It is reported that health insurer BUPA is ‘trialling’ a nine-day fortnight for its staff, meaning it is looking to provide its employees with 25 long-weekends each year at full pay.

This is the second health insurer to trial shorter hours, with Medibank also getting in on it, although it is even more extreme than BUPA, aiming to provide a four-day week, every week.

At one point the labour movement mantra was built around the idea of a fair day’s pay, for a fair day’s work. Now we’re looking at one day’s pay for no work at all.

Another way to view these proposed work arrangements is simply that of a pay rise.

Medibank is in effect providing a pay increase of 20 per cent, and BUPA 10 per cent – these are windfall pay rises and don’t include the normal wage increases which routinely paid each year in companies.

It is entirely legitimate for genuine private companies to make whatever work arrangements they want, but it becomes iffy when those companies are heavily subsidised by the Australian taxpayer.

Health insurance companies receive at least three forms of subsidy from the federal government.

They benefit from the Private Health Insurance rebate scheme introduced in 1999 by Prime Minister John Howard. In the last Budget, the annual cost is estimated at around $7 billion.

There is also relief from the Medicare Levy Surcharge. Australian residents earning above a set income threshold who take out a private health insurance policy avoid the tax penalty, currently up to 1.5 per cent of income. This applies to individual and household income.

A third subsidy that also helps to increase demand for private insurance is that it is GST-free, essentially providing a subsidy to private health consumers, at least relative to other goods and services that attract GST.

The rationale behind these subsidies is to promote a strong and viable system of private health care, in part to ensure the universal public health care system is not overwhelmed by patients who have the means to access private care.

What seems to be happening is that rather than strengthen the system overall, the staff and executives in private insurance are moving to extract a higher proportion of that public subsidy.

This is actually an outcome predicted in economic theory. One of the deficiencies of non-profit organisations, those businesses that charge prices to only recover operating costs, is that they create strong employee incentives to boost those costs, especially in service of benefiting themselves.

The phenomenon is known as ‘cost padding’. That’s why on most Qantas flights, employees of non-profit organisations disproportionately occupy the expensive business class seats.

While BUPA and Medibank are not strictly non-profits, they have a similar cost-padding incentive because the prices they charge – premiums on insurance – are subject to approval by the federal government, and the allowable premium increases are based on changes in actual payout and operating costs. The industry is also quite concentrated. Insurer HCF is actually a non-profit and, as such, avoids income tax on its earnings. It is also vulnerable to excessive cost-padding by staff.

In reading about the shorter workweek trials, you will see a lot of references to higher productivity.

Inevitably these ‘trials’ will demonstrate more work satisfaction, fewer sick days, higher work output, better mental health outcomes, etc. The staff will, naturally, do whatever they need to secure more paid long weekends.

Why even bother with a trial when the outcomes are as certain as death and taxes?

It is as naive as a parent who, in beginning to cave into their child’s nagging for a dog, borrows a friend’s dog to see whether their child makes good on their promise to walk it every day after school. Of course the child will. For a week, or maybe even a month.

It is not what happens in the trial and over the period of supervision. It’s what happens two years after the decision is made.

And everyone knows a decision like a four-day workweek will be impossible to retract, especially when it quickly spreads to become the industry norm and costs of which are pushed through to premiums under the government’s annual authorisation process.

But what happens to productivity when the novelty wears off? When the habits and traits of human nature reassert themselves.

Just have a look at the history of subsidising ‘victim’ groups, the more unearned money and benefits they get, the more entitled, depressed, and unhappy they become.

Another angle has recently emerged on this topic, relating to the private hospital system and its current dire financial state. Private hospitals earn their revenue from service payments by private health insurers.

The most recent revelation of problems in the sector comes out of Queensland. It is reported that Mater Health owns and operates 11 hospitals which are pretty central to Queensland’s healthcare system. For example, one in five Queensland babies are born in Mater facilities. In the year to June 30, 2023, Mater made a $105.6m loss on operations. The year before, the loss was $64.5m.

It doesn’t take a genius PR adviser to see where this could go. BUPA and Medicare give their staff long weekends, while private hospitals close, public hospital wards and their emergency departments get even more crowded.

The revenue of the private hospital system comes out of the same pool of money being used to give insurance employees shorter working weeks.

The essential problem here is with the massive taxpayer subsidies to health insurers and the perverse incentives to create operating costs that benefit staff, but in fact the subsidy is there to benefit consumers and the wider hospital system.

When taxpayers are involved, something that seemed to be going well one moment can all of a sudden and, with some force, be ‘not okay’.

My sense is that the Medibank and BUPA executives don’t quite understand that dynamic and how vicious it can be when you’re on the wrong side of it.

Nick Hossack is a public policy consultant. He is former policy director at the Australian Bankers’ Association and former adviser to Prime Minister John Howard.