the legislation, it is prudent to outline some of the arguments put forward by supporters of Lifetime Health Cover. These would include some of the following, which I would add are quite contentious and fundamentally flawed in places. For instance, over time, Lifetime Health Cover should result in a broad cross-section of the community being covered by private health insurance. This is premised on the argument that younger people will be encouraged to join funds at the cheaper rate rather than waiting until they are older. Thus, as the age profile of people insured changes, it is argued that premiums should begin to stabilise and may even fall because the funds will have more good risks.

The government further argues that the introduction of Lifetime Health Cover, combined with the effect of other initiatives such as the 30 per cent rebate, will make private health insurance more attractive to people who regard it as poor value. Finally, there is a belief that the existing system of community rating encourages a short-term view of private health insurance, whereby many people weigh up their risks and join health insurance funds only when they expect to use their insurance cover.

It is interesting to note that this is the fourth major change to private health insurance in four years. In 1996, a means tested rebate was introduced to fix the health insurance industry's problems. Well, it did not work, so we were hit with a one per cent Medicare levy surcharge to force higher income earners to take out health insurance. It did not work.

Less than a year ago, this government tried the current approach, a $1.7 billion bribe to get the middle class to take up private health insurance. It was warning us that the private health care industry faced a bleak future unless the Senate passed the new 30 per cent health insurance rebate. With the privately insured portion of the population dipping towards only 30 per cent, the tax rebate was a desperate measure by the government to stop the unravelling of the private insurance system it so passionately supported. The 30 per cent rebate was supposed to achieve 550,000 new members by the end of this year and increase the insured population from 30 per cent to 33 per cent. Six months ago, the industry itself was saying that it would lift coverage to 45 per cent, translating to 2.5 million new members.

What do we have now? The industry tells us that more measures are now needed. I note that the June-July 1999 edition of Health Cover reported the March 1999 quarter increase, for an outlay of $1.76 billion per year in taxpayer subsidies, as this:

. . . piddling 8.2 per cent notwithstanding extensive advertising that misled many. The insured population rose a net 57,000 from 30.1 per cent to 30.3 per cent.

The obvious conclusion to draw from this scheme is that it was an expensive bandaid proposal, along with others before it, to repair the private health care industry. It has not worked. It has not resulted in significant uptakes in membership quite simply because it went largely to people who were already insured for a wide range of reasons. Additionally, the rebate scheme's objective to arrest premium increases has also failed to materialise. Premiums have gone up by an average of 4.9 per cent. This is not surprising, and analysts of the proposed legislation argue that the trend will continue.

Jacquie Hayes of the Australian Financial Review of 15-16 May 1999 cites comments of Nicola Ballenden, a senior health policy officer of the Australian Consumers Association, who says that the proposal is unfair and probably will not achieve its aim of bringing more people into the system and encouraging a more rational pricing policy. Since 1999, premiums have risen each year between four and 17 per cent, which is an average of almost eight per cent. Ballenden has concluded:

In effect, the health insurance premiums are rising higher than inflation and there are no guarantees those prices won't continue to rise.

In what really sums up the major problem with this legislation, Ballenden says:

In my view, it's more likely they will rise, because there is no mechanism in place to stop it.

The Herald Sun of 2 June 1999 published a Voteline on the question of whether private health insurance is value for money. Of the 522 calls, 86.6 per cent said no and 13.4 per cent answered yes. I can assure you that the Labor Party did not arrange that ring-in.

Paul Gross, in the Australian Financial Review of 19 May 1999, labelled the current proposals before the House as:

. . . yet another marginal tinkering with health insurance—and it will not drive down the price of health insurance in the short term.

He quotes Minister Wooldridge as saying that these proposals would have a long-term impact. His first guess was `three to five years', but it soon became five to 10 years later in the interview. Few health commentators believe that the proposed legislation will force down premiums or fundamentally attract younger people.

Russell Schneider, the Chief Executive of the Australian Health Insurance Association, claimed that this legislation would not achieve its aims because the young neither wanted nor could afford private health insurance. I am sorry that the member for Corangamite is not here because Jenny Macklin did not attack Mr Schneider's credibility; she merely quoted him. I will continue to quote him:

The scheme's real success is not going to be that it gets young people in, but it gets younger people in a few years before they start making claims.

We're really after the 35-40 or 50 age groups, especially if they don't have kids for they don't make claims . . .

We're after the yuppies with no kids. They have the lowest utilisation rates of anybody.

In effect the proposed scheme is based on the aim of attracting low risk profile insurers with the lowest utilisation rates. There are two interesting consequences of this. The first is that, given the current base premiums, there is not much incentive for young people to join an insurance fund, either on health or on economic grounds.

Ian McAuley, lecturer in Public Service Finance at the University of Canberra, has done extensive study on alternative options to health insurance. In the main, McAuley argues that viable alternatives exist for people who resent being forced into taking out insurance they either do not want or feel they do not need. The point he makes is that even with coercion or incentives—carrot and stick policies—those who ignore the fear factor and choose either to defer joining a fund until age 65 or to commit to a disciplined savings plan to pay for their own medical expenses are likely to be better off.

For example, a 30-year-old who pays a $1,000 premium every year until the age of 80 would end up paying double that of a 65-year-old who would be hit with a full 70 per cent penalty for late membership, paying $1,700 a year for the next 15 years. This is the stage of life when most Australians really need insurance to help with the costs of failing health. Alternatively, a person who saves $800 a year to self-insure would still end up $25,000 ahead of the 30-year-old—even if they had to pay $2,000 out of their own pocket every five years for unexpected medical expenses. McAuley prophetically concludes that given this government's continued tinkering with health insurance:

Can you see a 30 year-old making a plan for the rest of his or her life based on a health policy? Health care policy changes with every change of Government and there are major health policy changes every few years anyway.

Don't we know it? He goes on:

So you have got to ask people, are they willing to be on the next 50 years?

Thus the rate at which premiums will increase under this scheme—that is, at two per cent per year—is not enough to encourage greater participation in private health insurance by younger and healthier people. McAuley's calculations have shown that younger people would be better off delaying participation in private health insurance until they are older despite the extra premium loading which they would be required to pay. Kenneth Davidson wrote in the Age on 18 May 1999:

Self insurance is still the best bet for those who do not want to queue in the public sector . . . a reasonably healthy young adult could put aside the premiums for two to three years (relying on Medicare in the interim), and save more than enough to cover the cost of private elective surgery and private hospital accommodation.

Perhaps we forget the financial impost younger people already experience. Generally, youth and good health is accompanied by significant financial costs. Those attending university will barely have repaid their HECS and university fees before they are required to contribute to private health insurance at age 30 in addition to paying the Medicare levy. These people are likely also to be in the early stages of mortgages and are likely to be facing the additional costs of raising a family.

The Age editorial of 18 March 1999 was headed `Tinkering at the edges on health—late joining penalties will not cure health insurance problems'. Lifetime Health Cover is in fact playing at the edges of health insurance. It is not a solution to the underlying issue, which is that most of the community, especially younger people, regard private health insurance as too expensive and unnecessary.

I mentioned earlier the comments of Russell Schneider of the Australian Health Insurance Association and the aim of attracting low risk, low utilisation insurees. However, the proposal is unlikely to persuade many young and healthy people—disinclined as they are to join private health funds—but it will make access to health care more difficult for less wealthy older people who simply may not have been able to afford private health cover when they were younger. Let's face it, if such people miss the 12-month sunset time, private health insurance will continue to be out of their reach.

An important consequence of lifetime community rating or `the forgotten effect' raised by Professor Don Hindle of the School of Health Services Management at the University of New South Wales is that a matter of crucial importance is overlooked. He states:

If the risk profile of private insurers is improved (by reduction in the average age relative to no lifetime community rating) then the risk profile of the public insurer will deteriorate.

Professor Hindle's comments strike at the heart of the legislation's fundamental weakness.

In its attempts to prop up the private health insurance industry, the government ploughs away—deliberately or not, consciously or unconsciously—on three courses. The first is that, if the high risk elderly people or those planning a family are discouraged from having private health insurance, they will need to be provided with care in the public sector. If one assumes that the overall level of care is unchanged, then the reduced utilisation experienced by the private insurance sector will be balanced by increased utilisation in the public sector. The private sector will be better off, at the expense of increased financial pressures on the public health care providers.

As the Consumers Health Forum submission to the 1997 Industry Commission noted on page 431, reduced premiums for younger consumers and an increase in the viability of the private health insurance industry `will do little to relieve pressure on the public system as it relies on reducing the risk pool of private health insurance'. And this is the crux of the matter: what of the public system?

One could argue that, if the costs to the public sector are increased because of a deterioration in its own risk profile, there should be a corresponding decline in private sector expenditure. Don Hindle thinks not. A more realistic scenario is that public hospital demands will increase but will not be matched by increased funding. Given this government's record of subsidising private health and reducing expenditure on public health, there will have to be further increases in efficiency and declining standards in public health. Private health insurance revenues will increase, and private care providers will maintain their revenues by providing services which would not have been affordable given the previous high risk profiles.

It has been estimated that every unit of care costs more when delivered by the private sector. For example, the admitted patient episode costs at least 20 per cent more for a privately insured patient in a private hospital than for a public patient in a public hospital. This is not so much a consequence of inherently greater needs for care or lower levels of efficiency but, rather, of care providers' pressure to increase their revenues in a world where the only significant constraint has been a fear of loss of private health insurance membership due to unacceptable increases in membership premiums.

One of the greatest disincentives to private health insurance is the cost and, of this, the gap between what insurers pay and doctors charge. Don Hindle and Ian McAuley argue that pressures on the public health care sector will increase under lifetime community rating and the majority of Australians who do not have health insurance will tend to lose. It is not only the loss of public funding, as Eva Cox put it recently:

Given the limited number of medicare specialists who serve both sectors, the more not-so-sick queue jumpers we have in the private sector, the longer will be the queues in the public sphere.

There lies another measure which needs urgent action—the number of specialists available to the health system in general. The government claims it wants to take pressure off the public hospital system. But what is the point, as Kenneth Davidson rightly asks, if that goal can be achieved only at the expense of creating a second-rate public health system and an inefficient US style private health system which is too expensive for the bulk of the population?

My fear is that the plethora of schemes to bribe, entice and now coerce people into private health insurance, coupled with the erosion of funding to public health, is the thin end of the wedge into dismantling Medicare as a universal system by introducing means testing for access or running down the public health system to the point where, as Kenneth Davidson puts it, `only the desperate and the impoverished would use it'. No doubt many people believe means testing of public hospital services is not an achievable goal in the near future. We heard the words `never, ever' associated with the possibility of implementing a GST. (Time expired)