Toni Ashton: More debate needed on private provision

In spite of the extra millions of dollars infused into the public health system in recent years, concerns are being expressed that the system is yet again "in crisis". Patients are languishing on waiting lists - if they are lucky enough to be listed at all - while the private sector has spare beds just waiting to be filled. Some commentators have also argued that relying on taxes to fund public health services will be unsustainable as the population ages.

A potential solution is for the private sector to assume a greater role. Unfortunately the situation is not that simple.

The private sector plays two different roles in the health system and it is important to consider these two roles separately. The first is in the provision of health services.

Most primary health services, community-based services and long-term residential services are already provided by private providers. The debate now is primarily around whether district health boards should contract out to the private sector more medical and surgical services at the secondary and tertiary level.

The second role of the private sector is in the funding of health services. This may be via private health insurance or by patients paying directly for services.

As far as the provision of health services is concerned, using spare capacity in private hospitals seems an attractive solution to the waiting list problem. But both sectors are drawing on the same workforce, and there is a worldwide shortage of doctors, nurses and some allied health professionals.

So buying more services from the private sector is likely to further reduce services in the public health system if staff are attracted into private hospitals.

The type of cases that would be shifted from public to private would be the low-cost, high-turnover, low-risk cases. This would mean higher complexity in case mix in public hospitals and a restriction of training opportunities for common conditions.

In respect of the second role, funding health services, while one-third of the population have private health insurance, this accounts for only 6 per cent of total health expenditure. A larger share, 16 per cent, is paid directly out of the patients' pockets.

The share contributed by private health insurance is relatively small because insurance policies are not comprehensive. They do not cover many high-cost treatments, for example major trauma, mental health care or the management of chronic diseases.

In addition, when insured patients choose to "go private", they are often surprised to receive a substantial bill from their insurer if the cost of their treatment exceeds the maximum (and often opaque) limit for payouts.

The government will also usually receive a bill for any lab tests or other services that are provided to private patients by the public health system. So increasing private health insurance will result in an increase in these related payments.

Providing tax breaks for health insurance may also not produce the desired effect of reducing the pressure on the public health system. Tax breaks would result in taxpayers subsidising the one-third of the population who already have insurance, yet the international evidence is inconclusive about the impact of tax breaks on the use of public hospital beds.

In Australia, the introduction of a 30 per cent rebate on private health insurance premiums appears to have encouraged a shift from public hospital beds among people over 70 but not among younger age groups.

Tax breaks may encourage some people to take out private health insurance but this will include people who were already choosing to "go private" but previously paying for services out of their own pockets.

Tax breaks would also encourage insured people to use more private health services, or to choose more costly care, because subsidising insurance effectively makes these services cheaper. Total health expenditure would increase, but the people who would benefit are higher income people who can afford to pay for private health insurance.

If we are concerned about the sustainability of health spending, we need to consider the level of total health spending in the economy. Rather than making the health system more sustainable as the population ages, increasing the share of private funding would open the lid to ever-increasing health expenditure because governments have little or no control over private spending.

In the United States, where private funding accounts for more than 50 per cent of health expenditure, total health expenditure now accounts for 15 per cent of GDP compared with the OECD average of 8.8 per cent.

Problems in the public health system are real, especially access to elective surgery. But it is a mistake to assume they can be solved by relying on the private sector. In some instances, this would have the opposite effect.

It is important we have this debate about how the public and private sectors can work together more effectively. But the debate must be informed by the best evidence that is available rather than by ideological calls for change.

* Toni Ashton is an Associate Professor in Health Economics at the School of Population Health, University of Auckland.