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Healthy debate

THE debate around private health insurance costs has stirred up an interesting hornet’s nest.

To my mind, the short time since the Federal Government introduced its lifetime cover policy has been just long enough to prove how bureaucratic attempts to manipulate markets are fraught with difficulty.

While I am all for tax incentives to help us compete with overseas jurisdictions, current efforts to encourage private health care show that markets don’t always behave like we think they will.

It’s a bit like driving a supertanker – very hard to stop at short notice.

When the government announced its 30 per cent rebate to encourage punters into the private scheme, the resultant wave of customers was viewed as a boom for the highly regulated industry.

People flooded in and funds made record surpluses.

After this windfall the funds have had the audacity to ask for an increase in premiums, at least that’s how their request is being billed.

And therein lies the ridiculous nature of this whole exercise. It is not a free market and health insurers are being used as political footballs as governments around Australia try to control the rampant costs of their health systems.

The Federal Government’s answer was to offer the rebate.

A lot of people refer mistakenly to this subsidy as some sort of subsidy to the industry. Yes it brought them new members (they got the discount) but increased volumes of business didn’t necessarily lower their cost structure.

In fact, the insurers will argue it has done the reverse for a variety of reasons.

Among other things, the funds have to increase their reserves to match rising contributiions.

Then there is the ever rising cost of private health, the very thing which people are insuring for.

And, most importantly, new lifetime cover customers have proved to be much higher claimants than expected.

Partly, that is because they are new to the system and have yet to find a level of contribution which suits both the insurer and customer, but mostly its because many are not used to paying for health insurance.

Unlike home and contents, many of these people actually feel they have to get some of their “investment” back.

This has been exacerbated by the Federal Government’s no gap policy, which has meant that, for many people, there is no “excess” they have to pay, which puts them off going private in the first place.

While there is no doubt there are too many funds, many are not-for-profit organisations which operate on low margins and will go out of business if they can’t raise premiums.

The alternative is mergers and acquisitions, which will only lessen competition.

The Government’s job is to get people out of the public health system who can afford to go private – not beat health funds into submission.

Government should get out of the business of controlling premiums and let the market decide, rather than turning a few health funds into pariahs and creating problems for the future.

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