Premiums: all stakeholders must pull in same direction

5 minute read

Few areas of the sector get the kind of scrutiny applied to the health insurance industry, says the PHA’s CEO.

The annual premium increase for private health insurance is dissected every year – first by health funds as they forecast their claims expenditure for the year ahead, by regulators and government as they review submissions and ultimately sign off, and finally by the media and public commentators.

Year after year it’s an issue of public debate. Rarely do we see the same level of scrutiny applied to any other area of the health sector, nor to other financial service types.  

It’s true that access to healthcare, along with cost of living, are the big issues of concern for Australians at the moment. Public waiting lists are growing, and the medical workforce is under pressure. It’s getting tougher to find a bulk-billing GP and out-of-pocket costs are rising. PHA data shows the median out-of-pocket cost for Australians having common procedures funded by private health insurance has surged by up to 300% over the past five years.

With our public health system under intense pressure and more people than ever turning to private health insurance, it’s not surprising the level of interest is high. But too often, analysis of the premium increase is rudimentary and misleading.  

Contrary to claims, Private Healthcare Australia, which represents 98%, is not shifting responsibility for premium increases to the government. Far from it – our member funds worked collaboratively with government and regulators to keep the premium increase as low as possible, as they do every year as part of a process which is defined by regulation.

Premiums increase because the cost of healthcare is increasing, and in the current high inflationary environment, it is extremely difficult for health funds to keep pace with the rising costs of hospital care. All sectors are being hit with inflation – hospital benefits paid by health funds in the year to March 2024 increased by 9.7%.

Despite spiralling costs, when announcing the average increase of 3.03% in March, Health Minister Mark Butler said that health insurance premiums were “rising at a much slower rate than the increase in wages, the age pension and inflation”. This rise is in fact a fraction of the premium increases for other insurance types, and the funding increase for public hospitals.   

Each year some consumer groups leap at the opportunity to cherry-pick policies that increase above the average determined by the government. The average private health insurance premium increase is exactly that – an average. Health funds can’t increase their prices unless the regulators, APRA, or the Department of Health and Aged Care, and the Minister for Health have agreed — it’s an incredibly rigorous process.

The reason Gold (top) hospital cover has increased in price relative to other products is that it covers more expensive health interventions. Gold policies cover a high-risk, high-claiming population and it’s increasingly difficult to offer affordable Gold cover due to the high and growing costs the category must cover – psychiatric services, weight-loss surgery, pregnancy and birth.

Many Australians are now being priced out of Gold cover and moving to lower tiers, but those who do take it out know they are going to claim and are therefore a higher risk population.

This is one of the of the unintended consequences of the previous government’s rigid Gold, Silver, Bronze and Basic tiering system. The tiering of private health insurance products needs to be reviewed as we need more flexibility to be introduced into the system.

While many of the factors impacting the cost of healthcare, and therefore the premium increase, are outside the control of health funds, there is more we can do to put downward pressure on premiums. But this will require commitment from all healthcare stakeholders to work in good faith with government and regulators.

It is simply not possible for health funds to passively pay for everything every provider asks for, and keep premiums affordable at the same time.

We need to work in collaboration to reduce low-value care and waste in the health system, starting with the inflated pricing of generic medical implants and surgical supplies, which are still 30% to 100% higher than in comparable countries. We should tackle low-value care and remove harmful medical devices and services from the market as soon as clinical evidence reveals there is a problem. This will save money and improve health outcomes – it’s a no-brainer.

We should embrace new models of care and allow health funds to pay for more healthcare in the community.  Australia is lagging behind the rest of the world in the delivery of out-of-hospital healthcare and the evidence increasingly shows it’s often more cost-effective and provides better health outcomes for patients. It’s also what they want – convenient care in the community.

Private health insurance is a crucial plank our mixed health system – it gives 15 million Australians access to timely, high-quality healthcare. It keeps pressure off our overstretched public system, so those who can’t afford private cover can access healthcare when they need it.  

As a sector we will continue to do everything possible to eliminate waste and inefficiencies in the system to keep premiums as low as possible. We need all stakeholders to pull in the same direction.

Dr Rachel David is CEO of Private Healthcare Australia.

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