Tuesday, May 27, 2008

Tuesday Column: Ignore the private health insurance guilt merchants:

These men want you to feel guilty.

Have you ever felt guilty about receiving a gift?

Thanks to the Budget, from July many of us are about to be suddenly free of the Medicare Levy Surcharge.

The gift will be worth $500 a year to someone earning $50,000; $700 a year to someone earning $70,000; and so on.

At the moment the levy is charged to anyone earning more than $50,000 and to most people in couples that have a combined income of $100,000.

You can escape from it by buying private health insurance but the effect on your bank balance is the same or worse – anywhere from $10 to $25 a week.

From July thanks to the Budget the surcharge will only apply to the small number of Australians who earn more than $100,000 a year or a combined $150,000 as a couple.

Most of us will get let off.

The Opposition wants us to feel guilty...

Its Treasury spokesman Malcolm Turnbull asks what the relief will cost “an already overstrained hospital system”.

Its health spokesman Joe Hockey predicts “a catastrophe for our already overrun public hospitals’’.

And its leader Brendan Nelson puts a (totally erroneous) figure on the damage saying it will remove “a net $300 million from Australia’s hospitals”.

How would this long-overdue adjustment of the Surcharge threshold do any damage at all to Australian hospitals?

The argument is that as people who at present feel compelled by the surcharge to join private funds drop out they will pour into public instead of private hospitals.

But if you think the effect is straightforward, or even significant, you’ve been spending too much time listening to Malcolm, Joe and Brendan.

The figure the Opposition Leader used in his Budget In Reply speech - “a net $300 million from Australia’s hospitals” – doesn’t refer to money that will no longer go into hospitals at all. It refers to money that will no longer go into the hands of people who take out private health insurance, because fewer are expected to take up private health insurance after the surcharge threshold is lifted.

What happens to hospitals is a different thing altogether. A point that the Secretary to the Treasury Ken Henry was keen to make in an unusually personal way at his post-Budget address last week.

Many, many people who take out private health insurance rather than pay the surcharge do so only for that reason.

The funds help them to do it.

Try this yourself. Go to the Medicare Private website and get yourself a quote. You will be asked what you main priority is. Among the options is number 6: “Reduce Tax”.

There you will find a policy that will help you do that, but not much else.

The one offered by NIB Health Insurance fully funds only the removal of teeth, minor knee, hip & shoulder investigations, the removal of tonsils and appendixes, minor hernia surgery and the use of an ambulance.

Anything else is covered only to the extent of a shared room in a public hospital, which as the NIB says “won't go anywhere near the cost of a stay in a private room in public hospital”.

And a lot more is explicitly excluded including major joint surgery, pregnancy and renal dialysis.

It is a good policy unless you plan to get ill.

The NIB product and ones like it are designed to help people escape the surcharge rather than provide them with cover. They are the fastest-growing category of “health insurance” products, and most are never used.

Ken Henry himself had one.

“I myself had one of those insurance policies that voided the Medicare levy surcharge, I don’t remember using it, some pretty cogent reasons for that,” he said last week.

One of those reasons might be that if he did try to use it in an emergency at a public hospital he would run the risk of being charged for extras, something that doesn’t happen to uninsured patients.

The golden rule among people buying tax-dodge policies is to put them in a draw and never use them. Enter public hospitals as a public patient and accept the (usually very high) standard of care you are offered.

These are the policies that hundreds of thousands of grateful Australians are likely to drop first (or no longer take out) when the Medicare Levy Surcharge is lifted.

They are no loss. As financial engineering rather than health insurance products they take not an iota of strain off “an already overstrained hospital system”.

Of course some Australians affected by the surcharge do take out genuine private health insurance. For them, lifting the surcharge threshold will make little difference. They don’t pay it anyway. They will continue to buy private health insurance if they believe it continues to offer value them for money. And they will continue to get the separate tax rebate paid to them for doing so.

There’s a third group affected by the surcharge, and at last week’s function Ken Henry gave a hint that he might be among them. He used the past tense when he said he “had one of those insurance policies that voided the Medicare levy surcharge”. He might not have one now.

I don’t have one. The latest available tax figures suggest that another 14,019 Canberra residents liable for the surcharge don’t either.

Nationwide, almost half a million Australians prefer to pay the Medicare Levy Surcharge rather than join a fund. Even though they know they could save money by doing so.

Why do so many people do something so apparently irrational?

In my case it is an abhorrence of financial engineering. If the government wants money from me I would rather pay it than be pushed into what is effectively a tax-avoidance scheme.

From July most of us will be freed from that dilemma. We will no longer be prodded into buying fake private health insurance and we will be able choose to buy the real thing (or not) based on its merits.

Those merits are not obvious - at least not in my case, and perhaps not in Ken Henry’s. In an emergency there is no better place to be than in a public hospital.

You can get elective surgery there as well, and if the wait is too long you can buy it in a private hospital.

We shouldn’t be made to feel guilty for spending our money wisely.

Hospitals need public support. Private health “insurance” does not.