Illustration: Michael Mucci.

Illustration: Michael Mucci.

Healthcare is the biggest long-term pressure on the budget. It costs more than $60 billion a year and is growing rapidly. So, how do you make it more ''efficient'', as Tony Abbott has promised?

The Commission of Audit last week made a proposal that appears to fit with the government's push to end the ''age of entitlement''.

In one of its more radical recommendations, the Commission suggested forcing people earning more than $88,000 or families with incomes above $176,000 to take out expanded health insurance to cover GP visits.

''People on higher incomes should take greater individual responsibility for the cost of their healthcare. They are better placed to take out private health insurance and should be required to do so,'' the report said.

Simple, right?

Now there's no guarantee this will be introduced. It may well be what Joe Hockey dubbed a ''courageous'' recommendation - one that won't be touched in next week's budget.

Yet the proposal is consistent with Health Minister Peter Dutton's commitment to get private health insurers more involved with general practice. And it fits with many business groups and politicians' assumption that handing over a service to the private sector will not only save taxpayers money, it will also deliver services to the community more efficiently.

So, what's the actual evidence to back up this claim as it relates to health? In short, it's nowhere near as strong as those pushing a wider role for private health insurance might have you believe.

Consider these facts, highlighted in a January submission from Jennifer Doggett, Ian McAuley and John Menadue of the Centre for Policy Development.

For one, the administrative costs of private health insurance are high. For every dollar Australians pay to private health insurers, 84¢ is spent on payment for actual health services, compared with 94¢ for Medicare.

So much for private-sector efficiency. As anyone who has dealt with a private health insurer can attest, these are big bureaucracies with all the costs that entails. Unlike Medicare, they also have to make profits for their owners.

Another problem is the insurers' lack of bargaining power. A single big government insurer can play hardball in negotiations with hospitals to keep costs down, but a bunch of smaller private insurers struggle to do this.

The Organisation for Economic Co-operation and Development, in a 2006 paper cited in the submission, confirmed this was a challenge in many countries.

''Private insurers in most OECD countries do not have the same bargaining powers over the price and quantity of care provided to insurees as public systems do,'' the OECD said.

Internationally the pattern is clear: countries that fund a high proportion of healthcare through private insurance also spend more on health overall, but with ''little difference in health outcomes'', the submission says.

The dysfunctional US system is the standout example here. Americans spend 18 per cent of gross domestic product on health, compared with about 9 per cent here, and we all know about the problems many Americans still have in accessing healthcare.

In short, there's ample evidence to suggest private health insurers are anything but lean and efficient at directing money to the actual providers of healthcare.

That's not to dismiss projections that overall healthcare costs will rise as the population ages, or that we may have to pay more out of our pockets to fund it. The point is that shifting more of the cost from a government scheme like Medicare to private health insurers tends to be less efficient, not more.

So, why do it?

From a politician's point of view, expanding the role of private health cover may relieve pressures on public health spending, which would otherwise require higher taxes. For a consumer, however, any tax relief is an illusion. We still end up paying, but it's through a bill to the insurer rather than through the tax system. What's more, it's likely to cost more than if the money had been channelled through Medicare.

How does that make sense?

Doggett, McAuley and Menadue put it well: ''There is no point in saving taxpayers $1 in taxes if, in order to compensate for that saving, they have to pay $1.10 or $2 for the same service, without any better outcomes.''

Even if Hockey ignores the commission's recommendations to get wealthier people off Medicare, the issue raises a big question we should be debating alongside all the talk about spending cuts. That question is tax.

Discussing the spending side of the budget without considering long-term changes to the revenue side is economically flawed.

The Commission of Audit's proposals to water down Medicare clearly illustrate this.

Focusing solely on curbing health spending without even considering long-term tax changes (the proposed ''deficit levy'' doesn't count as long term) leads to perverse outcomes. For instance, shifting more health costs into the inefficient and expensive system of private health insurance. It's hard to see the economic logic in that.