CHOICE membership

Junk health insurance funded by the taxpayer


#1

Private health insurance is designed to provide relief for public hospitals. However, what about health insurance policies that provide very low quality cover? These policies, called junk insurance, are normally purchased for tax reasons, but we argue they offer little value to consumers while failing to reduce pressure on the public health care system.

We’re calling on the federal government to end tax concessions and rebates on junk insurance policies as part of much-needed health insurance reforms.

What are your thoughts on junk health insurance? Share your comments below.


Read more about junk insurance here:


#2

Just curious, how is a junk policy determined as junk in text that works as intended? Companies are notoriously clever in working with and more often around the best of intentions.

My understanding is the <=$1000 excess test re taxation was originally meant to assure policies had a minimal level of cover, but the companies saw it was not legislated about the cover per se, only the excess, and responded with junk cover.

A valid counter to insurers enterprising nature and government’s typical caveat emptor working is mandating a list of things that have to be included for the rebate. Then the debate on what that list includes could be entertaining (not!). :open_mouth:


#3

One way would be to cancel all rebates. Then all the money not paid on rebates could be sent into the public system. This of course could have repercussions for policy holders making their policies much dearer, however it may achieve benefits to all, one by making health insurance companies reduce their policy costs to keep their paying customers, two by the increase to the public funding of the system making it better serve the needs of the population, three by getting people to review their current policies and needs, four by not funding the wealthy (most of whom use the junk policies) to take out the junk policies and instead directing that money to those who need the benefits more.

In regards to the Medicare surcharge, it could have the level of income at which it becomes active raised and it would still make those who can well afford to pay it to pay it. I also note that those who are very rich can cut their “reportable” taxable income to below the tax free threshold anyway and they thus would never pay it, or even the Medicare levy, regardless.

I would imagine all the policies that are paid and the Medicare funding if bundled together would make our public system so well funded that no one would ever need Private Health. But those who pay for Private cover would scream at the inequality. But those who avoid taxes, and levies are also being unfair to those who support them through paying their taxes.


#4

I have always wondered why there were rebates in the first place, but

I doubt that, at least not by enough to matter since they are for profit enterprises, and even non-profits need a balanced budget with reserves.

A possibility of eliminating or wounding the private system is that medicos could well emigrate to countries where their income is higher, eg the US, with Australia then relying ever more on medicos from countries with lesser skills and qualifications, or just shortages of competent medicos.

There is a lot of ideology in play that must be coupled with pragmatism so that unanticipated outcomes are avoided. If the health funds were left to pay what they wanted (eg for outpatient services even if Medicare subsidised) there is then a chance we would end up with a US-like medical system where only the wealthy could afford top treatment as doctors withdrew from the public system.

Very complex inter-relationships at play…


#5

Almost all Private Health Insurers (PHIs) are there to make a profit. Therefore they will pay out as little as possible, while maximising income from clients.

Why do we really need (PHIs) at all? What if the Federal Government stopped propping up the private health insurer industry, and instead spent that money on the health care industry in return for bulk billing?

If there was no private health insurance, all patients medical expenses could be dealt with through Medicare, and patients who needed specialist services, surgery, etc. would be treated on a priority/needs based system, rather than on a system which prioritises those who pay more.


#6

Hi @meltam, please accept this as fodder for discussion.

That is true of all ‘insurance’. If you wish to single out PHI one could make the same argument for introducing single payer public auto, home and contents, life, disability, income protection, pet, … , … insurances and put the insurance companies out of business. How about deposit insurance and reinsurance for large corporations? What about general liability insurance? Auto and the latter would effectively shield miscreants from repeated bad behaviour while health is usually the luck of the draw, but what about the impact of smokers and addicts (life choice) and the obese (life choice as well as sometimes an underlying medical condition)?

Where does a line get drawn and who draws it? The MP’s who we can always trust to do the right thing? (Ooops, fell off my chair laughing with that one :smiley: ).

A good question, and as I wrote it is complex. If we go forward (since it is pragmatically impossible to wind back) a step that should be doable is to address the ideological problem with the rebate that is seen as no more than a political hand-out to the better off, that has become entrenched. The step is to change the PHI rebate into a tax deduction (with limits) for health insurance as a ‘cost of life’ similar to those who can deduct ‘costs of business’.

Considering tax brackets, deductions and credits, it would probably come out about even for most who buy into PHI. Admittedly those on low income would theoretically lose out via a deduction, but would they buy PHI under the current system, so deuce in practice. PHI and the parallel public-private systems would continue but the ideological problem with the rebate would be largely resolved in some if not all eyes, although I suspect even that change would be contentious in Canberra as point scoring overtook debate.

If PHI was wound up how would the medical community operate and behave with a reduced private patient base of only those who could pay 100%?

A single payer insurance system might be a viable option where everyone has insurance that covers everything not just in-patient (eg Medicare with a modified model), and the providers operate as if private.

How about this scenario (as a devil’s advocate), obviously contrived to make a point: You have been a model citizen with a dependent family. You have been diagnosed with an early, treatable, but very aggressive cancer and every day treatment is delayed matters. You are scheduled for surgery, but hours before the theatre is yours a drug addled known criminal is brought in with a serious wound from a gang fight and gets your theatre. You cannot be rescheduled for weeks and your own outcome has been jeopardised. Is that OK for you? Who makes the decisions on clinical necessity? Is ‘every pig’ (ref George Orwell) equal?

Human nature suggests the only way a public system acceptable to all can operate is if supply meets demand without rationing or statistical game playing. What are the odds, especially with the range of maladies humans experience and what is required to research/treat many of them?

Maybe more later, or not, but I trust I have thrown some thought provoking issues onto the table.


#7

I certainly agree that many of the points could/would be problematic (made more so by political mismanagement and ideology of the issues). If you think we may become a US centric model then under the current sleight of hand attacks against Medicare we are already heading fast down that path.

If we do nothing then we are doomed, if we do something even if unpalatable now we may have a better outcome for all in the future. The Govt has in the past passed unpalatable measures but after some time they have become accepted (perhaps not graciously but still accepted).

Currently we have a poorly funded public system, for many reasons including State Govts who raid the Medicare system to fund their coffers for non health related spending, which the current Federal Govt are seemingly loathe to interfere with as it in effect is helping to kill Medicare. This leads to decreases in available beds, Doctors, Nurses, other ancillary staff, Theatre rooms, and so on.

If the Medicare system funded both public and private treatment, including dental and other reasonable extras, in a fair way and the rorts were stopped or greatly reduced Public & Private Hospitals could still flourish as could the public & private doctors. They, the private sector, would not achieve the current largesse for their shareholders but they would still give them a return and I am sure efficiencies would ensue to bolster that return. Remembering that Health Funds in Australia are meant to be Not for Profit enterprises (now that makes me laugh till my lungs ache).

They did have a system whereby if you spent over a limit (about $1,500) in a tax year the rest of your health costs could become a Tax Deduction (1/4 of cost above the threshold was the tax deduction). The Govt removed this in recent years and only those few who were able to continuously achieve that level (and subsequent deduction) year on year have it still. This has made it more difficult for self funding private patients to continue doing so as the tax benefits, for many of them, to their costs have been ripped away.

They still wouldn’t need to pay 100% nor would the Private sector disappear, if properly funded Medicare would cover most of their costs and only the frills would need to be self funded eg choice of meals, wine or other alcoholic beverages, extra for a private room if not medically required. I also note many private hospitals do have and cater to shared wards.

Finally, even for self funded private health, Medicare users have currently the added benefit if they spend over a given amount per year (Calendar year not Tax year) on certain out patient health costs that the Medicare rebate they receive is increased substantially (https://www.humanservices.gov.au/individuals/services/medicare/medicare-safety-net) and the spend limits to achieve these are not onerous. I suspect this is what some junk policy users tap into to reduce their costs. Importantly is that if you are single you are automatically enrolled but if you are not single you do need to enroll for the safety net, I suspect many people are not aware of this and so rebates they receive are greatly diminished over what they could get.


#8

I agree with choices radical plan in order to totally change the private insurance scheme as it is really just there to force consumers to join up so the government can get them signed up to private cover. Then if you leave the cover you get hit hard which is not fair. As some have said it is just about making money. And why they couldn’t just have a simple way of doing it but its not like that. Either way things need to change and i hope changes do occur. Thats why i put my submission through to the health minister. lets all get on board and make a start.


#9

Signed the letter to the Fed Health Minister https://action.choice.com.au/page/14623/action/1?ea.tracking.id=EN_email


#10

Thanks @grahroll

There will be some big changes announced on private health insurance over the next few weeks/month and we want to make sure the Minister hears actually people’s voices, not just health insurers with lots of money!


#11

They do exactly what they are designed to do. It is a win for the consumer and a win for the insurer.

They offer little value to the consumer by way of health insurance but that is not what the consumer wants.

The point is that the government penalises the taxpayer by increased tax if s/he doesn’t have PHI. So any health insurance that satisfies the government and costs less than the amount of the tax penalty is good value for the consumer.

If this is perceived as a problem then the government should presumably raise the minimum standard of PHI that is needed in order to avoid the tax penalty.

The private health insurance rebate is a side issue to this. The rebate has been partially phased out already but politically once a handout is available, it is hard to claw back. The government could continue to phase it out e.g. continue to reduce the rebate percentages / fail to index the thresholds.

There is no magic pudding. Health costs, both public and private, are increasing and there is only so much that the government can do about that. It would be good to end the federal-state blame game however by making exactly one level of government 100% responsible for all aspects of health services. (Some years ago Rudd threatened to do it but I think that didn’t happen.)

One post above comments on the movement of labour if the government reduces effective incomes for medical staff or indeed forces companies to run at a loss. However longer term the effect is likely to be that the staff simply won’t be there. Young people will choose not to study medicine if the government creates a situation that is too dire.


#12

I am on the side who thinks it is a problem because the junk policies are marketed at younger and average people because of their comparatively low cost, who probably do not have to worry about any income based surcharges.

It could also be, as you write, a win for those doing well in life on good incomes who only care about avoiding the surcharge and who are happy to use the public system. It is certainly a boost for profitability of the insurers selling these policies and that is almost certainly the insurers design criteria, like an automotive after-market extended warranty.

I’ll subscribe to that![quote=“person, post:11, topic:14537”]
The private health insurance rebate is a side issue to this.
[/quote]

It would not be difficult to legislate that if PHI cover did not meet the criteria for the [upgraded] tax penalty avoidance, it also did not get a rebate.

We may have solved it :slight_smile:

I like that also. But I also think states should be done away with. Reducing the total pollie pay, duplication, and disparate norms and laws across our land could be very helpful to the treasury as well.


#13

That may be getting out of scope. You don’t need to abolish the states in order to do the best we can in order to fix the health system. I assume that abolishing the states would require a heap of constitutional change and might be near impossible to get passed by the people.

The Commonwealth already has the power to legislate in respect of medical and dental services (since 1946?) - which is presumably why Rudd could make his threat that he didn’t follow up on. No constitutional change required. Just do it already.


#14

Yes they are as both profit but the other consumers top that user up by paying the taxes that allow them the use of a public system, overall a penalty for the rest of us.

I don’t think it is just perceived to be a problem but is a problem. It costs us all to top up the health system that would have less strain on it if appropriate cover was held rather than the junk policies or the Medicare taxes avoided were paid. There are two systems at battle here, the Tax system and the Health system and both can’t be winners in this particular situation and the Tax system seemingly the overall winner for the junk policy holder and the health insurer.

I don’t think it is. The consumer who buys the junk policy does so to avoid the extra tax that would go to fund the public system, they then receive a rebate on the policy they paid for so they in a way get “two bites of the cherry”. Firstly a reduction in the taxes they pay and secondly a taxpayer funded refund on that health policy. EDIT: As noted by @person some do not receive a rebate but the value of the policy Vs the Tax saved obviously works still in the Junk policy consumer’s favour and reduces the tax entering the Medicare system.

Who pays for this? Every tax payer in Australia. It sucks money out of the Tax system that could very well go back into the public health system that the Junk Holder probably uses but refuses to pay for. You might argue that they are penalised if they don’t use the policy but if the Public system isn’t funded properly they are serving a penalty, albeit not taxes, but they share that burden of health cost with the rest of us (fair enough that we support a social benefit) but then expect us to pick up their extra tax benefit tab to boot.


#15

Let me put it this way … if the PHIR were completely eliminated today, it would still make financial sense for insurers to offer these policies and it would still make financial sense for consumers to buy these policies.

Also, the PHIR has already been partially phased out and the taxpayers who suffer the greatest tax penalty for not having PHI are also the taxpayers who receive no rebate. Just to be clear 0% rebate. There is no second bite at the cherry for them.

The government also is not indexing the thresholds so the rebate continues to be phased out to some extent.

What you say used to be true. I don’t recall what year the PHIR phase out was introduced. Maybe FY13.


#16

Nor do I say it isn’t being reduced/removed but it currently is part of the problem. It may not be a large part but it still is part. To fix the issues we have we need to really re-work all facets of the problems not in a piecemeal way but rather a complete overhaul.

As an example of the tinkering, soon the Govt is going to introduce new laws regarding health policies with younger users getting bigger cuts to their premiums. They say this will get more young users into the system, which it may, and this will re-tune the risk profiles making it better for all policy holders (this is the aim anyway). But the older policy holders who are either paying an extra fee because they signed up late or have been policy holders since Adam was a boy get no such rebate. What happens as the young holders age? Will their policy costs increase with age? Will we then have a tiered system that discriminates against age?

This tinkering makes it harder to understand, it creates unfairness in a supposedly fair system. But as I said this is about two systems that don’t relate very well to one another, Tax and Health, and they both need to be re-worked so that they are more in harmony, as I don’t expect they will ever completely happily co-habitate.


#17

That is my understanding. The incentive to sign up early does not last forever. Think of it as a honeymoon rate.


#18

It is described in


#19

From which: Attracting more young people into private health insurance is critical to keeping the sector sustainable in an ageing population.

This shows that no amount of tinkering and not even a complete overhaul will fix the underlying problem. Health costs, both public and private, are rising.


#20

I think we will agree to disagree on whether the system should/could/can be fixed. All costs continue to rise in all sectors not just health. Usually wages/salaries also rise, though currently they are stagnating and causing concern even now at the PM level, and thus offset rising costs (not always completely). When rising costs far outstrip inflation there are other pressures being brought to bear and some/many (perhaps) of those can be controlled by policy and legislation. But it requires a Govt that is not unduly influenced by “Big Money” to enact and prosecute those changes.

I would also ask why we need Private Health Insurance? What benefit does it give our community? If it is needed then how many “players” should it support? Why do we have so many even now? How much do the Private and Public Health Insurance overheads cost our policies and healthcare? Where can efficiencies be made? What level of bureaucracy/administration is acceptable/needed? These are some of the questions that need answers to improve the funding of our health system.

Then we have middle-men like iSelect and similar whose funding is paid for by the Health Funds (which is an added policy cost even if not an upfront one). This only adds another layer of cost to an already costly system. Think of all the varied buildings, office staff, and other costs they have to recover and then get a profit for their shareholders and all of this out of the policies you pay to another Health Insurer who has to do all those things as well. How does this improve your health care?