Thursday, May 22, 2008

The Medicare levy black hole

Been slack about this blog lately. My excuse is that the Australian broadsheets, viz my usual source of inspiration, have been so lame that it is hard to know where to begin.

Making my daily overdose of dyspepsia worse has been the “news” that several hundred Fairfax journalists on salaries above $100,000 “could be forced into one-on-one [as opposed to collective] negotiations with no guaranteed [as opposed to automatic] pay rises”. Diddums – given that I live on less than one-tenth of their average salaries, and that I would be ashamed , paid or unpaid, to contribute to the content-lite fluff that is the Age’s house style.

The Medicare levy changes at least provide some interesting shades of grey in terms of their relative media coverage. But first, to the titular black hole.

Widely reported yesterday was an Access Economics study which estimated up to 900,000 people could cancel private-hospital policies as a result of the changes, almost double the government’s own forecast of 485,000. Maybe – and we’ll see it very soon, in any event – but what no one seems to have picked up on, more than week after the budget, is the numerical absurdity of the government’s claim that it will save $300m by the 485,000 people cancelling their current private-hospital policies. This figure was calculated as the cost of their current 30% rebate ($960m), less the $660m foregone by the large increase in the Medicare levy surcharge's income threshold*.

The Access study found that Treasury estimates on the revenue implications of the policy change were “highly implausible”. That is, it’s a battle of pure estimates, a battle on which very little objectively depends, because if the government finds out soon enough that its estimates were wildly wrong, it can steer things in the other direction to compensate. It’s not rocket science.

Calculating the out-of-pocket cost of 485,000 people’s private-hospital policies that attract a 30% rebate of $960m apparently is rocket science, however. I’m no maths whiz, but in round figures, it seems to translate to 500,000 people having out-of-pocket costs of a total $2bn, or an average of $4,000 a year each. Surely that’s an absurd figure, given that the cheapest Medicare levy surcharge-compliant (i.e. excess of no more than $500) private-hospital cover starts at just above the minimum possible (pre-changes) level of the surcharge, of $500, or $10 per week. While it may be possible that some people are paying $80 or more a week for private-hospital cover, these are unlikely to be among the 485,000 (or 900,000) mainly young and healthy people who are now poised to drop their cover. The mainstream media’s (and Access Economics’) omission to see this, while focusing on something else said to be “highly implausible”, is bizarre.

To better prove its woeful standards, though, the Age couldn’t let things rest there. It had to take Access Economics’ forecast result of the fiscal consequences of the 900,000 drop-outs (viz a 5% increase), and combine them with the invariable annual, anyway premium increase, to come up with a “Health cover 'to soar [sic] by 10%'” headline shocker (same URL). Look at the byline: it took two way-overpaid journo’s, and presumably also an overpaid sub-editor, to come up with this complete non-story. Newsflash to the Age – if something essential and/or big-ticket is going up in price by only 10% annually at the moment, then it’s either an absolute or relative non-event.

Adding to the media’s slackness here is its widespread laziness in bandying-about the 30% rebate. AFAICT, only Mike Steketee, in today’s Oz, has made the salient reminder that the applicable rebate is 35 per cent for people aged 65-69 and 40 per cent for those over 70 (a change that was introduced in 2005). Admittedly, the over-65s are not likely upcoming insurance drop-outs, but the detail is important as a reminder of just how badly the “community rating” principle has been tampered with. The young and healthy cross-subsidise the old and sick with their premiums – this is a good and necessary thing. But these cross-subsidies needs to be both transparent and reasonable, and the higher-rebate, a secondary cross-subsidy, is neither. Nor is the lifetime rating system, which also both gives a free kick to over-65s, and effectively grandfathered baby boomers (and older) over younger generations.

Intriguingly, Emeritus fellow at the Australian National University and one of the architects of Medicare, John Deeble alluded to the generational unfairness and general mess in an ABC radio interview yesterday:

SABRA LANE: Mr Deeble backs the Government's decision to double the Medicare levy surcharge thresholds for singles and couples. He says it’s fair.

JOHN DEEBLE: Well, I think it is very fairly obvious and equitable move. I mean those targets were introduced in 1996 and they were designed to frighten people by the threat of tax to take up private health insurance. They didn't work then actually and it took a number of years before they were backed up by other things, but clearly they are now catching a large number of people who are not in the income range that was first contemplated.

No other media outlet, including the ABC’s online news section, picked up this quote, despite (or because of?) its controversial nature.

So endeth my eight cents (of labour) worth.

*“An odd pill for a sick industry” by Siobhain Ryan, Weekend Australian “Health” 17 May 2008


I just remembered that there was some media coverage, soon after the budget, that the government's 30%-rebate-savings figures were over-optimistic because they included "extras" cover as well. Of course, both "extras" and private-hospital cover attract the rebate, but only the latter is relevant for the surcharge. Even estimating the "extras" component at a generous $25 per week (out of the improbably high total of $80 per week), however, the government's implied out-of-pocket hospital-cover-only cost figures still seem seriously skew-whiff, at $55 per week.

Further update 25 May 2008

Here’s my recommendation for a generationally-fair lifetime rating and government rebate system. Abolish both the present age-related rebates and the punitive current rating system and replace them with a single rebate incentive. E.g. for cover maintained for 10-19 years, a 10% rebate, etc, up to a 40% rebate for cover maintained for 40+ years. Importantly, eligibility for this rebate would be retrospective, as it were. While documenting such health cover back to the late 1960s may be difficult, it shouldn’t be an insuperable obstacle. Certainly, the most recent decade will be easily documented.

The advantage of my proposal is that current oldies who have done the right thing – i.e. also had private-hospital cover while they were young and healthy – will be no worse off, keeping their current 40% rebate. Johnny-come-lately’s to private-hospital cover, in contrast, will not be able to doubly sponge off the present generation of the young and healthy (as they do at present), with age-discriminatory rebate levels and lifetime-rating grandfathering.

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