Saving Private Buy-In

Saving Private Buy-In

A proposal was raised last week for the Government to remove the Private Health Insurance rebate and reinvest the funds into public hospitals. While the ongoing inflation of medical claims and insurance premiums is a pressing concern, these actions would likely exacerbate the Government’s future financial commitment.

Australia is in the fortunate position of having a public healthcare system supported by strong private health insurance coverage. Around half of all Australians have Private Hospital Cover, due in part to the Government encouraging participation with rewards (such as rebates) and penalties (such as surcharges).

The system is dependent on younger, healthier Australians subsidising the coverage of those in greater need of medical assistance. The removal of the rebate would sharply increase the cost of insurance to private payers. This erodes the economic incentive for healthy people to seek insurance, by way of higher premiums or a reduction in covered services by Private Health Insurance companies. Should Private Health Insurance participation drop significantly, the Government will be the one left footing the bill.

So while dropping the rebate could reduce Government expenditure by $10 billion in the next four years, the second order effect may result in a bill that is significantly greater than the headline savings.

There’s certainly a debate to be had about the appropriate allocation of health care expenditure in Australia, but any actions must ensure the sustainable participation of private payers.

Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.