Opinion/Comment, Politics

“Private health insurance in Australia is a scam”

For over fifteen years I have been pointing to the failure of the private health insurance industry (PHI) both in terms of efficiency and equity.  Not once have the executives of major firms or their lobbyists joined in a public discussion.  They prefer to strong-arm ministers and officials in private.  It’s a classic example of crony capitalism, using private influence to obtain public benefits.  PHI is a scam.

By John Menadue

PHI will bleed to death, but executives of PHI blame everyone but themselves.  They want even more tax breaks and subsidies in addition to the $12 billion per annum that they presently receive from taxpayers.  Together with their media friends, PHI executives only refer to the $6 billion or $7 billion subsidy in the form of the direct rebate.  They never mention the $5 billion to $6 billion additional cost to the taxpayer through tax concessions particularly for high income persons who take out private health insurance.

John Menadue AO

Now, PHI executives want to extend their role into general practice and take us further down the appalling path of waste and inequity in the US health system.  Whilst some of the Democrats in the US are proposing how they might get out of their health mess with reliance on private health insurance, our PHI mendicants want more subsidies a-la the US.  Do our foolish PHI executives really think that Australian employers and employees with stagnant wages want to fund additional PHI for their employees.  Who are these executives think they are kidding?  They sound increasingly desperate.

These executives now want to blame the costs of prostheses for their high costs which is then reflected in the need for higher premiums.  They don’t admit that the suppliers of these devices, like private hospitals, set the fees and the PHI funds who lack clout in the market are forced to accept the higher fees.  Medicare has more power than PHI  to control costs through its greater purchasing power, but unfortunately its powers are weakened with the division in buying-power between itself and PHI.  If only there was a single purchaser, Medicare, we would see much lower prostheses costs.

With a threadbare case for their poorly performing industry, PHI executives then turn on their critics and accuse them of political prejudice, of being too economically purist or too left-wing, or advocating a Soviet style system.  Their arguments and language conveys their desperation.

They refuse genuine public discussion and debate to rebut if they can what I regard as an overwhelming case or critique of PHI.

In September 2007 I asked Michael Armitage the CEO of the Australian Health Insurance Association whether he would be prepared to write an article for the Centre for Policy Development rebutting my article in CPD which was critical of PHI.  I also suggested he might join me in a public debate.  He did not respond to either offer despite several reminders.

In the lead-in to the Federal election in 2007, the PHI industry made a secret arrangement with Kevin Rudd to maintain taxpayer support for PHI.  We did not learn of this until many years later.  It was typical of how PHI and politicians operate in secret.  Not surprisingly the Rudd government’s Health and Hospital Reform Commission’s revue of our health system was stacked with health insiders and chaired by a senior executive of MBF, now BUPA. It was a wasted opportunity to improve our health system. The baleful influence of PHI lobbyists was plainly obvious.

Not only the government’s, but also the ALP’s pusillanimity in facing up to the PHI lobby has left us with a lasting mess.   Both in government and opposition the ALP just like the Coalition has been bluffed by health providers and their paid lobbyists.

Today we have the same sort of mess that led in the 1970s for Gough Whitlam to develop and then propose Medicare.  He found that voluntary health insurance as it was then called was inefficient, costly, grossly unfair and accumulated excessive funds and profits.

Despite the incompetence and self-interest of PHI executives in trying to prop up their unsustainable system, the bleeding continues.

  • Spiralling costs, particularly by device suppliers, cannot be contained.
  • The two major funds BUPA and Medibank Private have lost 95,000 customers with hospital cover in 2019.
  • The 10% discount on premiums for young people has not stopped their exodus.
  • The ‘simplification’ of products into Gold, Silver and Bronze has left consumers just as confused.
  • Many private specialists are continuing to rip off patients and private health insurance funds have shown their inability to address the problem.
  • Patients in private hospitals stay 9% longer than patients in public hospitals for similar conditions. That extra cost is passed on because PHI does not have the market clout to resist the extra cost.PHI is a price taker.
  • Premiums are expected to rise even more in the next annual round.
  • Guardian Australia found that in BUPA’s aged care homes one third were found to be a ‘serious risk to residents’. BUPA has 73 aged care homes.BUPA is also the largest PHI insurer.
  • Consumer organisation Choice gave Medibank Private a ‘shonky’ award.It found that Medibank’s ‘Basic’cover is more expensive than the cheapest Bronze options in NSW,ACT,SA,WA, and Tasmania.

In the national interest, the best outcome would be to end the $12 billion annual  subsidy and direct those funds into more productive areas – outpatients in public hospitals, mental health, indigenous health and dental care.

If more wealthy people want private health insurance that is there right but  they should pay for it fully themselves. Why should taxpayers pay for them to jump the hospital queue?

The taxpayer subsidized and shonky PHI companies should be taken off the public tit.


John Menadue AO was head of the Department of Prime Minister and Cabinet from 1974 to 1976. He was closely involved in the events of November 11, 1975, and worked for Prime Ministers Gough Whitlam and Malcolm Fraser.

He was Australian Ambassador to Japan from 1976 to 1980 and CEO of QANTAS from June 1986 to July 1989.

First published at Pearls and Irritations, 27 November 2019. See; https://johnmenadue.com/john-menadue-the-private-health-insurance-industry-is-a-scam-subsidised-by-taxpayers/#more-33154

4 Comments

  1. Mrs Janet Courtney

    Well, we would not be without out health Insurance even though we have to budget carefully to keep it.

    • Richard McDermott

      Sadly Mrs Courtney that is the reason we will continued to be scammed by these for profit health insurance providers. If we could have a Royal Commission into the private health insurance industry and the government subsidising that keeps it profitable more rorts that were discovered in the Banking Royal Commission would come to light. We need a universal transparent public health insurance scheme into which our taxes flow instead of the government giving our taxes to the private providers. This is just another example of where privatisation of our public infrastructure is so inefficient it stops working as profits are drained out of the system and into the pockets of private providers many of which are overseas owned.

      • How true – it also applies to privatising publicly owned regional airports, particularly where past presidents of chambers of commerce have a financial interest.

        • Richard McDermott

          That was obvious from the start of this airport business. In to council, set up business interests, out of council, it’s been going on here for decades.

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