Private health insurance in Australia: policy reform approaches towards greater competition and efficiency to improve health system performance

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All countries are facing increasing pressure on their health care budgets stemming from an ageing population, changing illness and disease conditions, and cost enhancing technologies. Moreover, the rise in chronic diseases, which is now the leading cause of ill health and deaths in Australia, results in a significant economic burden and poses particular challenges. Many countries are re orientating their health systems towards prevention and chronic disease management and introducing incentive structures to support dynamic efficiency. Private health insurance (PHI) is an important component of the Australian health system, as it reduces public contribution to hospital expenditure and provides Australians with choice. However, PHI in Australia is heavily regulated. The failure to redefine the role of PHI with the introduction of Medicare has resulted in a legacy of regulatory impediments which are anti-competitive and counter to system efficiency.

Australia has yet to adopt a coherent strategic approach to health policy reform. Instead, policy adjustments have vacillated between those supporting the universal system and those supporting the private sector, with limited attention given to integrating the two systems, which has led to ongoing structural tensions within the broader health system. The adoption of managed competition as a long run strategic goal is consistent with the implementation of short run policies which improve efficiency. Adopting a strategic framework to guide incremental policy adjustment, where each successive step is carefully monitored and evaluated provides the greatest scope for effecting structural changes necessary to pursuit dynamic efficiency and enhance system-wide performance and thus best meet the challenge confronting the Australian health system over the coming decades.

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This paper was produced under the ACFS Commission Research program, which supports academics to conduct practitioner-oriented research. Further details about the program and other ACFS research grants, are available here.