Why it is time to review the role of private health insurance in Australia.

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The role of private health insurance (PHI) within the Australian health-care system is urgently in need of comprehensive review. Two decades of universal health cover under Medicare have meant a change in the function of PHI, which is not reflected in policies to support PHI nor in the public debate around PHI. There is increasing evidence that the series of policy adjustments introduced to support PHI have served to undermine rather than promote the efficiency and equity of Australia's health care system. While support for PHI has been justified to 'take pressure off the public hospital system' and to facilitate choice of insurer and private provider', and the incentives have indeed increased PHI membership, this increase comes at a high cost relative to benefits achieved. The redirection of hospital admissions from the public to private hospitals is small, with a value considerably less than 25% of the cost of the policies. The Commonwealth share of the health care budget has increased and the relative contribution from private health insurance is lower in 2001-02, despite an increase in PHI membership to nearly 45% of the population, compared with the 30% coverage in 1998. The policies have largely directed subsidies to those on higher incomes who are more likely to take out PHI, and to private insurance companies, private hospitals and medical specialists. Ad hoc policy adjustments need to be replaced by a coherent policy towards PHI, one that recognises the fundamental change in its role and significance in the context of universal health coverage.