May 2015

The Medicine

Mind the gaps

By Karen Hitchcock
The private health insurance racket

A week before the announcement that private health insurance premiums would rise by an average of 6.2% from 1 April, I sat in an audience of 200 or so doctors for my hospital’s weekly grand round. Everyone meets in a hall, stacks a plate with lunch and listens to what is usually an in-house lecture. This grand round was about internal cardiac defibrillators. An ICD is a little box wedged in a patient’s chest and wired into their dodgy heart. When the heart starts to vibrate instead of pump, the device delivers a whopping shock to get it back in rhythm. It’s like walking around with a mini CPR team under your skin. When I was an intern I looked after a patient whose ICD had started firing repeatedly for no apparent reason. He said it was like being kicked in the chest by a horse, over and over. Even though we’d switched it off, he lay perfectly still in the hospital bed, staring down at his body like he wished he could step out of it and get as far away as possible.

Mid-presentation, and just in passing, the cardiologist mentioned that public hospitals purchase standard ICD units from the manufacturers for around $12,000, whereas private hospitals pay up to $45,000. No one raised an eyebrow. We all just kept on listening and chewing, immune to more evidence of the madness of our two-tiered system, and frankly, not really giving a damn what companies charge private hospitals. It’s their free market. When I heard that private insurance premiums were being raised almost three times the rate of inflation, I wasn’t surprised.

As a salaried doctor in a public hospital I rarely think about the private system. Except when a patient is transferred to us from a private hospital because they are too sick to be treated there or the surgery’s gone terribly wrong. Or in the rare instance a patient asks to be transferred to a private hospital. A fully insured patient of mine requested private hospital rehabilitation after breaking her hip, but her fund wouldn’t pay for the rehab until she’d spent seven days in an acute bed, and then they’d cover a maximum of two weeks of private rehabilitation, regardless of her need. I started to wonder: leaving aside services not covered by Medicare, such as dental care, why do we have private insurance that overlaps with our universal health care system?

I asked around. The best a bunch of public physicians could come up with is that private health insurance means that you wait a few months less for elective surgery, get your own room and can choose your doctor. Private insurance doesn’t cover all the “gaps”, the sometimes profligate mark-ups doctors add to Medicare-set prices in what we call “Private Land”. You can end up paying thousands for the privilege of getting a private hip or baby.

An OECD working paper on health insurance in Australia states, “Among the countries with large private health coverage, Australia is a fascinating case.” As one learns in grand rounds, fascinating cases are usually quite ill. Private insurance apparently takes pressure off the public system and contributes to Medicare “sustainability”. Health insurance companies generate large profits (13.6% gross on average). But they also have astonishingly high administrative costs – far higher than Medicare – which cut into these profits. The government has to cajole us to pay for this cover: there are penalties and levies if you don’t have it, and up to 30% of the fees are subsidised by government. These insurance subsidies currently cost taxpayers more than $5 billion a year and will cost more than $7 billion by 2017–18. The system is a fine way of directing funds to the wealthiest households.

Contrary to what we have been led to believe, there is evidence in Australia and internationally that private health care leads to increased health costs (by abolishing centralised cost controls) and to longer waiting times for public surgery, particularly urgent surgery: partly because public hospitals have to compete for staff, and doctors can earn far more in a private hospital, and partly due to “over-servicing” willing customers. Even though around 50% of the population has private coverage, there has been little change in per capita demand for public hospital services. When we’re really sick, we prefer to be treated as a citizen, not a customer.

The main industries to benefit from private insurance are those hawking it and the private hospital sector. Both have powerful lobbies. If a privately insured patient comes to a public hospital, they can elect to sign up as a private patient. This is mostly a benevolent and much-needed donation. You get the same treatment as if you were a public patient, even though an insurance company funds part of your care. The insurance and private hospital industry lobbyists accuse cash-strapped public hospitals of bullying patients into donating their insurance. It greatly troubles them, they say, that this practice may leave public patients “stranded on elective surgery waiting lists”. They propose that the government urgently creates incentives for public hospitals to shunt more insured patients into Private Land. Preferably the simple, profitable patients. The alternative solution – to stop “incentivising” anything private and directly fund more public hospital activity – is unthinkable.

The gigantic props that taxpayers provide to private insurance companies divert substantial funds from the public system. Billions of tax dollars are spent aiding the richest half of the population to choose expensive surgeons and single rooms, to get prompt elective procedures. It’s the only kind of “queue jumping” the government is willing to support.

Karen Hitchcock

Karen Hitchcock is a doctor and writer. She is the author of a collection of short fiction, Little White Slips, and the Quarterly Essay Dear Life: On Caring for the Elderly.

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