Private health insurance and regional Australia

The Australian Institute of Health and Welfare (AIHW) noted in a recent report that “[a] major problem in understanding the health of people in regional and remote areas is the limited availability, representativeness and quality of data”.1 Nevertheless, it is generally accepted that Australians living in rural and remote areas have lower health status than their counterparts in urban areas. The AIHW found, for instance, that “in regional areas during 1997–1999, death rates were, on average, 1.1 times those in major cities. In very remote areas, rates were 1.5 times as high as in major cities”.1 Various factors explain this disparity, including higher levels of health risk factors, the higher proportion of Indigenous Australians in rural areas, and less access to healthcare services.2

The lack of convenient, affordable and timely access to general practitioners, specialists and after-hours care is widely accepted as a major problem for Australians living in regional areas.3 Compounding this is the lower rate of bulk-billing and higher per-capita out-of-pocket health expenditure generally in regional Australia.3 Successive Australian federal governments have responded with a range of targeted healthcare programs for regional areas. Recent initiatives include rural medical scholarships, increased rural GP training places, retention payments, and higher Medicare rebates for GPs offering bulk-billing services in regional areas.4 Additionally, by supporting GPs and providing access to specialist and after-hours care, regional public hospitals and associated multipurpose services play an important role in addressing the inequitable distribution of healthcare resources. For example, as noted in a 1998 AIHW report, “people with chronic conditions such as diabetes and asthma may be hospitalised more frequently in rural and remote zones if they are required to travel long distances for follow-up treatment”.5

Limited published data exist comparing overall health financing levels in cities and regional Australia. Available studies suggest that, despite the lower health status and higher costs associated with the delivery of services in regional areas, they receive lower per-capita financing and expenditure on health than urban areas. For example, a 2001 report by the AIHW indicated that levels of per-capita health expenditure (total government and private) were lower in regional areas.6

Since 1996, an increasing proportion of federal government health expenditure has been directed into Australia’s healthcare system via PHI subsidies in the form of tax rebates. In so doing, the government aims to expand the level of PHI coverage, thereby encouraging the use of private hospital services and reducing pressure on public hospitals.7 An important part of these policy reforms is the non-means-tested 30% PHI rebate, which is estimated to cost the government $2.5 billion per year.8 As the rebate is uncapped, the public funds diverted to this program increase whenever membership or premiums rise. For instance, on 1 April 2003, the government authorised an average increase in PHI premiums of more than 7%, which is likely to cost taxpayers an extra $170 million per year in the rebate scheme.9 Moreover, clause 50 of the 1998–2003 Australian Health Care Agreement acts as a “clawback” provision, allowing the federal government to reduce public-hospital funding to the states and territories if PHI membership increases beyond a certain threshold.10

These reforms have meant that, since 1996, the federal government’s role in financing private hospitals has substantially increased, both in real terms and in comparison with funding increases to public hospitals. In 1996–97, federal and state governments provided 11% of the total funding for private hospitals in Australia.11 By 2002–03, primarily as a result of PHI rebates, the contribution of federal and state governments to private hospital funding had risen to 55%.11 Similarly, over the period 1996–97 to 2002–03, federal government funding of public hospitals grew at a real annual rate of 8%, compared with 64% for private facilities.11

We believe that, in the ongoing shift towards PHI as a means of healthcare financing, the federal government has failed to address the impact of this policy change on regional Australia. We conducted a study to examine the likely distributional effect of the reforms for regional inpatient funding and access to services.

The ABS analysis shows that PHI membership is lower outside capital cities — a statistically significant average of 6.7 percentage points Australia-wide (Box 1). The difference is greatest in Tasmania and least in Queensland (where a large proportion of the population resides in sizeable urban centres such as Townsville, the Sunshine Coast and Rockhampton). A previous survey by the ABS in 1998 found a similar regional disparity in PHI membership (an Australia-wide aggregate of 34.9% in capital cities and 28.0% in other areas).13

We estimate that the cost of the PHI rebate to regional Australia may exceed $100 million a year (Box 2).

There are two principal reasons for the urban–rural membership differences observed in our analysis; these relate to affordability and choice.13 First, income is one of the strongest predictors of PHI uptake, and average incomes are lower in regional than in urban areas.15 Multiple studies show that there is a clear income gradient to the uptake of PHI, with lower income groups less likely to have PHI.15 As a result, PHI as a mechanism for federal health funding disadvantages regional communities, compared with, for example, the distribution of funds on a per-capita basis.3

Second, a structural reason why PHI membership is less attractive to residents of regional areas is the limited availability of private facilities.16 The central reason to purchase PHI cover is to have affordable access to private hospital facilities. ABS and AIHW statistics on hospitals and bed numbers by location indicate that private facilities are concentrated in urban areas (Box 3).

Across Australia, only 16% of hospitals located outside major cities are private facilities.17,18 Of the available inpatient beds outside major cities, only 24% are located within private hospitals (Box 4). Not surprisingly, the bulk of patients requiring hospital admission in regional areas are treated within the public sector (Box 5).19 These findings highlight the fact that private hospital providers prefer (like banks and other commercial institutions) to concentrate facilities in areas of high population and service demand, often neglecting less profitable rural and remote areas with equal healthcare needs. These data suggest that PHI rebates funded through general taxation are unlikely to reduce the load on public hospitals in regional areas, as private facilities are often not available as substitutes. Additionally, as the Senate Select Committee on Medicare concluded in its 2003 report, regional Australians who are currently encouraged by the tax system to take up PHI despite limited opportunities for utilisation of private health services “effectively subsidise the PHI industry at the expense of their local public health services”.20

Finally, given that the level of PHI membership is higher in cities, it is likely that increased coverage as a result of reforms since 1997 has translated into disproportionately more private services being purchased from facilities located in cities than regional areas. The impact that this is likely to have on investment and location decisions of private hospitals since 1997 is to further increase the urban–rural disparity of public–private beds and services.