Deregulation not the magic bullet for private health insurance reform



The private health insurance system needs reform.

Australians continually raise concerns about increasing premiums and out-of-pocket costs impacting the family budget, while the health insurers block innovations from the hospital sector that would deliver the services needed by our ageing population.

The system is in need of repair. But the debate is not helped by the number of well-meaning spectators who jump into the discussion with little evidence or real understanding of the system to which they offer a solution.

This is why the Australian Private Hospitals Association (APHA) has welcomed the Turnbull Government’s Private Health Insurance Consultation and the Private Sector Reform Committee announced in the Federal Budget.

Making drastic changes to the system without considering historical impacts and practical implications will bring us no closer to a health system that provides high quality care to patients at the place and time of need.

In an opinion piece that appeared recently in the Australian’s Business Review, risk management adviser Doron Samuell claimed the best way to solve the problem is to deregulate private health insurance.

While his piece lacks detail about what deregulation he is in favour of, Mr Samuell’s solution could very well send Australia down the path of the Americanised “two tier” health system Australians are most concerned about.

In the 1930s and 1940s, Blue Cross and Blue Shield were successful providers of community rated health insurance in the United States. Their success attracted general insurers who decided this was a market worth exploiting, but it was only worth their while (i.e. profitable) if they could risk rate premiums.

This eventually led to the situation where old and sick people were priced out of the market. Eventually, even the original not-for-profit insurers had to move to risk rating in order to compete.

The end result? Re-regulation. President Obama’s controversial Obamacare package which, among other things, re-regulated the health insurance sector to cover those unable to get insurance through the deregulated system.

With more than half of all Australians signed up to private health insurance, why would we choose to go backwards?

The Consumer Health Forum (CHF) recently released a document with ideas to “fix” the health system. They also call for clarity of private health insurance policies.

One of these suggestions is to “reconfigure” the private health insurance rebate so it “alleviates pressure on the public system”.

While APHA agrees the rebate should be simplified, particularly removing support for policies, the CHF premise is misleading. Private hospitals take pressure off public hospitals on a daily basis.

Data shows that since the rebate was introduced private hospitals have treated an additional 12.4 million patients. That is 36.8 million patients, up from 24.3 million if the trend in episodes had stayed at pre-rebate levels.

On average, each one of those episodes would have cost the Government about $5, 000 – often much more – if treated in the public system. That adds up quickly when health system costs and Budget bottom lines are being hotly debated in an election campaign.

In fact, just this week, there are reports of Queensland residents from Redlands being sent to a private hospital half an hour away in Springfield for endoscopy to avoid a wait of up to a year for treatment in their local public hospital.

This has nothing to do with the rebate or health insurance. It is private hospital capacity and efficiency taking pressure off the public system.

However, it is hard to blame the commentators when the private health insurance system and policies are so hard to negotiate in the first place. Consumers are left battling a lack of transparency, confusing terminology and struggling to find the information they need to make good decisions about where to invest their health insurance money.

Too many Australians pay for health insurance without really understanding what they are and are not covered for. Too often consumers find that they are not covered for the care they require. Arguably, deregulation will make this situation worse, not better.

On top of this, governments continue to spend taxpayers’ money incentivising the purchase of health insurance policies that can only be used in the public system. It makes no sense to incentivise policies that provide such minimal levels of cover, that consumers feel seduced having invested in an essentially unusable product.

It is even more confusing for consumers when they find their health insurer has no contract with the hospital to which they have been referred or that the particular service they require is excluded. It is heartbreaking to explain these facts to a family facing a health crisis.

While states complain that public hospitals are overburdened, they have been only too quick to encourage and even demand that those same public hospitals seek out private patients. In excess of $1 billion is garnered each year from private health insurance while patients, without private health insurance, who have no other option, languish on public hospital waiting lists.

This focus on revenue generation takes up the equivalent of more than 7,000 beds – beds meant for public patients and already paid for with taxpayers’ money.

Genuine reform of the private health insurance industry must consider affordability for Australians, maintaining value for Australians in investing in private health insurance and retaining private hospitals’ role in relieving the pressure on the public system.

What is clear is that pushing one policy lever – like a simplistic call for deregulation – will have considerable impact, with little good return. The system changes need to be considered in the context of the whole system and private health insurance reform cannot be successful in isolation.

This is not an easy fix and while many ideas are welcomed, only those policies that consider the broader health system will have any positive impact.



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