In free markets consumers and suppliers are left alone to interact and balance supply and demand for services. It is generally accepted that governments need to intervene in health markets to provide certain services and regulate the market. This intervention occurs via specific policy action [11
]. In Australia the Commonwealth Government's decision to subsidise PHI has meant that it has increased its stake in the private sector alongside its existing stake in the public sector.
Controversy has raged about the success of the Commonwealth Government's policies with regard to supporting PHI in order to reduce the pressure on the public sector. The major debate has centered around the effectiveness of the 30% rebate and more recently the effectiveness of the Lifetime Health Care policy [4
]. However, in most cases, commentators have used evidence relating to the changing prevalence of PHI membership, pre and post policy implementation. This may not be an accurate method to assess the effectiveness of such policies, because the policies themselves may promote the uptake of PHI for non-health related reasons, such as to avoid a tax penalty in high income households (cut point 6). This coupled with the finding that since 1998 the proportion of PHI fund members with high front-end deductibles has significantly increased [4
] means that uptake of PHI may not necessarily lead to the expected changes in use of the public and private systems. This is quite apart from the debate about the price elasticity of demand for PHI and the assumption that demand for hospital care is a fixed commodity [4
]. Our study has developed and used a policy characterisation model based on measuring shifts in the actual use of PHI at the time of receiving hospital services. This may be a more appropriate methodology for evaluating likely changes in the pressure on the public system affected by particular policies.
The results of our analysis indicate that federal cut point 2, the re-introduction of free public hospital care via Medicare, was a magnitude changing policy. This was an unexpected finding since it has been previously assumed that the introduction of Medicare, following on from an era when free public hospital care was abolished, would be a direction changing policy. However, our data indicate that a reversal in trend in favour of the public system occurred one year prior to the introduction of Medicare. Federal cut point 8, Lifetime Health Cover, was classified by our model as a direction changing policy in the younger three age groups with no effect observed in the oldest age group (individuals born prior to 1 July 1934 are exempt from Lifetime Health Cover). This finding was thus consistent with the objective of the policy, which was to reverse the declining trend in possession and use of PHI to reduce the burden on the public system. It would appear that this was achieved immediately post-implementation.
The effects of the 30% rebate (federal cut point 7) on levels of PHI have been one of the most hotly contested political issues surrounding heath care policy in recent times. Commentators have argued for and against this policy initiative mainly on a cost-benefit platform [4, 12, 14, 16]. Our analysis found that the effect of federal cut point 7 was related to age. This policy was associated immediately in time with a change in the magnitude of the existing negative trend (PHI) or a negative to positive change of direction (public) in the middle two age groups, and an inhibitory effect on the downward trend in the oldest age group, with no effect observed in the youngest age group. Thus the 30% rebate appears to have had the desired effect on PHI use (ie reducing the pressure on the public system) in the oldest age group, but no immediate desired effect in the younger age groups. To some extent this can be explained because younger members are not as likely to be hospitalised compared with older members, thus reducing the likelihood of an immediate effect on use. While older Australians are not only more likely to be hospitalised and therefore have more opportunity to use PHI, but are also more likely to be attracted to purchase PHI due to reduced cost because the price elasticity of PHI is different for younger and older individuals.
Limitations of the model
For practical reasons the immediate effects of the policies were the only effects able to be characterised by our model due to the plethora of federal health care policy changes, especially from 1993 onwards. To try to characterise the changes in trends over an extended period would have resulted in evaluation of the mix of effects produced by more than one policy. This is especially relevant when examining the effects of the 30% rebate and Lifetime Health Cover, where only one year separated the two policy changes.
A second limitation of this policy characterisation method is that it cannot accurately take into account enforced waiting periods, which are mandatorily applied to individuals taking out PHI who have a previous history of an illness or condition. Thus some underestimation of the effects of policies may be inherent in the model. Extending the model over two years post policy initiation is problematic, as discussed above, because the effect observed would then be confounded by subsequent policy changes. Another issue to be taken into account is the timing and extent of marketing of the policy to the public by government and the private insurance industry. In the case of Lifetime Health Cover, exhaustive marketing, the 'Run for Cover Campaign', was undertaken over several months leading up to its implementation. It is reasonable to assume that changes in behaviour, in this case purchasing of PHI, were likely to have been made prior to the policy implementation date, thus some of the waiting period, if applicable, would have been served prior to the policy implementation date. Conversely, advantage could be taken of the 30% rebate at any time after, but not before January 1999. The net result of these two limitations on our policy characterisation model may be that of cancelling each other out in the case of Lifetime Health Cover and causing a latent period between cause and effect in the case of the 30% rebate.
In addition, it could be argued that since the waiting period only applies to pre-existing conditions, those wishing to use newly acquired PHI for such a condition would be doing so to facilitate a more expedient health intervention than could be achieved in the public sector. As such these episodes of care would not normally have been observed in the public system over the same period, but rather at a later time. Under these circumstances the waiting time for benefits may serve to enhance the validity of a characterisation model employing a latent period.
Finally, our policy characterisation model does not allow for the possibility of an earlier policy initiative synergising with a subsequent initiative. Thus it is possible that the immediate effect of Lifetime Health Cover may have been less potent in the absence of the pre-existing 30% rebate.