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Debate: does the private health insurance rebate relieve pressure on public hospitals?



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JUNE 1, 2011

Debate: does the private health insurance rebate relieve pressure on public hospitals?

As the Government once again prepares legislation to means test the 30 per cent private health insurance rebate—see this recent Flagpost for background—arguments over whether the rebate eases pressure on public hospitals, or exacerbates it, are likely to re-emerge. Because the rebate subsidises the purchase of private health insurance, which can be used to meet the cost of private hospital services, the private health insurance industry and others argue that it keeps pressure off public hospital services. They warn that means testing the rebate will encourage people to drop their private cover and then turn to the over-stretched public hospital system when they require medical treatment. The Australian Council of Social Services counters that the rebate redirects much-needed funding away from the public system—which those on low incomes rely upon—to the less efficient private sector.

Assessing the impact of the rebate on hospital utilisation rates might help resolve the arguments, but as a 2005 Background Note from the Parliamentary Library suggested, the evidence is not clear. In attempting to assess the impact of the rebate in the period following its introduction in 1999, this paper compared demand for public and private hospital services and the length of public hospital waiting lists. It found that private hospital utilisation rates had increased following the introduction of the rebate; the proportion of private hospital 'separations' (or episodes of admitted patient care) as a proportion of all hospital separations increased from 34 to 38 per cent. It also found that private and public hospitals tended to deal with different 'caseloads'. Public hospitals were more likely to treat emergency patients and those with more severe disease, compared to private hospitals.

However, the increase in private hospital utilisation was not accompanied by a decline in public hospital utilisation rates as might be expected if people were simply shifting to the private sector. Rather, the paper found that over the same time period, public hospital

separations actually increased and waiting times for elective surgery lengthened. In other words, demand for hospital services across both the private and public sectors appeared to have risen following the introduction of the rebate.

When the private health insurance rebate was first introduced, it was argued that it would ease pressure on the public system. This has not occurred; demand for public hospital services has continued to grow and waiting times in public hospitals have lengthened. These indicators might support those who argue that the rebate has failed to ease pressure on the public system. But as the Library’s earlier analysis also explains, demand for health services is driven by a complex range of factors. The availability of new medical technologies, level and type of funding for health services (including incentives like the rebate), the ageing of the population, the clinical needs of patients and the limited capacity of the health workforce (often the same doctors working in both sectors) are just some of the factors that influence demand . The personal expectations of patients and their attitudes towards the health system also play a major role. While this makes attributing the growth in hospital services to a single factor, such as the rebate, problematic, it also makes it harder to argue that the rebate has failed to take the pressure off the public system.

A further issue to be considered in this debate is the question of whether the public and private systems are in competition with each other, or do they complement one another. Both the Government and the Opposition have argued they support a 'balanced' system (a mixed model of both the private and public sectors), but the evidence that the two sectors complement each other is mixed. The Productivity Commission found in this recent report, that while there are complementary components and differences in casemix between the public and private hospital sectors, the two also 'compete to offer substitutable services'.

If the preferred health model is a 'balanced', complementary one then the rebate could be said to play some role in supporting this system, although the extent of its impact remains unclear and continues to be contested. Regardless of the legislative fate of the means test, the long-running debate over the rebate and private health insurance more broadly is likely to continue. This reflects both the ongoing division of opinion between supporters and opponents of the rebate as well as the difficulty of assessing the impact of a single component in a complex, multi-faceted and interactive system.

Posted by Amanda Biggs at 10:23 AM

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Labels: private health insurance