Private Healthcare May Not Be the Panacea

The British Medical Journal has posted an article in their Education and Debate section that described the outcome of Australia's initiative to promote private health insurance.  The article is here (full text, abstract) and the editor's synopsis is here:

Private Healthcare May Not Be the Panacea
Supporting private health insurance may be not the best option for governments. Hall and Maynard (p 357) analysed the Australian experience, where changes in government policies to support private health insurance (including a purchasing subsidy, discounted rate for those getting on the scheme at a young age, rebated co-payment, and a strong advertising campaign) increased the proportion of people insured but failed to reduce admissions to public hospitals. The changes were costly, primarily benefited wealthy people, increased inequality in the funding of care, and had no observable effects on efficiency, say the authors.

Interestingly, the program is more comprehensive that that currently proposed for use in the United States.  It appears not to have produced the desired outcome.  Michigan is considering a plan to exempt health insurance costs from the single business tax.  Although this is not phrased as a "purchasing subsidy," it would amount to the same thing. 

At first glance, the Michigan plan seems like a good idea; however, Governor Granholm opposes it, because it would cut State revenue by $35 million, and nobody has come up with a plan that would be revenue-neutral.  That is where the subsidy part come in.  I don't know enough about economics to be able to anticipate the effect of the plan.  however, based upon the Australian experience, I would advise caution in the rush to embrace the idea. 

If the goal of the plan is to increase the number of insured persons, the Australian experience indicates that this may not work.  Probably, it would be necessary to target the tax cut such that only benefits that go to low-income persons would be exempt.  That might encourage companies to offer insurance to persons who otherwise might end up using public resources.  At least that way, the State could see some cost offset. 

Certainly, the last thing the State needs to do is enact a program that would result in a revenue loss, while the bulk of the benefit goes to persons who already are well-off.