THE debate over the affordability of private health insurance has been ongoing for the past 30 years.
The private health fund lobby regularly descends on the federal Health Minister’s office claiming a “crisis” of affordability in private health insurance and impending doom, followed by requests for increased government funding and regulatory changes designed to increase the ability of the health funds to control the private health care sector.
Although private health funds redistributed around 9% of total health care spending in 2017–18, their membership comprises a large voting constituency in the Australian electorate and this lever is used constantly to extract concessions from federal Health Ministers of all political persuasions. Hence, successive federal governments have given increased powers to the health fund industry to satisfy their demands and maintain electoral support in middle-income Australia.
The Australian Health Insurance Association (AHIA) (now Private Healthcare Australia) first spelled out its long term agenda in a document entitled Towards a better health insurance system for Australia, in April 1992.
In this document the AHIA said:
“… perhaps the worst of Medicare’s weaknesses is its failure to establish an adequate base for the financing of healthcare in the future, when the cost of treating the elderly will rise substantially.”
It also criticised “the lack of competition in medical insurance” and said that, “decisions are based on political responses to special interest groups” and that there was “public confusion and ignorance” in regard to Australian health care.
The AHIA called for “Medibank Private to be privatised”, “the principle of community rating should be reinforced” and “if the Medicare system is not changed there will be dire consequences for both the public and private healthcare sectors.”
In less than 12 months, the AHIA proposals that criticised Medicare were rebranded as a new document entitled Health insurance working with Medicare (1993), but many of its recommendations were retained.
Since then, successive federal governments have implemented almost all of the items from the 1993 AHIA agenda and more, which we were told would reform the system and deliver affordability into private health insurance, including:
- positive incentives and disincentives to improve public take-up of private health insurance;
- government-funded campaigns promoting uptake of private insurance;
- the elimination of workplace self-insurance schemes;
- casemix funding;
- restrictions on pricing of medical devices such as implants, stents etc;
- confidential hospital contracts;
- qualifying period flexibility;
- no gap and known gap arrangements;
- lower rebates for patients of doctors not in preferred provider networks;
- the right of funds to determine copayment for services;
- additional rebates on top of the Medicare Benefits Schedule for medical services;
- the funds acting as billing agents for Medicare rebates;
- privatisation of Medibank Private;
- disincentives for private hospitals to provide for self-insured patients; and
- modification of health insurance contracts.
The one big demand that has eluded the major players in the private health insurance industry is the one they really want the most:
“The AHIA supports the development of managed care initiatives”. (Working with Medicare, April 1993, p22)
In the 1990s, the health fund industry representatives became aware of the record profits made by managed health care companies in the US. They understood that if effective control could be obtained via contracts over medical practitioners, then access to private medical specialists would require a health fund premium; that is, the health fund becomes the gatekeeper to private medical specialists.
Ultimately, it is the patient who determines value in health care. In economic terms, it is medical practitioners who patients want to consult for medical treatment. A health fund does not deliver a baby, perform a heart bypass, a hip replacement or remove a cataract. It also does not render a patient safely unconscious in order to have a painless operation. It is the doctors and their colleagues in the allied health professions who deliver value to patients in the form of advanced medical treatment that has improved the quality of life of millions of Australians.
A health fund has a separate purpose. It helps the health fund member average out their health fund costs by holding and transferring funds. This form of health care financing is struggling to justify its value since it is primarily involved in taking money from members and handing it back when medical treatment and hospital treatment or allied services are required. In addition to the rise of compulsory superannuation, credit cards, instant credit, mortgage drawdowns and other evolving credit and savings products and services, the financial service industry is continually advising Australians of available consumer friendly credit facilities. Hence, governments need to continue to provide strong incentives and disincentives to maintain stability of membership in health funds; that is, the government needs to add value through subsidies and other mechanisms.
The foundational humanitarian principle upon which Australian health funds were originally established was to share the burdens of health fund members equally (community rating) so that, regardless of a person’s health, their health insurance premiums would be the same as the next person’s. This principle was the raison d’être of the not-for-profit humanitarian movement that created health funds to alleviate the financial devastation of major illness for individuals and families. The medical profession was involved in this humanitarian effort, as the history of not-for-profit funds such as the MBF (taken over by Bupa in 2010) attests.
Community rating is not easily compatible with the commercial objectives of a for-profit health fund. They contradict each other, in the same way that Woolworths is not a charity and the Salvation Army is not a supermarket. Hence the co-existence of humanitarian and commercial objectives sets up a tension in for-profit private health insurance that results in a complex series of product designs and rules. This not only adds to confusion and decreases cover (value), it also diverts funds to insurance brokers who market the increasingly complex products.
In summary, the result of the conflict between community rating and the commercial objectives of for-profit health funds is the worst of both worlds. This tension is at the heart of the drive for US-style managed care in Australia. Risk rating and community rating cannot easily coexist and big business is not a charity.
Since there is nowhere for corporate health funds to go in a community-rated system, their objective must be to change community rating sufficiently to make it less of an impediment to achieving their financial objectives. The recent introduction of Basic, Bronze, Silver and Gold options claims to address inherent weaknesses in the community rating model. However, it has every appearance of making an already confused system even more confusing.
This “modify community rating strategy” will require sophisticated lobbying and community messaging (spin and political influence) with the mantra that the agenda is all about better value for the patient and lowering the total cost of health care; that is, the same theme that has led to multiple previous changes in traditional community-rated not-for-profit health insurance, to “fix the system”. Apparently, according to the Private Healthcare Australia CEO Dr Rachel David, we are all in this together:
“The trouble with private health insurance is that under that community rating system we’ve gone from being what I call the magic pudding type of model where the funding in the system grows and keeps replenishing every year while the economy is good, to being a fixed pie where we’ve got no room to move and every dollar has an opportunity cost that we, ourselves, the Department of Health, clinicians and other stakeholders need to work out how to spend it.”
Rachel David, CEO, Private Healthcare Australia [Health fund peak body], AOA webinar 10.09.2020
Directly promoting no out-of-pocket costs for surgery and other procedures is one way to attract patients to medical practitioners contracted to health funds. Any demand driven model is likely to cause disruption to the current GP referral model and will see patients seek surgical options on the web with the provider assisting in obtaining a referral.
The aim here is to have a workforce of health fund contracted doctors. There is no guarantee that any so-called cost savings from these schemes will be passed on to health fund members in the form of reduced premiums. In the US, the failure of managed care is simply that the “manager” who squeezes the providers, takes the savings into their own bottom line as a reward for squeezing. Despite its widespread application in the US, managed care has delivered the highest hospital spending per discharge (2016), and highest healthcare spending per capita (2017) the highest healthcare spending as a percentage of GDP (1980-2017) when compared with OECD advanced economies.
Managed care arrangements are likely to be most attractive to medical specialists who:
- for whatever reason do not have sufficient patient referrals (ie, they need someone to generate referrals for them);
- are prepared to “give it a go” and deal with the consequences later;
- have major concerns over their financial viability, given disruption to their practice through loss of elective surgery due to hospital close-downs.
Inherently, “managed care” places the patient at the mercy of the health fund’s contract with the doctor. This contract is not available to the patient (like the hidden contracts between private health funds and hospitals, which impact patient care but which the patient is forbidden to see). Managed care and transparency cannot coexist, since managed care is built around commercial in-confidence contracts that disguise any restrictions in treatment.
Furthermore, this model puts conditions on the modality of treatment prior to examination. Clinical medicine is now turned on its head. However disguised, the doctor is offering a solution to the patient based on health insurance arrangements and health insurance-dictated protocols. At first these protocols will be somewhat loose and flexible. In time, once the doctors have been locked in, they are likely to tighten and become more direct and demanding.
At first the contracts between health funds and doctors are likely to use terminology guaranteeing clinical independence and denouncing managed care as they follow its well established path.
In current circumstances, some orthopaedic surgeons are being offered contracts with health funds that require them to agree to clinical protocols which involve using alternative rehabilitation arrangements to in-hospital settings. In return, the doctor is paid a higher rebate by the health fund than doctors who are not engaged in this arrangement.
“We can’t raise the cost of the medical payment … Could we, by reducing the cost of five overnight stays in ‘in-patient’ rehab, figure out a way to reduce the gap payments for the patients by concentrating the payment for surgeons and hospitals for the more intense and short form of care?”
Dwayne Crombie, MD Health Services Bupa, AOA webinar 10.09.2020
Early discharge after arthroplasty that does not involve in-hospital rehabilitation, but may involve substitutes such as home-based rehabilitation, is now being actively promoted by health funds as a means of reducing the total cost of an episode of care to the health fund. It is not necessary to go into the clinical indicators of in-hospital rehabilitation to see how this modality of treatment is simply the starting point for further structural changes in the relationship between doctor and patient and doctor and health fund.
Short stay surgery is by no means a recent innovation. The University of California, Los Angeles established a hospital-based ambulatory surgery unit in 1962. Since the 1970s, Australian surgeons have been at the forefront of techniques that utilise short stay hospital settings, including orthopaedic surgery. These innovations were not initiated by health funds, they were initiated by clinicians. Clinicians do not need health funds to develop innovative models of care. Health fund involvement arises when there are savings to be made in health care financing, and the question arises as to how these savings are to be distributed.
What has changed now is the move to increase payments to doctors who agree to protocols set out by the health fund contracts, and the use of terms such as “clinical partners”.
Here’s an important question. If the doctor is to be clinically independent from the health fund, why is there any reason whatsoever for the doctor to sign a contract, agreement, understanding or clinical partnership with the health fund?
Answer? Because the health fund needs to have financial control over the doctor’s activities to make the model (managed care) work. A contract ensures that both parties have legal obligations to each other, and the health fund can use the contract or threat of cancellation to enforce arrangements.
A doctor who becomes reliant on a health fund for their referral base is in a very precarious position should the contract be cancelled or arrangements be changed. Contracts with private health funds may prove very difficult to negotiate, as any private hospital operator will attest. In many cases, the so-called negotiation is “take it or leave it”.
A proposition that requires a doctor to sign a contract which would have an impact on a potential benefit or option being available to patients, while the doctor maintains total legal liability for the clinical outcome, is something that medical practitioners would be advised to consider very carefully.
If in-hospital rehabilitation is overservicing, then the health fund, based on medical advice, which it has the ability to obtain, can easily advise members that it will not pay for a benefit that does not have sufficient evidence. This would be a transparent removal of the benefit with a transparent explanation of the evidence that this decision was based on.
The interests of corporate health funds are not necessarily the interest of patients. Corporate health funds must pursue return on investment and reward their shareholders and owners to stay in business. They have already promised to do this, and their executives are strongly incentivised with appropriate salaries and bonuses to achieve this goal and are criticised publicly by the investment community when they do not.
The problem for the corporate health fund is that the environment they have decided to pursue their financial objectives in is not an open market. It is a highly regulated environment that has been historically dominated by self-help humanitarian not-for-profit organisations who are committed to burden sharing through community rating.
In reality, the term “private health insurance” does not accurately describe this service, since the term has connotations of general risk-rated insurance where the worse risks pay more, and the better risks pay less. Marketing strategies that fail to mention the burden sharing ethos of the product can mislead the public by creating false expectations.
What is called private health insurance is in fact health fund membership, and although “risk pools” are used in other forms of insurance, they are subject to special rules of entry and exit which do not allow for the easy transference of risk.
The privatisation and public listing of Medibank Private and other publicly listed funds, as well as the entry into Australia of unlisted health corporations such as Bupa, has set up a collision course between community rating and risk rating of private health insurance.
Successive governments have allowed partial risk rating and the private health insurance product is substantially altered, with the majority of hospital policies now containing exclusions. This is manifest in the Bronze, Silver, Gold model where in reality, the Gold model gives the widest cover.
Essentially, it is outside the realm of the medical profession to resolve the policy conflicts of risk-rated and community-rated insurance models and all the knock-on effects to the voting public that this will generate. Doctors cannot effectively alter this structural problem.
Calling on doctors to cooperate to improve the affordability of private health insurance is nonsense because they have no collective or individual ability to resolve the policy arguments, competing interests and the political debates that come from conflicting objectives in health care financing.
Doctors are required to use their expertise and skills to respond to patients’ needs with effective remedies and treatments that are the result of an ongoing debate between themselves and their medical colleagues as to how this can best be done.
The job of a doctor is not to rescue a health fund, or assist it to meet its corporate objective. A doctor’s job is to rescue the patient from suffering and injury, and there is historical evidence that the Australian medical profession has performed this task with distinction and to the greater satisfaction of the Australian public without the assistance of US-style managed care.
The importance of the independence of doctors from third-party control is reinforced in the protections given to the public by the anticonscription provisions of the Australian Constitution. Australian doctors need to remain the patient’s doctor, not the health fund doctor.
May it always be thus.
Stephen Milgate AM is Director of the Australian Doctors’ Federation.
The statements or opinions expressed in this article reflect the views of the authors and do not represent the official policy of the AMA, the MJA or InSight+ unless so stated.