AMA President Dr Michael Gannon appeared before the Standing Committee for Community Affairs Senate Inquiry into the Value of Private Health Insurance on 31 October, supplementing the AMA submission lodged with the Committee in July.
Dr Gannon told the Committee that the private system is an essential part of the health system and working with the public system to deliver the care Australians expect and deserve.
But he also began dispelling a few myths about the causes of consumer discontent with private health insurance.
Out-of-pocket medical costs are not the cause of discontent among consumers with their health insurance, he said.
“Most consumers understand that they may need to contribute to the cost of their care,” Dr Gannon said.
“The problem facing consumers is that they believe they are covered, but have inadvertently purchased a product that is, unfortunately, useless. If a policy does nothing more than avoid the tax penalty, it is a junk policy.
Out-of-pockets costs are not growing. The proportion of health expenditure funded by individuals, not Government or insurers, has remained relatively static at 17 per cent over the decade to 2015-16.
Importantly, of that 17 per cent of health expenditure funded by individuals, only 10 per cent is spent on medical services. The majority of individual expenditure is on dental services and pharmaceutical products. Out-of-pocket medical expenses are a small proportion of what patients pay for their healthcare.
“The second myth is that medical expenses are the cause of increased premiums,” Dr Gannon told the Committee.
“Medical expenses are a small proportion of total benefit outlays for private health insurers. Medical expenses, as a proportion of benefits, have remained static at around 16 per cent since 2007.
“In fact, administration expenditure by private health insurers is around 10 per cent. So it is costing insurers almost as much to run their business as it is to pay for the practitioners who treat their customers.”
With regard to individual out-of-pocket costs, the AMA has a clear position that it does not support exorbitant charges or egregious fee setting, i.e. fees that the majority of a practitioner’s peers would consider to be unacceptable.
Further AMA position statements maintain that providing informed financial consent is not only best practice, it is demanded by medical ethics.
The clear majority of practitioners charge a reasonable amount. The vast majority of health care provided in Australia is provided at no direct cost to the patient. 88.1 per cent of services are provided at no-gap and a further 6.9 per cent have a known-gap charge of less than $500.
A major source of gaps is the extended freeze on Medicare Benefits Schedule rebates, which has led to insurers also freezing payments to doctors or indexing well below inflation.
The MBS continues to fall behind. Health inflation has sat between 3.6 per cent and 6.6 per cent per annum over the past seven years. Over the same period of time, PHI premium increases have been between 4.8 per cent and 6.2 per cent. Even when it was not frozen, MBS rebates have increased at best by 2 per cent, meaning that the MBS rebate is far removed from the cost of providing a quality specialist service.
Dr Gannon then turned to the next challenge for this inquiry. It is an issue of social policy – what is the role of the private health insurer?
From the AMA’s perspective, he said, it is a payer for medical services, not a manager of clinical care.
“Private health insurers are moving private health care in Australia towards a system similar to that of the United States – a ‘managed care’ system,” Dr Gannon said.
“Health insurers in Australia are focused on minimising their expenditure and are creating barriers for patients accessing care. These are the same patients that have paid substantial premiums for top cover.
“Who is running the health system? The shift to a for-profit industry has created the need to ensure that there are sufficient profits to allow a return to shareholders. APRA data show an industry surplus (before tax) of $1.56 billion for the 2015-16 financial year, up from $1.45 billion for the previous year.”
This inquiry has come at a crucial time. Insurers are understandably concerned about the viability of the sector.
Insurers need to improve their offerings. Insurance products should be easy to understand, payments should be made on clinical need, and the ‘de facto’ risk rating system created through products with incomprehensible exclusions and ‘carve-outs’ needs to cease.
The AMA supports a system of Bronze, Silver and Gold product standards. All policies should cover maternity services and mental health services.
The policies must be based upon an agreed set of standard understandable clinical definitions, Dr Gannon stressed, saying the categories must be more than labels. “The review into private health and the Government needs to deliver on removing the policy confusion from the 20,000-plus policies,” he said.
CHRIS JOHNSON