Tue, 21 Feb 2012 - 09:00
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Labor’s private health insurance policy: an attack on those who make the effort to provide for themselves

Last week the Gillard Government made life a whole lot harder for all those Australians who make the effort to set aside some money to provide for the cost of their health care – passing legislation which will increase premiums for private health insurance and reduce the availability of tax rebates.

According to industry regulator PHIAC, some 12 million Australians are covered by private health insurance and the average annual premium is around $3,200.

In my electorate of Bradfield, some 85% of residents have private health insurance.  I am proud of my constituents for making the effort to provide for themselves – and take the pressure off the public purse.

For many years, there have been incentives to encourage people who can afford to do so to take out private health insurance – including a rebate on your tax of 30 per cent of the amount you pay in premiums.

This policy was introduced by the Howard government – at a time when private health insurance was in crisis.  Only around 30 per cent of Australians had private health insurance in 1998.

The consequence: a very large number of people relied on the public health system, adding to the cost burden.  Worse still, the entire private health insurance system was near collapse.

The Howard government therefore introduced the rebate – and as well as this ‘carrot’ it added a ‘stick’ by imposing a tax surcharge for people who did not have private health insurance cover.

The intention was to encourage people to take up private health insurance – thus streaming more people into private hospitals and reducing the pressure on the publicly funded hospital system.

The policy worked, and the percentage of Australians with private health insurance cover rose sharply – reaching 46 per cent by 2007.

Unfortunately, Labor has always been deeply ideologically hostile to private health insurance - and to people who make the effort to provide for themselves.

That is why the Gillard Government has recently passed legislation through the House of Representatives which strips away eligibility for the private health insurance rebate from those above certain specified income levels. 

Singles earning above $80,000 per annum will see a reduction in their rebate, and those earning above $124,001 will lose the rebate entirely.

As well as removing the ‘carrot’ for many people, Labor is making the ‘stick’ bigger by increasing the amount of tax you pay if you do not have private health insurance.  A single person earning above $93,000 will have to pay a 1.25% surcharge, and above $124,000 the surcharge will be 1.5%.

Prime Minister Julia Gillard and Health Minister Tanya Plibersek have sought to argue that this is justified on the grounds of fairness.

Plibersek told the Parliament last Wednesday that her new measures meant “ that the bank teller on $50,000 a year will no longer subsidise the private health insurance of the bank executive on $500,000.”

This is a deeply silly thing to say when you consider the total cost of the health system and the total tax revenues collected.  In her example, the bank teller will pay $9,300 in tax, inclusive of the Medicare Levy of 1.5 per cent, whereas the executive will pay $206,000.  Clearly the executive on $500,000 is subsidising many of the government services, including healthcare, which the bank teller receives.

One point Plibersek neglected to mention is that on the average premium of $3200, the saving of $960 from the 30 per cent tax rebate reduces the tax payable by the bank teller by over 10 per cent – compared to a less than half a per cent reduction for the executive.

This measure is objectionable not just because it is an attack on people who have made the effort to provide for themselves – but also because it will inevitably drive people out of private health insurance (or cause them to reduce their level of coverage), in turn reducing revenues at private health insurers and forcing them to increase premiums. 

It will likely trigger the same kind of negative spiral which private health insurance faced under the Hawke and Keating Governments, with steady reductions in the number of people insured leading to continuing increases in premiums, in turn driving yet more people to withdraw from private coverage.

Labor is trying to claim that it is only people above the income thresholds who will be worse off.  But plenty of low and middle income people have private health insurance – and they will now be facing a steady rise in their premiums due to Labor’s direct attack on this sector.

A wise government would reward and encourage those who make an effort to provide for themselves rather than being a burden on the state. 

That the Gillard Labor Government is doing precisely the opposite is a telling and disturbing insight into the unpleasant and vindictive mindset which motivates much of its agenda.