Private health accounts may solve looming health crisis

Bookmark and Share Health | Tim Wilson
The Australian 23rd May, 2011

In a society as wealthy as ours it's understandable that Australians support universal access to healthcare.

But accepting this principle and the current one-size-fits-all structure of Medicare are different.  

Under the current structure only those who can voluntarily afford to opt out of the system have real choice.  

For the rest of us the government predominantly picks up the tab through wholly taxpayer-funded visits to local GPs and hospitals with restricted choices.  

With only some services requiring co-payment most Australians have no real understanding of how much healthcare costs, armed only with anecdotal stories of nightmare scenarios faced by travelers in the United States' messy pseudo-public/private system.  

But healthcare in Australia is expensive as well. And it's going to become more so.  

According to the latest Treasury Intergenerational report based on 2009/10 dollars the government's expenditure on total healthcare provision is set to increase three and a half times by the middle of the century.  

Considering research consistently finds health expenditure is concentrated in the final months and years of life the looming acute pressure on taxpayers with a dramatically ageing population is quite horrifying.  

Today's taxpayers are paying for the managed departure of their grandparents, and there's about to be a lot more of the latter proportionate to the former.  

Without reform universal healthcare cannot continue to enjoy funding consistent with current levels of care. As a consequence individuals will either have to pay more or there will be rationing of services universally enjoyed.  

It's essentially the same challenge government faced with the pension resulting in the introduction of compulsory superannuation.  

Instead of continuing to provide universal health financing through a top-down government-knows-all-model the government should use the opportunity of this temporary resources boom to restructure our health system toward a bottom-up individual health account system.  

Put simply every Australian would have an individual health account that they contribute to on a periodic basis from their income, like superannuation. That savings account would then be used to pay for healthcare services as required throughout their lifetime.  

As outlined earlier, considering the bulk of people's health expenditure occurs at the end of their life people should easily be able to accumulate savings for their final health bill over a lifetime.  

The scheme would also need to be complemented with progressive tax cuts as the transfer of the health financing burden shifted from government to individuals.  

Healthcare financing accounts for children would need to remain wholly government subsidised since they will not have had the chance to contribute to their own accounts.   

Equalisation subsidies would also be needed for welfare recipients, low-income earners and people with specific diseases to ensure universality and that no one is disadvantaged because of socio-economic status or because they were born with a particular disease.  

According to Monash University Academic Just Stoelwinder's research the Dutch system has working equalization subsidies supporting their compulsory health insurance scheme.  

While the intent of health accounts is for individual management through appropriately regulated financial products, the scheme could be designed to allow Australians the choice to take up an insurance alternative to increase service access and pool risk.  

The benefits of individual of restructuring Medicare around individual health accounts are manifest.  

By engaging patients more directly with the management of their health they'll come to appreciate healthcare is expensive and discourage inefficient, costly behaviours like the current problems of people using hospitals for primary care.   Individual accounts would also increase private sector involvement to compete with the public sector and create a generally higher level of competition improving patient value.  

In his autobiography A Journey Tony Blair identified the essential challenge that "health care systems in which there was a mixed public/private provision, of which at least demand some individual commitment and gave some individual choice, did best".  

Choice isn't always the first priority in healthcare delivery, but it can be relevant in non-emergency situations.  

Accounts would discourage information asymmetry between the medical profession and patients because the latter is empowered with choice necessitating greater responsiveness from service providers.  

Importantly individual accounts would remove the need for a private health rebate which could instead be redirected to helping healthcare provision for the poor.  

Individual accounts would also address through ‘carrots' the growth in health costs associated with longer lives and lifestyle diseases by promoting preventative healthcare rather than cures.  

As the Federal government's commissioned National Preventative Health Taskforce identified every dollar spent on community-based preventative health delivers a $5.60 "return on investment" within five years and is a no brainer for keeping costs down.  

But instead of restructuring the design of our health system as part of the solution they proposed nanny state taxes and regulation 'sticks' to direct consumers away from fast food, alcohol and tobacco consumption.  

Under individual health accounts individual choice would be preserved without the need for a nanny state as patients take financial responsibility for the consequences of their behavior.  

A well-designed scheme could allow for compulsory contributions to exhaust if an individual's account reached a certain level where it far exceeded a reasonable projection for a lifetime health costs.  

Doing so creates tax cuts for those who actively seek healthy lifestyles.  

Structural reform toward individual accounts would be expensive initially to ensure everyone continued to have access to healthcare, but it would be coupled with government savings in the long-run.  

More importantly it would drive productivity improvements in healthcare by injecting competition and universal choice that benefits patient outcomes.

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