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| Publication: | Canberra Times |
|---|---|
| Date: | 7 August 2008 |
| Section: | Opinion |
| Page: | 21 |
Stay Alert, Keep Private Health Insurance Attractive
Whatever inquiry findings are, we will still have the same queries, DAVID MILLER from moneytime writes
The Senate inquiry into the government's proposed changes to the threshold that exempts taxpayers from the Medical Levy Surcharge will return to Canberra on 12th August, having visited every capital city. By the time it puts together its recommendations later this month, it will have canvassed a range of views both political and commercial, but will still have little idea of the core question.
How quickly will the public begin to discard their Private health insurance as result of the legislation? Will it be a flood or a trickle, and what might be the longterm outcome?
Estimates vary, as estimates inevitably will. But the figure most often quoted today is that a million or so individuals may be expected to abandon Private Health Insurance cover. At this level, the pundits believe, significant additional pressure will be placed upon the public system, longer queues for elective procedures will occur, and the balance that presently exists between the private and public sectors will be badly affected.
The bones of the proposed changes are straightforward. Where the previous salary threshold for singles to avoid the Surcharge was $50,000, it will become $100,000, and where for families it was $100,000, the new level will be $150,000.
It is quite possible that at any other time, these measures may have been passed with nothing more than a few grumbles. These income levels were struck back in 1997, and some level of indexation is not unusual with taxation thresholds. But with the coincidence of sudden upward pressure on the family budget from numerous other sources, its visibility with the public has increased dramatically.
But insurance is unlike other products. It is not in the same category as a luxury car, for example, the taxation of which also featured in the Budget, and is coincidentally also the subject of a Senate Inquiry. The purchase decision for private health cover particularly, is made on emotional grounds very far from whether a new Porsche will look good in the driveway.
For one, the decision is time-sensitive in exactly the opposite direction to buying the car. Defer a decision on the motor for financial reasons, and you delay gratification only. The car will still be in the showroom next week, or next month. Defer a decision on health insurance, and you are faced with the possible disappearance of its benefit, if you unexpectedly need its cover.
It is also true that due to the way the surcharge works, doing nothing does not itself cause pain. If you are covered by a policy, and overnight the increased threshold exempts you from the surcharge, no dollars actually change hands at that point. You still have to make a conscious decision to withdraw from membership of their Fund, in order to reduce your outgoings.
This is not necessarily a straightforward decision. One effect of the drama has been to increase the public's awareness of the value – even the existence – of the product itself. Over the years, successive government measures to increase the attractiveness of private health insurance have actually served to reduce its visibility as part of the household budget. Arguably, placing a penalty on not participating was the final act that caused it to become for many taxpayers a non-decision.
One very positive result of this increased level of attention will be that individuals and families will be scrutinizing more carefully the coverage their policies provide. At the same time, the Funds themselves will be examining their product lines to de-emphasize tax benefits, and re-emphasize the value proposition of having cover in the first place. With increased competition for space in the household budget, Funds will also pay particular attention to the cost of their product, and keep any price increase to a minimum.
The Senate inquiry can choose from a relatively narrow range of recommendations to make to the Government. It may dismiss the insurance industry's concerns as overreaction, and recommend no change to the Budget proposal. It may take the view that the potential risk to the system as a whole is too great, and recommend the whole idea of changing the threshold is scrapped.
Or – quite likely, given the increasingly apparent effects of the economy on the family budget – it will recommend a less aggressive indexation that will see exemption levels set halfway between existing and proposed levels. This will allow the government's message to still be sent to the industry without pulling the plug on it: stay alert, and keep your products attractive enough not to need constant reinforcement through the tax system.
Whichever way it goes, the decision for the individual and for the family is still exactly the same as it was before: how much private health cover do I need, and how much will it cost me.