Private health insurance is in a 'death spiral' because millennials don't want to pay for it — now one insurer wants to force them by scrapping Medicare

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  • Medicare in Australia should be abolished and every citizen pushed onto private health insurance instead, NIB managing director Mark Fitzgibbon has proposed in a controversial article published in the Australian Financial Review on Tuesday.
  • Under Fitzgibbon’s scheme, the premiums of low-income earners would be subsidised by the Australian government as the coffers of for-profit funds like NIB explode.
  • The proposal was made as think-tank The Grattan Institute claims the Australian healthcare system is in a “death spiral” as young people get priced out of private insurance.

When compared to many other countries, Australia’s healthcare system would seem like the envy of the world.

However, as private insurance premiums grow increasingly unaffordable, all is not well with “Australia’s private health insurance industry [fearing] it is in a death spiral”, according to think-tank The Grattan Institute.

That’s because Australians, especially the young, are not getting insured.

“Premiums are rising much faster than wages or inflation. People are dropping their cover, especially the young and the healthy. Those who are left are more likely to get sick and go to hospital, driving insurance costs up further,” the institute’s health program director Stephen Duckett wrote last week.

The proportion of Australians in their 20s with hospital cover fell by 8% between 2016 and 2018, according to the institute’s analysis.

That creates a vicious cycle where private insurance becomes increasingly out of reach. The public healthcare system in turns becomes a greater burden on all taxpayers as more and more Australians rely on Medicare.

But while the diagnosis is straightforward enough, the treatment is way more complex.

Maybe that’s why NIB managing director Mark Fitzgibbon saw an opportunity to put his two cents forward on Tuesday in an op-ed, proposing what even the Australian Financial Review (which published it) admitted was a “radical solution”.

Fitzgibbon’s idea?

“(A) sensible policy approach would be to make private health insurance compulsory for all Australians with taxation devoted to subsidising the premiums for those who would otherwise be left behind. That is, high-income earners would at one end of the scale pay the entire premium while at the other, those with low income fully subsidised,” he wrote in his opinion piece.

That would push Australia towards a system more akin to the United States, where if you aren’t insured adequately, you could be forced to pay the full cost of treatment. In fact, in the US medical bills are the leading cause of personal bankruptcy. Just last year, NIB competitor Bupa faced criticism for making “US-style” changes to its policies.

It’s hardly a vote of confidence for Fitzgibbon’s proposal. To counter that, he proposes that a halfway measure could be taken, where you could effectively sub out of Medicare if you meet certain criteria.

“Another near-term opportunity is allowing people the choice to totally ‘opt out’ of Medicare provided they take full coverage private health insurance. Here, government would provide a financial incentive but at a level below the expected cost to government of them staying in Medicare,” he wrote.

It’s unsurprising that the head of one of the country’s largest private health funds would want to force Australians into the insurance market.

Being able to afford insurance premium probably isn’t a concern for Fitzgibbon himself, considering he just sold more than half a million dollars worth of NIB shares and was paid more than $3.6 million last year from the insurer.

Fitzgibbon’s proposal is in direct contrast to those proposed by the Grattan Institute. Duckett, a former senior public servant in the health department, instead puts forward two possible paths.

The first is to eliminate “inequitable” private health subsidies altogether and use the multi-billion dollar saving to help fund Medicare. These currently reduce the cost of private insurance premiums butare predominately for those aged 40 and above and ultimately help maintain margins in the for-profit sector.

The other possible solution Duckett proposes is to subsidise private hospitals directly rather than insurers. This would help reduce costs for the almost one in two Australians that have some sort of private health cover, without directly helping to fund companies like NIB.

Labor’s loss at the May federal election means there will be no productivity commission established into insurance premiums.

Given the Coalition government is yet to unveil any major reforms of its own, young people will for the meantime remain outside the private health insurance system, and their money out of the hands of NIB.

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