Health Opinion

Why the Coalition must fund COVID treatment for the unvaccinated

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(Cartoon by Mark David | @MDavidCartoons)

Singapore has decided not to fund COVID treatment for its unvaccinated, to increase vaccine take-up, but the Coalition shouldn't replicate this strategy in Australia, writes Francesco Paolucci and Marcello Antonini.

COVID-19 AND vaccination roll-out campaigns have again revealed challenges in the coexistence and coordination between states, private companies, citizens and individuals.

The latest example comes from Singapore. Its Government recently announced a striking decision to combat vaccine hesitancy: it will no longer fund COVID treatment after 8 December for citizens and residents who choose to remain unvaccinated. This is an additional reinforcement to the nudging mechanisms already in place to increase vaccine take-up (for example, COVID-19 certificates to attend public venues).

In a brilliant piece, Emeritus Professor Stephen Duckett explained why Australia shouldn't replicate this mechanism.

The primary motivation is that individuals who are Australian citizens have the right to protection by Medicare, no matter what they do or think.

The second reason is that this policy would shift the political responsibility from governments to individuals — hiding government failures of not implementing an effective vaccination campaign. In other words, we would accept privatisation of the health risk, leaving some citizens to be treated as "individuals".

The privatisation of risk – or burden of disease – is not a new concept in health. Mental health problems, for example, are typically left to individuals and are not politicised. If you are sick, it is your responsibility to get better, no matter if the reasons behind your health status come from mechanisms inherent in our society.

The role of private health insurance during the pandemic

While we agree with Professor Duckett's arguments, we also want to add further rationales to disagree with any such intervention. Indeed, there is a clear paradox that would arise in the Australian response strategy should the Federal Government embrace such a decision.

On 31 March 2020, as part of the Government's efforts to combat COVID-19, the Commonwealth signed an unprecedented partnership agreement with the private hospital sector to ensure sufficient hospital and workforce capacity to face potential surges in hospitalisations. The Commonwealth Government channelled $1.7 billion for private hospital guarantees to cover (potential) costs incurred by the private sector in addressing COVID-19 demand. In other words, we observed the privatisation of public resources.

De facto, this injection of public funds – to "freeze" and ensure access to more hospital beds for COVID-19 patients – has resulted in a reduced supply for elective procedures, as private hospitals were temporarily unavailable and elective services were repeatedly suspended.

Let's remember that the private sector typically makes up over half of Australia's elective surgeries annually. This has resulted in an induced coma for private insurers, which, while charging and increasing premiums to their bottom line (despite a significant reduction in hospitals costs and insurance claims), did not contribute to the public sector's extraordinary spending efforts around COVID-19.

However, the paradox is that the Commonwealth Government increased subsidies to the private system, creating incentives for private hospitals to accept public patients and, in some cases, prioritise them compared to privately enrolled individuals.

At the same time, drastic reduction of elective services provided insurers with a large profit margin and increased industry profitability. An Australian Competition & Consumer Commission (ACCC) report published in December 2020 revealed that insurers paid out $500 million less in hospital and extras benefits in 2019-20 compared to the previous year. In other words, insurers earned more by doing less.

This is not news for the Australian public-private mix. Every year a significant amount of public resources are utilised to make private health insurance attractive and viable through several policy instruments such as the Medicare Levy Surcharge,  the Australian Government private health insurance rebate and Lifetime Health Cover.

In such an exceptional situation, one might think that the private sector should have played a much more relevant role instead of receiving public funding while, in effect, "waiting for Godot". For example, premiums collected in exchange for services that were officially unavailable for policyholders could have been used to sustain the public sector effort or at least to cover the eventual COVID-19 hospitalisation costs of enrollees.

This illustrates some of the dynamics of the structural issues related to duplication of coverage and subsidies, which leads to a number of unintended effects — low value for money for the insurance contract; lack of transparency in the market; increased waiting times; increased insurance premiums and consequent dropping of young individuals from the market. And, of course, the problem of over-insurance that typically leads to overconsumption of care (that is, moral hazard).

Revising the design of the public-private mix

COVID-19 and the issues raised by the above paradox can be a turning point for the regulator to start a gradual reform process in the healthcare system design and correct current inefficiencies. Below are four elements to consider.

Make private insurers accountable

Private insurers should take full responsibility for their enrollees, even during a public health emergency – to avoid over-insurance and coverage duplication.

Coverage standardisation and the introduction of voluntary deductibles

Following the recent reform implemented by the Department of Health, the market would benefit from higher standardisation of coverage accompanied by the possibility for consumers to opt for regulated voluntary deductibles.

Voluntary deductibles work as an excess in car insurance. Applicants can choose the out-of-pocket level they are willing to bear for their coverage. This reduces the uncertainty of consumers' out-of-pocket expenses and increases market transparency.

Allow (some) risk-rating in the premiums

In Australia, premiums are community-rated, meaning that all individuals with the same plan face the same premiums. Despite this socially desirable principle, it creates the already mentioned problem of low-risk people (typically younger age groups) dropping from the system. This ultimately hampers the benefit of subsidisation.

A solution would be to introduce some form of risk-rating in the system, as in traditional health insurance markets. The rating can be applied to the applicants' age and/or geographical location. One advantage would be that premiums equal applicants' expected costs. As such, low-risk enrollees would face lower premiums and might be attracted to purchase private coverage, ultimately lowering overall costs in the market and benefiting high-risk consumers as well.

Recent evidence also shows that risk-rated premiums can increase the effectiveness of the cost-sharing design (that is, deductibles) in reducing unnecessary consumption of care.

Redirect and recalculate premium rebates

Health insurance is not like car insurance: people should be able to afford premiums, right? A solution to tackling the equity issue would be to design risk-based rebates as opposed to the current means-tested percentage. Rebates would be provided based on a person's health status – such as their age and health conditions – to discount their insurance premiums.

Risk-based rebates would help tackle equity, as those who face higher premiums would get greater rebates. An additional rebate would apply to people whose expenses are above a certain threshold to provide additional financial support for those who face higher premiums.

An alternative solution to these adjustments would be to disintegrate one of the two systems by making private health insurance a supplementary coverage – as in common national health systems, like England's – or by integrating the two systems into one regulated health insurance market, as in the Dutch or Swiss system. 

Francesco Paolucci is Professor of Health Economics & Policy at the Faculty of Business & Law, University of Newcastle and the School of Economics & Management, University of Bologna.

Marcello Antonini is a PhD candidate in Health Economics at the University of Newcastle.

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