Private health insurance: shifting sands

THE dynamic between our public and private health sectors in Australia is something we take for granted. Australia, unlike other countries, has preferred a balanced blend of public and private health care that offers Australians choice and security should they suffer an adverse health event.

There are a number of misconceptions and reconceptions regarding the private health insurance (PHI) industry, the Australian public – and in particular the medical profession – need to know about.

First, almost 10% of PHI policies do not cover hospital care and according to the Australian Competition and Consumer Commission’s (ACCC) most recent report to the Senate, this category is growing. As of June 2019, 44.2% of the Australian population hold hospital-only or combined health insurance cover, with a further 9.4% holding extras treatment-only policies.

A further mistaken belief about PHI is that it is similar to most other forms of general insurance.

Australia’s not-for-profit health funds grew out of “the friendly society movement” which gained momentum in Australia, Great Britain and the US in the late 19th and early 20th centuries. In 1913, 46% of Australians (2.2 million out of a population of 4.8 million) were benefiting from friendly society services (p. 221). The principle underpinning these societies was mutuality and community rating. This principle of “equal burden sharing” remains the central feature of Australia’s PHI system. Without it, PHI premiums (membership fees) for the elderly and the chronically ill would be unaffordable for most Australians.

Regardless of the advertising slogans, everyone taking out PHI in Australia becomes a member of a regulated health fund and commits to the principle of sharing the cost of benefits equally.

Benefits for members are also restricted mostly to hospital stay and rebates for in-hospital medical fees. Visits to GPs, specialists, out-patient medical imaging and out-patient pathology are rebated by Medicare, not PHI.

A classic example is magnetic resonance imaging (MRI). MRI scans are generally expensive and many patients with PHI expect such services to be covered. In our experience, patients get quite upset when they discover PHI does not include these services.

PHI offers some allied health coverage, but such policies are replete in fine print and conditions and restrictions – yet more frustration for the public.

Meanwhile, a recent exodus of 127 000 health fund members in the 20–34 years age group in the past 2 years and a rise in policy holders in the 70–84 age group have triggered controversial public comments by Mr Geoff Summerhayes, Executive Board Member of the Australian Prudential Regulation Agency (APRA), which oversees the financial viability of PHI funds.

On 4 February 2020, Mr Summerhayes delivered a speech in which he stated that APRA was mooting forced mergers of smaller not-for-profit health funds with larger for-profit corporate health funds:

“APRA has begun preparing to ensure we have sufficiently developed processes and power to facilitate – or force, if necessary – mergers or transfers of policies if we come to the view that policyholders’ interests are under threat.”

These comments should ring alarm bells for all those who believe that Australia’s health professions should stand apart from big government, or big business.

According to the ACCC’s latest report, Australia’s “five largest health insurers [currently] provided cover to almost 79.5% of the Australian consumers with [PHI]”. Any forced contraction of the market would see PHI dominated by for-profit health corporations, some of whom have announced plans to contract medical practitioners to health fund-controlled businesses.

Mr Summerhayes acknowledged the contribution of “smaller PHIs” and continued:

“Smaller PHIs have their own natural advantages: specialised knowledge of niche markets, deep connections to local communities and a not-for-profit ethos that appeals to many customers. Realistically, however, smaller funds have less ability to absorb the cost pressures or invest in the types of innovative service and technological solutions that the top five PHIs are exploring.”

The smaller PHIs stridently disagree. In a media release from the Members Health Fund Alliance, which represents 27 not-for-profit health funds, covering 3 million Australians, CEO Matthew Koce said:

“For a regulator to blatantly overstep its mandate and make public recommendations on government policy such as community rating, premium increases and risk equalisation is outrageous. APRA clearly has a vision for a much smaller [PHI] industry made up only of funds from the ‘big end of town’. APRA appears to want a smaller marketplace to regulate, disregarding the impact that such a scenario would have on Australian consumers. Do the Australian people want another ‘big-four scenario’ in the health insurance sector, whereby a small group of large for-profit corporates have all the power and consumers have none? I think not.”

What Mr Summerhayes neglected in his detailed address of 4 February 2020 is that the objectives of community rating which have historically underpinned Australian not-for-profit private health fund membership are in direct conflict with the financial objectives of any for-profit corporation.

The reason is simple: to meet shareholder expectation, for-profit corporations need to eliminate risk, or price it in such a way that maximises profit. This is possible with general risk-rated insurance, but not with community-rated health insurance, which calls for equal burden sharing.

We maintain that the result of this conflict is now evident. The proportion of hospital policies with exclusions increased by almost 14% over the 12 months to 30 June 2019 and is now at 57.6%. Meanwhile the number of policies with an insurance excess payment or insurance copayment stands at 84.8%.

We do not believe that the salvation of PHI lies in allowing APRA to wipe out not-for-profit health funds or the abandonment of community rating principle.

To the contrary, the future lies in expanding this model.

Rather than wipe out Australia’s not-for-profit health funds, Mr Summerhayes might like to consider how to return the for-profit corporations to not-for-profit mutuals and maintain the principle of community rating that Australians believe delivers fairness, particularly to those who through no fault of their own suffer adverse health events.

Australia’s health system is in a most enviable situation. Those who can afford and elect to pay for private health can do so; in so doing they relieve the public hospital system of much pressure. Those who cannot afford or choose against private health have access to a fair and excellent public system. Similar choices present themselves to health professionals who may want to work in the private or public systems, creating a diversity of career opportunities, with some provision to work in both.

And, of course, clinicians and patients can choose to link to both the private and public systems, according to their circumstances.

Our not-for-profit health funds are providing a valuable service. They give us choice and freedom in health care and these two values maintain justice and fairness for all Australians.

It’s not perfect, but it is preferable to a fully nationalised system, or a system dominated by major health corporations with excessive market power.

Stephen Milgate AM is Executive Director of the Australian Doctors’ Federation.

Dr Aniello Iannuzzi is a Visiting Medical Officer at Coonabarabran District Hospital, a GP, and a Clinical Associate Professor at the University of Sydney and University of New England. He is Chair 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.