The new health insurance rebate: an inefficient way of assisting public hospitals

Private health insurance subsidy is now estimated to cost $2.19 billion; go vernment support for private health care includes a further $1.2 billion of Medicare benefits expenditure in hospitals. The subsidy cannot be justified on efficiency grounds, as, on the basis of available evidence and taking casemix into account, public hospitals are mo re efficient than private hospitals. The original stated objective of the subsidy was to "take pressure off publ ic hospitals". If the insurance subsidy and the Medicare Benefit Schedule r ebate expenditure were applied to purchasing public hospital treatment at f ull average cost, 58% of current private sector demand could be accommodate d. If 10% of the demand were met at marginal cost, this would increase to 6 5%. The objective of "taking pressure off public hospitals" could be more effic iently achieved by direct funding of public hospitals rather than through s ubsidies for private health insurance.