Dear Pericles,

I was indeed a touch flippant but how was I to know you would be having a dip? ;)

The health insurers in Australia as a collective bunch, despite their status, had gross margins of nearly 15% and profit margins of nearly 10% in 2010-11.

Not brilliant if you are a manufacturer or a mining company but pretty darn healthy if you are shuffling paper.

Their total profits of $1.456 billion were larger than their total expenses bill of $1.410 billion. Therefore for every dollar spent on wages or rent or advertising they made two in gross profits. Not shabby at all. So it cost nearly 3 billion for the privilege of having them around.

Is either competition or a not-for-profit ethos being maintained?

In 2000 there were 44 insurers but by 2011 that number had dropped to 34. the number of private insurers had climbed from 4 to 7 but most significantly the for-profit market share had climbed from 12.5% to 68.6%.

“the traditional emphasis on not-for-profit operations and strong mutual ethos shifted as the number of for-profit insurers has increased” Private Health Insurance Administrative Council 2011.

While there has been a slight increase in the numbers of people insured, the 'Hospital Episodes' paid for by insurers have jumped 6.8% from last year and the Medical Services by 8.7% yet profit margins continued to increase.

The main burden of this increase was shouldered by the public hospitals, 6% compared to 1.5% for private. What is interesting is the dollars paid by insurers to public hospitals climbed by 10.4% for the same period the figure was 7% for private hospitals or nearly five times the Episode increase.

This is reflected in the per-Hospital Based Episode costs; $1378.28 for public vs $2485.55 for private.

The length of stay for private patients has increased by over 15% in a year.

Therefore I'm saying there are questions about the fairness, efficiency and benefit of the private health industry that need to be addressed.

We need to determine are they good for our country or are they just pimping access?

Dear Yuyutsu,

The American path was to let the insurance companies get such a strangle hold on government through the buying of politicians that now health care is triple the cost of what it is here. The profits they make are insane.

Joe Bageant wrote in his book Deer Hunting with Jesus that;

“...medical bills are the leading cause of personal bankruptcy in the united States for the uninsured. Half of the uninsured owe money to hospitals, and at any given time one third of them are being chased by collection agencies that will not hesitate to haul them into court for a hundred bucks.”

But get this,

“Sixty percent of those filing for bankruptcy have health insurance.”

So even those who can afford insurance are getting nailed.

You say; “I have no problem with welfare, for those who cannot afford, but what's the rationale for those who can?”. If you are talking about the welfare payments of health insurance rebates for the wealthy I agree, but if you are referring to the provision of direct health services I think the answer can be found in the “strong mutual ethos” that Australia has been traditionally been both proud of and renown for. It sets us apart from the US system. It is a notion of collective responsibility for all Australians, a determination that medical bills should not destroy families or curtail access to basic treatment and care. It is a willingness to share the burden for those whose medical circumstances have set back. That it should be universal is a given.

That ethos may well have been under attack over the last decade but it is something I hold dear and would fight to preserve,

The alternative is not what I want for Australia.

Dear OUG,

Glad you agree. Unusual but welcome.

Dear Csteele,

First apologies for the typo in your name in my last post.

"The alternative is not what I want for Australia."

There are many more alternatives. I am not aware of any political party offering the American model anyway, either now or ever in Australia.

My favourite alternative is as follows:

1. The standard medicare levy pays for a fixed sum in health-vouchers given to every citizen (if necessary, the percentage may be revised).
2. Anyone can use their vouchers as they see fit to pay for (or toward) anything that can broadly and reasonably be considered as health-promoting. That can be for example doctors, hospitals, medicines, treatment overseas, gym-membership, alternative medicine, therapeutic massage, corrective cosmetic surgery, etc., but the most common use would probably be either a private health insurance or Medicare.
3. The fixed sum of the vouchers is guaranteed to be sufficient to cover Medicare, which will provide more or less the same as it does now.
4. To prevent abuse, Medicare will have cooling periods for pre-existing conditions as well as a commitment for a minimum number of years for the newly insured.
5. Other than Medicare, private health funds can offer any type of health cover - for any combination of medical-conditions and treatments as well as any financial terms and conditions, all based on transparent free-market principles.
6. Vouchers can be accumulated, to be used in subsequent years (although they are likely to lose value due to inflation).
7. Vouchers are transferable within the family.
8. Vouchers can be donated or bequeathed to charities which help the poor in need.

Thus, the mutual factor is maintained, but there is also a healthy competition in the health market and much more free choice.

The power of health-insurance companies is reduced because of:

1. Direct competition with Medicare.
2. Competition with more diverse health-insurance options.
3. If the health-funds are not cost-effective, then those who can afford to pay their own medical expenses will not take a health-insurance at all (and those who cannot afford will choose Medicare).

It's good to discuss the issues with someone who knows whereof they speak, csteele. Refreshing, in fact.

>>Their total profits of $1.456 billion were larger than their total expenses bill of $1.410 billion. Therefore for every dollar spent on wages or rent or advertising they made two in gross profits. Not shabby at all. So it cost nearly 3 billion for the privilege of having them around<<

Being this close to the business, you are also aware that the management of PHI Funds is, on the whole, rather conservative. They were thoroughly spooked, for example, by impact of the GFC on their portfolio, which took a massive hit in 2008-9. Collectively, the Funds lost $84 million that year on their investments, which, as you know, represent their rainy-day reserves. The word went out, and matters are now back on an even keel - over half a billion dollars of their $1.45bn profits came from investment revenue in 2010-11.

Oh, and they also paid $300 million in tax, which you should realistically subtract from your "it costs $3 billion to have them around" calculation. But again, keep in mind that it is the people paying the premiums that are bearing this cost, not the taxpayer.

On the topic of not-for-profit, my own view is that there is absolutely no case to be made for PHI Funds to involve shareholders. The extraction of dividends is, to my mind, the major contradiction in the entire PHI landscape. But your statistics, while correct, are still a touch misleading, as I pointed out before.

>> the number of private insurers had climbed from 4 to 7 but most significantly the for-profit market share had climbed from 12.5% to 68.6%<<

Point one: 43% of the for-profit sector belongs to the government, so it is the taxpayer who receives the dividend.

Point two: another 35% of the for-profit sector belongs to BUPA, who do not have shareholders, but bondholders. So the "dividend" is closer to a "cost of funds" equation than rewarding shareholders.

[contd]

[contd]

It is also relevant that the policies are not actually "risk" products in the normal sense, as the actuarial work is done across the entire population under community rating. So, to my mind, there seems to be no community benefit to having shareholders at all.

In fact, raising capital though a public offering, given the closed nature of the industry, would seem counter-intuitive at every level. Apart from the prospect of "buying out" other Funds, there is little scope in the present set-up for useful capital investment.

However...

One of the key platforms at government level is the broader topic of health management - Minister Roxon was eloquent on the topic, and I suspect the efforts will continue. Faced with an ageing population, and a higher expectation of services generated by that population, health costs are certain to escalate in the future. Solution: educate the citizenry to look after themselves better. Using taxpayers funds, naturally.

The equation - for PHI Funds - is simple: if they have a healthier membership, they pay out less in benefits. Commercial sense. The initiatives under way at Medibank, BUPA and HCF, to name just three, are designed to this end - the trend is, inexorably, to health management, not just "health insurance". Funding for these programmes - which by definition need to be "free" to the consumer - can only come from premium income, and from the rainy-day reserves. At no cost, note, to the taxpayer.

Given the necessity for a return on investment that appears on the bottom line of the annual report, it is extremely likely that these programmes will be a) better designed b) more carefully targetted and c) more financially effective, than anything that a politically-motivated bureaucracy can devise.

The system ain't perfect, we all know that. But under the circumstances it is a pretty good balance of public good and private benefit.

The money being taken from families by the means test is not going to go towards public health, it is simply going into the federal coffers to pay for other waste that the government is trying to compensate for.

If as predicted 4.3m people downgrade their insurance (even if a lesser number does), there will be more pressure on public resources, and the lower income earners will suffer more.