An edited version of a speech delivered by John Menadue, a director of the Centre for Policy Development, to the Victorian Healthcare Association Annual Conference this morning. Full version is here.

Medicare is at risk if the government adopts the National Health and Hospital Reform Commission’s proposals on Denticare and Medicare Select.

These proposals would put private health insurance in a dominant position despite the clear and unmistakable evidence around the world that countries with high levels of private health insurance do not effectively control costs.

The commission proposes that under Denticare “everyone would have the choice of getting basic dental services … paid for by Denticare either through a private health insurance plan or through public dental services.” Denticare would be funded by an increase in the Medicare levy of 0.75% of taxable income ($3.9 billion).

This is a blatant make-work proposal on behalf of financial intermediaries. Part of the funds from the Denticare levy collected through taxation would be churned a second time through private health insurance companies that have administrative costs, including profit margins, of about 15%. This is three times the administrative cost of Medicare.

The most sensible course to fund dental services would be to extend Medicare to particular dental services in the same way that Medicare funds medical services.

The other leg-up for private health insurance that the commission suggests is Medicare Select. The commission seemingly has deliberately allowed Medicare Select to be projected as a firm proposal when on closer examination, it seems that it is only a suggestion that requires further study.

Or at least that is what one commissioner, Stephen Duckett, said. In Crikey on July 31, 09, he said: “The Reform Commission did not recommend Medicare Select; it recommended examining the issue.” I can understand why Duckett, who knows more about health policy than most, would have reservations about Medicare Select.

In any event, the ambiguity seems to have worked a treat, designed to put the issue into the public domain without too much ownership by the insurance industry. Medicare Select is off and running.

The commission has drawn selectively on overseas experience to support its case for Medicare Select. Ignoring countries as diverse and as successful in healthcare as the Nordics, Taiwan, Japan, UK and New Zealand, the commission is obviously impressed with the Netherlands as an example of “social insurance”.

A few years ago the Netherlands government introduced compulsory private insurance. It is still early to make a final assessment, but the early signs are ominous. It is a weak reed for the commission to rely on.

The record of private health insurance around the world raises alarm bells. Our experience is no different. The $5 billion corporate subsidy to PHI is one of the worst pieces of public policy it is possible to imagine.

Yet the commission wants to use more public money to extend its role. The private health insurance industry relies on lobbying and political pressure rather than debate or logic to defend its interests. I am yet to find a senior official in Canberra who will privately defend the government’s support of private health insurance.

If people want to buy a Mercedes Benz or private health insurance, that is their right, but why should the community subsidise them to jump to the top of the queue, undermine the public universal system and push up costs?

The Australian auto industry receives a $6 billion subsidy over four years. The health insurance intermediaries get $5 billion per annum in government support in Australia. (The $5 billion includes the $4 billion subsidy, takes into account the persistent under-valuation of the cost of the subsidy and the cost to revenue of the taxation rebate.)

Private health insurance, through gap insurance, has facilitated the biggest increase in Australian specialist doctors’ fees in a quarter of a century. Specialists now charge on average 50% above the Medicare scheduled fee. It is hard to find a better illustration of how private health insurance fuels increases in costs.

It is suggested that managed competition in health insurance will improve markets and choice. But what we need most in Australia is competition in the delivery of health services, particularly among doctors and pharmacists who benefit from widespread restrictive practices and closed shops.

The Rudd government should quickly and clearly reject the commission’s recommendations on Denticare and Medicare Select and then get on with the worthwhile proposals of the commission.

The commission is laying the grounds for the eventual demise of Medicare, perhaps not under this government, but down the track. The end result would be a two-tier health service — a public tier for the poor and a private tier for the wealthy. Equity would go. Efficiency would go. And social solidarity would be a thing of the past.

Now is the time for all good people to come to the aid of Medicare

John Menadue is a director of the Centre for Policy Development. He was formerly Secretary of Prime Minister and Cabinet, Ambassador to Japan and CEO of Qantas. He conducted reviews of the NSW Health Service in 2000 and the SA Health Service in 2003.