A new paper suggests government spending to increase the amount of Australians with private health cover is a much less effective way to alleviate pressure on the public system than policy makers think.

The paper found an uptake in private health cover has a minimal effect on reducing wait times for services in hospitals.

According to the research which was based on Victorian data, an extra 65,000 people being covered would reduce the average hospital wait time (69 days) by just 8 hours.

Every year, the government pays about $6.5 billion in rebates to people with private health cover, and another $3 billion directly to private health companies in subsidies for inpatient hospital medical services.

There are also tax penalties that apply for many Aussies without private health cover, including the Medicare levy surcharge and Lifetime Healthcare Cover (LHC) loading.

The penalties primarily affect young people on growing incomes, with LHC taking effect from age 31, and the surcharge from $93,000, which is less than the ABS-defined average full-time wage.

The argument is that more people - primarily younger people - in the private health system means fewer using public services, easing the strain on the public system and crucially, reducing the amount of time patients need to wait in public hospitals.

More younger people in the system - paying more than they get in return - subsidises older patients, which has been called the private health death spiral.

This is because policies are, by law, not risk based like most other insurance types meaning an overweight 78 year old smoker pays the same as a young, fit 25 year old.

However, Ou Yang, Jongsay Yong and Yuting Zhang, all economics professors or researchers at the University of Melbourne, argue in the paper there is very little evidence more uptake of private health policies translates to shorter wait times.

The paper used data from 2014-2018 in Victoria to measure the correlation between more people taking out private health policies and wait times for inpatient services in hospitals.

The results showed an inverse correlation, but a minimal one: a 1% increase in cover would bring average wait times down by about 0.5%, according to the research.

In the discussion section at the end of the paper, the researchers concluded "on balance, the small reduction in waiting times in public hospitals cannot justify the large fiscal costs."

They suggested some of that near $10 billion might be better spent invested directly into public hospitals and healthcare services.

"Alternative policies aiming at improving the efficiency of public hospitals and advancing equitable access to care should be a priority for policy makers," the authors wrote.

Why doesn't more people in private healthcare reduce wait times?

While not directly addressed by the paper, the researchers have since put forward several suggestions that could explain the findings in an article published by The Conversation.

Firstly, people buying private health policies does not guarantee they will use them.

Some Australians might choose to go through the public system rather than make a claim on their private health fund, looking to avoid any out of pocket expenses.

Secondly, just because more patients are not using the public system doesn't necessarily mean there will be more doctors available.

You could argue that pumping more money into the private system could mean it can offer higher wages and better working conditions for healthcare professionals, so for example, more specialists might be employed by private healthcare providers, not the public system.

The report authors also suggested there are increasingly more public hospital services not on offer in the private system, like complex neurosurgery and some forms of cancer treatments.

Image by National Cancer Institute on Unsplash