Patient election in Australian hospitals: how do private and Medicare admissions differ?

Author:Temple, Jeromey

Recently, the Premier of Queensland has proposed placing restrictions upon privately insured patients electing to be treated as Medicare patients in public hospitals as is currently permitted under the Australian Health Care Agreements. The purpose of this paper is to examine differences in four kinds of patient admissions in Australian hospitals. Results drawn from the 2001 Australian Bureau Statistics (ABS) National Health Survey show that almost 11 per cent of all hospital admissions in 2001 were by privately insured patients admitting themselves as Medicare (public) patients. A further 37 per cent were by privately insured patients in either private or public hospitals. Of the remaining 48 per cent of hospital admissions, approximately six per cent were by uninsured persons who are admitted as private patients in either private or public hospitals. The final 42 percent of admissions were uninsured Medicare patients in the public hospital sector. These four groups of patients are found to differ considerably by their socio-economic characteristics, use of hospitals and also by reported reasons for purchasing or not purchasing private health insurance.


In October 2005, Queensland's Premier Beattie and the Minister for Health, Stephen Robertson, launched an Action Plan to improve Queensland's public health system, at the cost of $6 billion over five years. (1) Although the plan is quite comprehensive, one aspect that has generated considerable interest is implementing a program to increase the proportion of privately insured patients in public hospitals who elect to be treated as private patients rather than as Medicare (public) patients. The reform package also includes the introduction of co-payments or means testing for non-urgent surgical procedures, as well as for dental and specialist outpatient services. Beattie has argued: 'We're sick of the public system being ripped off. We actually believe those people who are making a financial contribution to a private health fund would expect their fund to contribute'. (2)

Currently, under the Australian Health Care Agreements (AHCA), all Australians regardless of health insurance status, are entitled to admit themselves as Medicare patients in public hospitals, thereby receiving free treatment. Upon entry to hospital, all patients are required to fill in a patient election form which records whether they are to be treated as a public patient, thereby avoiding out of pocket expenses, or as a private patient, enabling them to skip the public sector surgical queue for elective procedures. Indeed, the Federal Minister for Health, Tony Abbott, has stated that Beattie's proposed reforms constitute a breach of the AHCA, and he is investigating means of blocking them. (3)

Beattie, however, is not the first to draw attention to the use of public hospitals as public (Medicare) patients by privately insured patients. In February 2005, The Productivity Commission released the Review of National Competition Policy Reforms. (4) This report summarises '... it is generally accepted that the financing and delivery arrangements give rise to considerable inefficiency and waste in the health system'. (5) One of the proposals for reducing this inefficiency was 'allowing, or obliging, those people who can afford adequate private health insurance to opt out of the public system'.

A month later, the Australian Government Department of Health and Ageing released a report examining the use of public hospitals by private patients. (6) This study found that, of the privately insured who had admitted themselves as private patients in public hospitals, about 65 per cent made the choice freely. About eight per cent reported that they were pressured into being admitted as private patient, and a further 10 per cent said they were not given a choice as to whether they were to be admitted as a Medicare or private patient.

More recently, in September, the Queensland Health Services Review was released; the precursor to Beattie's new health plan. (7) This report estimated that about six per cent of patients in Queensland's public hospitals are privately insured but do not elect to use their private insurance when being treated. The report makes a list of recommendations for reform, including, to 'encourage all patients with private health insurance to use it as private patients in public hospitals or in the private hospital system'. (8)

The aim of this paper is to examine how privately insured patients who admit themselves as public patients differ from other types of hospital admissions. More specifically, this paper seeks to provide evidence on the following: firstly, why do the privately insured who admit themselves as public patients in public hospitals purchase health insurance if they do not use it for hospital care? and; secondly, how do the economic and demographic characteristics of the privately insured who admit themselves as Medicare patients differ from other patients?


Between 1997 and 2004, the Federal Government introduced key reforms to the private health insurance market: the Private Health Insurance Incentives Scheme (PHIIS), the Private Health Insurance Incentives Act (PHIIA) and Lifetime Health Cover.

PHIIS encouraged private health insurance membership through a series of subsidies and tax penalties that were applied at different income levels. PHIIS introduced the Medicare levy surcharge, which is an additional one per cent tax on annual income paid in addition to the 1.5 per cent Medicare Levy. Singles with incomes higher than $50,000 per annum and couples with an income in excess of $100,000 were required to pay the one per cent Medicare surcharge, in addition to the 1.5 per cent Medicare levy, if they did not purchase a registered private hospital insurance policy. PHIIA replaced PHIIS in January 1999. The key component of this new policy was a 30 per cent subsidy on household health insurance premiums for all persons regardless of their income. PHIIA retained the one per cent Medicare surcharge. The final reform over this period was 'Life Time Health Cover' (2000), which changed the age component of community rating, by offering low premiums to people who invested in health insurance prior to turning 30. All persons aged over 30 at July 2000 are required to pay a two per cent surcharge on their insurance premium for each year that they remain uncovered. One important provision in Life Time Health Cover was that individuals born before 1st July 1934 were exempt from the surcharge.

At the time of these changes, the then Minister for Health and Aged Care claimed that these reforms would 'take pressure off the public hospitals'. (9) The current Minister for Health and Ageing, Tony Abbott, has continually supported the notion that increasing private health insurance coverage leads to less pressure on the public health care system. (10)

A growing body of literature has questioned the assumption that increased health insurance coverage in the population relieves 'pressure' from the public hospital sector through shifting surgical procedures to the private hospital sector. Many argue that the 30 per cent rebate in particular is an inefficient, expensive means of reducing pressure on public...

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