A mounting crisis in Australia’s heavily subsidised private health insurance industry offers a grim warning to any Tories with aspirations to undermine the NHS.

Australian’s universal tax-funded health care system, Medicare, was introduced in 1984, and lasted until 1996, resulting in a sharp decline in private health insurance from 70% of the population in the 1950s to just 30% in 1998.

As the European Health Management Association pointed out “In essence the Medicare system was proving too good for the private sector, so the government subsidised the private sector to allow it to compete better with the public sector”.

Right wing Liberal governments tried to turn the tide, and brought in a 30% government-funded rebate for people taking out health insurance, initially costing $600m a year, and from 1997 imposed a penalty tax on high earners who failed to take private insurance.

From 2000 this penalty was coupled with a surcharge of 2% on private insurance policies for every year above 30 a new higher-paid subscriber was aged when they took out a policy.

Since then the private sector has expanded, along with the public sector subsidy, despite the increased cost of private provision: one analyst argued that the $2.5 billion spent on subsidising private insurance could “open and operate an extra sixteen 500-bed hospitals.”

The latest calculations show that Australian taxpayers are subsidising private health insurers by $6 billion a year in government-funded rebates and another $3 billion a year on private medical services for patients. 60% of all surgical procedures are performed in private hospitals.

However premiums are arising faster than wages or inflation. And as a result people are dropping out of health insurance cover, especially younger and healthier people, leaving an increasingly older and less healthy pool of subscribers, which increases costs and pushes premium payments even higher.

Analyst Stephen Duckett of the Grattan Institute argues private health insurance is facing a “death spiral”, and “politicians need to rethink whether or to what extent taxpayers should continue to subsidise the industry.”

Duckett says “future reforms to PHI should be made based on a clear view of the desired role of private health care given that it functions alongside a universal publicly funded scheme, Medicare. To what extent is private hospital care a substitute for public hospital care? To what extent is it a complement to the public system?

“If the purpose of private health care is to complement the public system – providing services, facilities and amenity beyond those considered necessary for public funding – then the argument for public subsidy is weak.”

The Grattan Institute is not against private medicine, but has blamed “greedy” private sector doctors for “excessive” private hospital costs and “egregious” bills for specialist care, with some patients facing bills at more than twice the official Medicare Benefit Schedule fee. It notes private patients stay in hospital 9 per cent longer than public patients with similar conditions, and has put forward recommendations identifying $2 billion in possible savings a year, declaring if the changes are realised, it could “save private health care in Australia”.

Earlier this year more searching questions were asked on the value of private health insurance for older Australians after a 78-year old woman who was privately insured was told by private hospital in Hobart she was “too old” to be admitted and that it was “outside of [hospital] protocol” to treat her.

More than half of over 65s in Australia have private insurance. But ABC reports Erin Turner, the CEO of independent consumer advocacy group CHOICE Australia, who argues that in many cases, the public health system would be better equipped to suit patients’ needs.

“It’s particularly good in emergency scenarios and you have access to great quality doctors and trained professionals,” she said.

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