more_vert
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.
Regarding out of pocket on “top cover”: The health funds do not make the patients aware that “top cover” often means better extras cover, and more operation types covered. It usually does not increase the level of rebates.
Gives patients the wrong expectation that “top cover” should mean their out-of-pocket costs are low.
A brilliant article. Something I have been saying to anyone who would listen, ever since Medibank Private became a for-profit entity. Prior to this and BUPA’s purchase of MBF before it, the vast majority of PHI was with not-for-profit organisations. After Medibank’s privatisation, well over half the private health insurance policies in Australia were suddenly with for-profit insurers. Not coincidentally, it has ONLY been since this time that health funds – almost exclusively just the for-profit funds – have been constantly and publicly agitating for change to private health services to reduce how much they have to pay out. I do not blame them for this; it is essential for them to maintain their share price and return dividends to shareholders. However, I question whether there is any need at all in this country for for-profit PHI companies. Unlike other industries, the health industry in this country is highly regulated, perhaps more than any other industry. It is not a free market. Therefore, we can make rules that dictate what sort of companies are allowed to deliver PHI. I argue that it would be in this country’s best interest to allow only not-for-profit health insurers, who do not have the same pressure to continually find ways of maximising profits – basically the complete opposite of what Mr Summerhayes suggested in his speech.
This is an excellent article which redresses the so far one-sided arguments favouring the interests of the bureaucracy and the profit-seekers over those of the contributors. The Medicare Levy is insufficient to cover the costs of Medicare so the balance comes from Consolidated Revenue. Those who need to insure privately, because they are self-employed or in special need due to bottlenecks or other public system inadequacies, pay twice – directly for what they use in the private system and indirectly by not using the public hospital entitlements they forego. The Private Hospital Insurance Rebate attempts to redress this injustice. Initially introduced to fiddle the CPI, Medicare established the Commonwealth Government as a monopoly health insurer dragooning all in the interests of some.
Yes Bill Morrison, I am also ‘elderly’ and over more than 50 y I am not behind financially (4 Children). Your time will come Bill. BUT most important we received appropriate treatment AT THE APPROPRIATE TIME. No denigration of the overworked staff in Pubic system but if you do not arrive in hospital in an ambulance, you must wait and wait unfortunately some times in pain.
I can see why people move out of private insurance apart from the young who do not really use it . One of my daughters had Thyroid Cancer requiring 2 Hemithyroidectomies , pathology , etc and RAI treatment . She had top cover but her out of pocket expenses were $ 11,000.00 Bit rich for top cover and I found the approach of one specialist was wanting
If we extend the concept of turning back the clock to universal not-for-profit mutual insurance why not turn the clock back to the days when government owned and operated hospitals also charged for their services? Yes, it may revive the evil of hospital almoners assessing the capacity to pay for the indigent but it might kill the utterly false notion of “free medical care”. If providers charged even a nominal fee there is a powerful incentive for all in the community to carry affordable “public hospital only” health insurance. It would also eliminate the unseemly plundering of health funds by government owned health facilities. Just as with long forgotten whole-of-life insurance policies insuring against the timing of the inevitable, health insurance should be lifelong. This simply acknowledges the inevitability of significant illness at some point in one’s lifetime. The not-for-profit ethos must apply equally to the buyer and seller of the policy.
An excellent article and for APRA to step in and close not for profit funds would be a gross injustice to the Australian people. The big funds are removing more and more items from peoples cover. An example was removing pregnancy from someone’s membership also removed joint replacements without the client realising it-he thought he was paying top cover at over $5000 per year. At the last minute his hip replacement is now delayed for a year and this impacts on his work as a builder. They also seem to be moving to the American system of managed care and people losing choice of clinician, hospital etc. we need to encourage growth of the not for profit funds.
I agree.
Now I am “elderly” by your definition, but have been in private heath funds all my working life and made very few claims till relatively recent times. The funds are still ahead.
High premiums reflect the profound changes in medical practice that I have witnessed.
It would be interesting to see stats from Medibank Private before and after privatisation.
Some or many readers might not know why “Visits to GPs, specialists, out-patient medical imaging and out-patient pathology are rebated by Medicare, not PHI.” It is by government mandate. From memory it was the Hawke Labor government in 1983 that forbade private health insurers from being able to cover these services.
Private health insurance is not actually private, if we mean by that ‘without government funding’. The private health insurance tax rebate means that what would have been government revenue is partly funding private health insurance. The private health insurance tax rebate is the worst health policy in many years, because it has failed to achieve its stated aims and because it favours the rich over the poor. If people want to have private health insurance, they should pay for it entirely themselves.