For a long time, the federal government encouraged the Australians Take out private health insurance to reduce the financial burden on the public health system.
To make private health insurance more attractive, the government is using a carrot-and-stick strategy. Low-income and elderly people receive subsidies through “.premium rebate”. High-income individuals who do not have adequate insurance are subject to Medicare levies ranging from: 1-1.5% of their taxable income.
The effectiveness of these subsidies is regularly debated; AUD 6.7 billion Some of the taxpayer money that subsidizes private health insurance premiums could be better spent on Medicare or directly funding hospitals.
We aimed to answer this question. Do the savings from increased private health insurance coverage outweigh the costs of government subsidizing private health insurance reimbursements?
our analysisThe study, commissioned and funded by the Department of Health and Aged Care, found that there are significant benefits for the government, particularly when older people take out private insurance. On average, the government uses these subsidies to save each person about $554 per year.
However, rebates could be better targeted at Australians who are more likely to need and use health services.
How did we solve this?
To assess whether the money spent on subsidies for private health insurance pays off, we looked at both the costs (premium refund subsidies and waived taxes from the Medicare levy) and the savings.
To calculate the savings, we looked at how much the government would spend if these people did not have private health insurance and used the public health system instead of the private system. This is called an “offset.”
This is an important metric for the success of Carrots and Sticks because it tells the government how much health care costs it can save if you have private insurance.
Using 2019 private health insurance spending data, we hypothesized that a day in a private hospital would be equivalent to a day in a public hospital. productivity committee.
We have also taken into account the intentions of the government. 75% contribution of Medicare Benefit Schedule feethe price of prosthetics (for hip replacements and other implants) in private systems is higher.
Read more: Fixing the way we pay for hip replacements and other implants could reduce private health insurance costs
On average, private health insurance offsets public health costs by about $1,400 per person, with savings greater for older people than for younger people, reaching $4,000 for those 75 and older.
To answer whether the savings from purchasing private insurance outweigh the costs incurred, we needed to take into account the amount that governments spend on subsidizing insurance.
we used the standard premium rebate rate In this case, those over 70 and earning up to $90,000 would receive a 32.812% rebate, while those under 65 and earning between $105,001 and $140,000 would receive an 8.202% rebate.
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With average annual private health insurance premiums of $2,300, the government would incur costs ranging from $755 to $189.
People with private insurance don’t have to pay the Medicare levy that funds the public healthcare system, so for single people who are subject to penalties, the exempt tax amount ranges from $970 to $2,400. It has been found.
When you combine the costs (premium refund subsidies and waived taxes from the Medicare levy) and subtract the savings (offsets), you find that the subsidy is a financially good deal for the government. This subsidy is less than the offset cost of about $554 per person with private health insurance.
Is there room for improvement?
A question arises here. What if we could change these subsidies based on who costs more to provide care and who saves the government more money? Our findings show that some groups What should we do with subsidies, now that it is clear that they save the government more money than they cost? Unless you switch to insurance, the burden on taxpayers will increase even further.
For example, individuals age 75 and older with incomes between $105,001 and $140,000 would receive a $1,877 subsidy, offsetting $5,268 in public health spending and saving the government $3,391. Given that approximately 6,000 people in this age group currently have private health insurance, her only two additional additions would be budget neutral.
Read more: Private health insurance is undergoing a revolution.But asking people to pay more for insurance they don’t want is not the answer
How can I use the money I save?
A better way to subsidize private health insurance is to give additional subsidies to people who are sicker and need more health care. These are known as ‘risk-adjusted subsidies’.
Risk-adjusted subsidies are determined based on individual characteristics such as age, gender, income, where you live, and health history (such as previous hospitalizations and use of services). These are the people most in need of private health insurance, and the government would also save the most money by having private insurance.
This subsidy can be calculated by a formula that uses individual-level spending to calculate how much health care a person is likely to need and how much it is expected to cost. There is a gender.
existing work Australia has shown how this can develop. Country Countries such as the Netherlands, Germany, the United States and Switzerland have shown that such systems are possible.
Australia’s healthcare system, particularly private health insurance regulation, is poised for a major transformation. Health and Elderly Care Department I’m asking for your opinion on that option. Our research helps point the way forward.
Read more: Who really benefits from private health insurance reimbursements? Not the people who need coverage the most
