Jeremy Sammut, a research fellow at the Centre for Independent Studies, has penned an extraordinarily one-eyed article in The Australian calling on the Federal Government to privatise Australia’s public hospitals in a bid to make them more cost effective:
The problem in health is reckless spending, not a revenue shortfall. This is clearly demonstrated by the ever-increasing amount of taxpayer money absorbed by public hospitals. In 2003-04, combined federal, state and territory funding for public hospitals totalled $22 billion. By 2012-13, this had increased to almost $40bn, with real expenditure having grown at a rate much higher than inflation and economic growth.
Demand for hospital services is increasing in an ageing society, but there is little evidence that productivity improvements have enabled the community to receive more hospital care in return for additional funding…
This is hardly surprising: public hospitals remain one of the few government utilities that have been untouched by the market-based reform agenda initiated under the Hawke-Keating government in the 1980s.
Like all cosseted public sector industries, public hospitals are inherently inefficient because they are insulated against private sector forces of competition and financial accountability that drives innovation and reduces costs in other sectors of the economy…
What state governments should be doing is addressing the structural problems in their health systems by outsourcing the provision of public hospital care to more efficient private providers…
Privatisation maybe a dirty word in health, but the alternative is bankrupt state governments.
Mr Sammut’s argument has a number of deep flaws.
First, health inflation is incurring due to a range of factors, including:
- New technologies, which improve the scope and quality of medical services, but also increases its cost;
- The ageing of the population;
- Health is a superior good, whose demand rises as incomes rise; and
- Rent seekers, who have every incentive to keep health expenditure high.
These factors are present equally in the public and private systems: has Sammut not noticed the rampant inflation of private health insurance premiums over the past 15 years?
Sammut also fails to mention the pitfalls of a privatised health system. Why hasn’t he mentioned the USA, where health care consumes 16.4% of GDP, versus 8.8% in Australia, despite 16% of US households not being covered by any form of health insurance and much worse overall health outcomes?
Indeed, a recent survey by Bloomberg ranking countries based on three criteria: life expectancy; relative per capita cost of health care (percentage of GDP per capita); and the absolute per capita cost of health care, also showed Australia to have the 7th most efficient health care system in the world, ranking above other Anglosphere nations including the UK (14th), Canada (17th) and the United States (46th).
The OECD shows similar results. As illustrated in the below graphic, total health spending in Australia is just 8.8% of GDP versus 8.9% for the OECD as a whole, whereas public health spending is 5.9% of GDP in Australia versus 6.5% for the OECD as a whole. Finally, life expenditure at birth is 82.2 years in Australia versus 80.4 years for the OECD as a whole.
While Sammut might not like to admit it, Australia’s health system is already world class, and destroys the largely privatised system of the USA.
While improvements can always be made to improve the health system’s efficiency, this does not include throwing the baby out with the bath water and privatising Australia’s public hospitals.
