Nick Xenophon (SA, Independent) Share this | Hansard source

I support the second reading of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 but reserve my position in relation to the third reading. The stated purpose of the Medicare levy surcharge is to encourage higher income Australians to take up private health insurance and relieve demand on the public system. Can I say from the outset that I am uncomfortable with this sort of muddying of the waters around health and tax policy. The role of government in providing for and protecting the health of the public is paramount. A nation without high standards of health care is a nation constrained, a nation diminished. With this in mind, one of the pivotal roles of federal governments in health policy is supporting a sustainable balance between the private and public health systems. Without such a balance, the ability to meet the fundamental health needs of all will be sorely stretched, as will the capacity for choice in relation to other health needs.

What we should be speaking about today is how to promote the highest quality public health system for all Australians. We should be describing a situation where Australians have a real choice between a well-funded and high-quality public system and an equally competitive, equally well-funded and high-quality private system. Instead, we are debating a tax. Instead, we are discussing how best to drive health policy through the hip pocket.

I believe there is a bluntness, a hint of disingenuity about using a tax to push people into or out of health insurance. My fellow senators will be well aware of the historical blurring of tax and health policy in relation to Medicare. When the Hawke government replaced Medibank with Medicare in 1984, the scheme was part funded by the imposition of a levy. This was originally set at one per cent of taxable income with a low-income cut-off threshold below which no levy was payable. In 1995 the Medicare levy was increased to its current level of 1.5 per cent of taxable income and in 1997 the Howard government introduced a one per cent surcharge on taxable income imposed on so-called high-income earners who did not have private hospital insurance.

The purpose of the bill now before us is to increase the Medicare levy surcharge thresholds on annual taxable income from $50,000 to $100,000 for individuals and from $100,000 to $150,000 for families and couples. One of the government’s key arguments for this change is that, due to inflation, the average Australian income is now $58,000, which places many average Australians on the so-called rich list according to the current thresholds of this levy. Whilst I note the merit of this argument, I also note that, were the government serious about fairness, there might also be a proposal in this bill to regularly adjust the thresholds to take into account CPI and avoid this situation in future years.

Perhaps the real intent of this bill is to be found in the detail. In financial terms, the government expects to forgo income tax revenue of $660 million over the forward estimates due to the increased income tax thresholds that are proposed for the levy. But the government also forecasts a decrease in expenditure of some $959.7 million from a reduction in the payment of the 30 per cent private health insurance rebate due to an expected decline in private health insurance membership over the period. The result is approximately $300 million more in revenue to the government. Before supporting this bill we must be certain that this is not just a tax grab spun as health policy. We must ask: what are the implications of these changes for the sustainable balance between the public and private health systems in Australia? In recent weeks my office and I have been involved in extensive consultations with state and federal government advisers, health insurance advocates, representatives of the medical profession and members of the public to answer this question. I would like to take a few moments to canvass some of these diverse views.

First of all, there is significant disagreement about the number of Australians that will be impacted by these changes. Treasury figures estimate that approximately 485,000 people will drop out, and, when dependants are included, the government suggests that it will be more than 600,000 Australians. Meanwhile, industry figures estimate that around 613,000 people will have to end their cover to meet the government’s $300 million savings target, in effect, which would involve up to 913,000 people when you include dependants. Added to this is what the AMA has described as a ‘cascade effect’, where an initially conservative figure of 400,000 Australians could blow out to over 800,000 over four years.

If we are to plan for a sustainable balance between public and private health systems in the future then surely we must make our decisions based on evidence, not rubbery figures. That said, my office has been in discussions with various health insurance representatives highlighting their concerns, firstly, about a possible increase in insurance premiums and, secondly, about more demand on public hospitals. The rationale behind the first claim is that the exodus from private insurance—from which the government expects to save $960 million—will largely be by young people. Relatively speaking, this group are healthier and their premiums help fund the expenses incurred by less healthy members later in life. I should make the point that those younger people will be old eventually.

Further, as groups such as the AMA note, this loss of younger members, it is argued, may lead to a snowballing effect as higher insurance premiums turn people against private health insurance, which then leads to more premium rises to offset these losses. Ultimately, representatives of the health insurance industry indicate that premium inflation is inevitable, which the AHIA estimate to be around 10 per cent. I should at this point disclose that, along with millions of other Australians, I have private health cover. In contrast, the Australian Private Hospitals Association propose that the constantly improving quality of private health insurance services will see little impact on memberships. They argue that more people have higher incomes and are prepared to pay for what they see as more choice and better service, which will offset these changes.

There is also debate over the influence that the surcharge actually has over decisions about membership. Representatives of state departments and some insurance groups have argued that the initial impact of the Medicare levy surcharge was minimal in the take-up of private health cover and its removal would have a similar minimal impact. Others outside the private health sector have argued that later measures—notably Lifetime Health Cover and the 30 per cent private health insurance rebate—play a greater role in the decision to purchase private health insurance than does the levy. They point to the continuation in the decline in private health insurance membership after the introduction of the surcharge in 1997, with this only being arrested when these other measures were introduced in subsequent years. Meanwhile, insurers such as iSelect have argued that the three are co-dependent variables and it is impossible to ascertain the impact of the removal of any one variable on overall health insurance membership.

The second main claim by health insurance advocates is that these changes will result in unsustainable demand on public hospitals, which the AHIA estimate will have a national cost of around $1.8 billion and a cost to my state of South Australia of around $200 million. My office has put these claims to those representing public hospitals and they have been unable to confirm or deny the accuracy of these claims in the absence of modelling. Some believe that those who opt out of private insurance would be younger and minimal users of private health services. In many cases, these people may be users of public hospitals anyway due to the high costs of private health copayments. Others, including some state Labor ministers, have foreshadowed an increased burden and longer waiting lists, and have signalled the need to lobby hard for federal support for the costs attributed to these changes.

It is worth referring here to the comments made by the outgoing Western Australian Minister for Health, Jim McGinty. In an interview on the ABC PM program on 21 May he expressed concerns. He said:

... There is a critical mass of private health insurance which gives us balance within the system. I certainly have concerns that if there is a very high drop out rate and I don’t necessarily think there will be, then that will shift that balance in a critical way.

It’s come at an unfortunate time when a lot of people will be making economic decisions faced with higher mortgages, higher fuel charges, higher grocery charges. Is health insurance something that they should maintain?

If we have young people pulling out, then that will also add to the equity of the people who remain in private health insurance which will drive up the cost of private health insurance and perhaps have more people pulling out on economic grounds as result of that.

These are legitimate concerns. This culture of claim and counterclaim shows the need for an evidence based approach. I believe that such an approach is best made through the Productivity Commission. Early today I raised with the government the importance of a Productivity Commission inquiry into several key issues, including the comparative cost of clinically similar procedures, as per the current state hospitals’ waiting lists, performed in both the public and private hospital sectors. It is important that the accepted standards of the diagnostic related groupings are used so that we can have an accurate comparison of the two. The second issue is the rate of hospital acquired infections in private and public hospitals, including acquisition of methicillin resistant staph aureus—or golden staph, as it is commonly known. The third issue is the total number and percentage of patients, in both public and private hospitals, who were fully informed before providing consent. This is vital to reducing the number of cases where doctors do not inform patients fully about treatment and costs. I acknowledge the statements made by the health minister in relation to this and I welcome those statements. I think that this is an imperative reform, and it needs to be looked at and thoroughly canvassed.

If we are to shift debate from the realm of claim and counterclaim, proper inquiry into these things will be vital to sustaining the balance between private and public health services in the future. I cannot overstate the importance of having such a robust inquiry. I was surprised, when I raised this with those advocating for both the public and the private systems, at the lack of knowledge of what I consider to be key data that is essential to driving our decisions in the future—to making good decisions that will keep the balance between the private and public systems. A third issue is that of retrospective indexation. Estimates of the current threshold for individuals, indexed since its introduction in July 1997, are between $67,000 and $76,000 for individuals and around $134,000 for households. This could well be a more realistic figure for the proposed threshold of $100,000 for individuals and $150,000 for couples. Why increase the threshold by double the rate of inflation? It seems to be counter to all the other warning signs about having such a huge jump in the threshold. What Australia needs is an evidence based approach that supports a long-term vision of improving our health system, not quick fixes that will only make it sicker. That said, I look forward to fruitful discussions and debate with the government about these concerns as I reaffirm that I will support the second reading of this bill but reserve my position on the third reading.