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

Private health insurance subsidy is now estimated to cost $2.19 billion; government 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 more efficient than private hospitals. The original stated objective of the subsidy was to "take pressure off public hospitals". If the insurance subsidy and the Medicare Benefit Schedule rebate expenditure were applied to purchasing public hospital treatment at full average cost, 58% of current private sector demand could be accommodated. If 10% of the demand were met at marginal cost, this would increase to 65%. The objective of "taking pressure off public hospitals" could be more efficiently achieved by direct funding of public hospitals rather than through subsidies for private health insurance.