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Medicare Levy surcharge « Previous | |Next »
September 10, 2008

The Senate's Economics Committee has handed down its report into the Rudd Government's raising of the Medicare Levy Surcharge (MLS) Threshold for people without private health insurance.

The bill proposed to increase the Medicare levy surcharge threshold for individuals from $50 000 to $100 000 and for couples from $100 000 to $150 000. The increased thresholds will apply from the 2008–09 year of income and later years of income. The overriding consideration was the danger of forcing an ever larger number of low-income people to pay the MLS or to buy low value fund policies for which they have little use, due to the threshold being unindexed since 1997.

The points of contention are structured around the possible impact of the bill on membership of private health funds, subsequent premium increases and the consequent cost to public hospitals as a result of the proposed increase in the Medicare Levy Surcharge (MLS) thresholds.

The core argument of the private health insurance industry is that the bill upsets the delicate balance in the Australian health system between public and private health provision. The crux of this argument is the claim that without a strong private health insurance industry, the provision of private health services will falter and lead to a flood of demand into the public system which it would be unable to meet.

If there is to be a public subsidy to maintain the "delicate balance" then the funding should have been provided to the private hospitals themselves, rather than the funds. We are in effect subsidising the insurers-- the insurers’ administrative costs and surpluses when all but one of them are now large profit-making businesses.

In his op-ed in the AFR Terry Barnes, a former ministerial staffer and now a policy consultant, argues that Rudd's health policy is a basket case. He says:

Senior bureaucrats see inexperienced new governments coming. Treasury and Finance hate the non-means-tested PHI [private health insurance]. It is anathema for them--an open-ended appropriation, driven by demand. They consider its success a triumph of populism over prudence, even though it helped save the private health sector from collapse. But this year a new government with an ambivalent view of private health was preparing its first budget and looking desperately for savings. In opposition it had railed against the perceived injustice of the unindexed surcharge thresholds.Once again savings on the rebate were offered. This time to Wayne Swan not Peter Costello. This time they were accepted with alacrity.

Barnes adds that it was a measure that could be dressed up as a fiscally responsible tax break on the one hand, and keeping faith with Labor's anti-PHI constituency on the other, was a an added political bonus. Labor's health policy is a basket case because it faces defeat in the Senate and it is not sensible.

So there you have the Coalition's health policy--prop up the private insurance industry at all costs.

| Posted by Gary Sauer-Thompson at 10:31 AM | | Comments (4)
Comments

Comments

The private health insurance industry should be told to Get Knotted. Health insurance is probably the only truly unique good/service in our economy. There is no public interest in propping up these companies.

There might be an argument that people should be allowed to receive the equivalent of a voucher to access non-government systems under special circumstances, but otherwise let's call their bluff.

As if there would a "flood" into the public system, as if all the sickest people have private health insurance! If there is a "flood" then we will just deal with it.

John,
when the Medicare Levy Surcharge (MLS) was introduced in 1997 by Costello it was targeted at high income earners. Today, due to failure to index the MLS, the $50 000 threshold for singles and $100 000 threshold for couples currently catches many people earning below average yearly earnings ($58 600). It also catches many people over the average wage level who could not be described as 'higher income earners'.

Yet the Coalition Senator's Dissenting Report says:

the Government's proposal to increase MLS thresholds from $50,000 to $100,000 for singles, and from $100,000 to $150,000 for couples and families risks undoing a decade of careful policies that rescued private health from a catastrophic downward membership spiral.This could ultimately threaten the on-going viability of the entire health system, and in particular could jeopardise Australia's unique system of "Community Rating", under which there is no risk assessment for the provision of health insurance.

They add that If this bill is passed there is a clear and imminent danger that the gains made over the past decade in securing a better balance in the Australian health system could be wiped away as a result of this measure. Even on the most conservative estimates, health fund membership would plummet and premiums would rise well over the trends of recent years – driving more people out of private health and starting the downward spiral left behind in the 1990s.

Scare tactics.The politics of fear.

Gary

I think what I was writing was a little more subtle than you gave credit for. The Labor measure is stuffed because it (1) needlessly takes an axe to PHI membership and pushes up premiums for those who remain, which isn't fair to those who scrimp to hang on to their cover (2) kills needed product innovation and customer focus on the part of the funds and (3) when you throw in the extra spending on the PHI rebate from the above-average increases in premiums PLUS the compensation to the States for the flow-ons to public hospitals, it will cost far more than it's supposed to save. It's not ideological to oppose what hasn't been thought through and I know how important good policy is to you.

Cheers, Terry Barnes

Hi Terry,
yes you are dead right about your position and analysis. I only read the AFR op-ed not your Senate submission.

The ALP is going for broke in the Senate and is unwilling to negotiate with Xenophon and Fielding. They thunder away in the House of Representatives about the Liberals vandalising the surplus which is all that stands between us and ruin from the global financial crisis. I know that it's all about political pressure etc etc but the indications are that the ALP is not really keen on being serious about negotiating.

Your argument in the AFR was one for the ALP needing to compromise on this --something similar to what Xenophon is arguing for from memory. That restores the Medicare Levy Surcharge threshold to something akin to what it was in 1997 by taking into account the effects of inflation.

On the policy issues that you mention:
(1) it "needlessly takes an axe to PHI membership and pushes up premiums". Hmmm, an "axe" is a bit strong, don't you think? There is a debate about the exodus figures and the various modellings.

(2)it "kills needed product innovation and customer focus on the part of the funds." The track record of the private health on product innovation has not been that that good and there is a large degree of customer dissatisfaction with what is offered for the money paid out.

(3) "when you throw in the extra spending on the PHI rebate from the above-average increases in premiums PLUS the compensation to the States for the flow-ons to public hospitals, it will cost far more than it's supposed to save." Agreed. But more money needs to spent on public hospitals anyway and it is part of ALP policy to do so.

Re good health policy---more money does need to spent on public hospitals and they need to be made much more accountable. There needs to be a greater shift to primary care to take the pressure off the hospitals and the private health funds need to learn to survive through good innovative product to ensure demand not public subsidy.

The ALP, as you well know, does not look favourably on big public subsidies for private health care. So the Funds need to lift their game given the new political regime. Good product is the way to counter the provision of private health services faltering not public subsidy.