Here is the idea of health insurance: you pay a premium and then, if you need it, you make a claim. This pools everyone’s risk of poor health together; a welfare gain as it smooths what might otherwise be some very big bumps in health payments.
[DDET Read on]
But, in Australia, private health premiums are regulated. They have to be because of limited competition and because of the private health insurance rebate making the government a big customer. Yesterday, the Health Minister Nicola Roxon announced that health funds could increase premiums by 6 percent. In a failing economy, how could health care costs be rising that much? The answer was that claims had risen but also that the health funds had taken a hit on investment funds — you know, where your premiums go until they are needed by someone.
But think about what that means. The amount of health expenditure insurance you get is tied to the health of the economy. That isn’t insurance, it is something else. These funds are selling relief from uncertainty with uncertainty. What is more, the ability to pass on investment losses like this is, wait for it … running the risk of moral hazard. Not this time, on potential claimants (that is always an issue). No by the funds themselves who have less incentive to manage investments properly. (Actually, it is a little hard to tell. I can’t recall ever hearing when investments were doing well, health funds put in a claim for reduced health insurance premiums).
What the Government needs to do is overall the health insurance system to provide real insurance. What Stephen King and I outlined in Finishing the Job was a plan to have the government cover all procedures at a standard level whether public or private. Private health insurance would then be for the extras and marginalised and not directly regulated. (Here is a summary). It is time for this Government to act.