OPINION | Australia's health insurance is sick


Crispin Hull

Guest Columnist

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The health-insurance system (public and private) is slowly parting at the seams and the Government’s “reforms” due in April are more likely to make patients angrier rather than mollify them.

High specialists’ gap fees; the GP squeeze; health insurers’ profiteering and inefficiency; and the flight of people from private health insurance are the key problems, and they are all related.

Government policy, of course, must bear a lot of the blame. Interestingly, one policy – Lifetime Health Cover – which was designed to bolster private insurance, now appears to be having the opposite effect.

The policy was introduced by the Howard Government in 2000.

In theory, it rewarded people under 30 who took out private insurance by requiring insurers not to charge them a 2 percent a year age penalty while they continued renewing their insurance.

In theory, lots of 30-somethings would flock to private insurance and people already in would stay in to avoid the penalty.

But in practice, it is not working.

The latest Australian Competition and Consumer Commission report suggests that 1 per cent of the population per year are dropping out of private insurance. Presumably, most are over 30.

They are never coming back because the Lifetime Health Cover means that if they try to return they will pay 2 per cent extra on their premium for every year that they are older than 30.

A 60-year-old would be faced with a 60 per cent penalty.

So if they left private insurance because of cost, they will never be able to rejoin unless their financial circumstances improved dramatically.

Lifetime Health Cover is like a valve. People can leave private cover, but they cannot get back – the exact opposite of the Government’s intention.

And the ACCC report suggests than more people have been leaving private cover in the past few years after years of the Howard Government’s blackmailing and bribing had arrested the fall in private cover from about 53 per cent to 37 per cent between the introduction of Medicare in 1983 and the time Howard assumed office in 1996.

It bribed people with the tax rebate for premiums and blackmailed people earning more than $100,000 a year with a Medicare surcharge if they did not have private cover.

Private insurance rates went up to about 46 per cent of the population and remained there until the past few years.

This artificial boosting of the private system has been wasteful and inefficient.
Australians paid $24 billion in premiums in 2017-18. Fifteen per cent of that went in profits and administration.

Medicare, at $23.2 billion, pays out a similar amount as private insurers, at $20.3 billion, yet its administration costs are only about 3 percent.

Medicare is just more efficient, and it is not a case of economies of scale.
The trouble is, it is not properly funded. The levy raises less than half the benefits paid out.

As a consequence, Medicare rebates are not realistic. Specialists make up the shortfall by charging their privately insured patients a gap fee – a fee in addition to the Medicare and private-insurance rebates.

Specialists can do that because there little competition in most specialties and patients are desperate.

Quite a few specialists are gouging the system, hitting vulnerable patients with large gaps.

In the past six months a couple of good websites have helped competition by inviting specialists to state their gap fee and other information, such as complication rates, to help patients.

However, specialists will always have the upper hand.

GPs on the other hand are not in the same position. There are more of them. The greater competition means many can only bulk-bill and charge no extra fee beyond what they are getting from Medicare.

The GP squeeze is lowering the quality of medicine, especially preventative medicine. There is simply not enough time to see enough patients to make a decent living.

GPs’ costs are forever rising above CPI while the Medicare rebate has either been frozen in some years or increased by just the CPI in the others.

The specialists’ gap fees and increasing premiums are the main reason for the drop in private insurance. In the long run that may not be a bad thing, provided the Government does a commensurate increase in public funding. Otherwise it is money lost to the health system.

In each of the past seven years, private premiums have increased between 4 and 6 per cent (usually 6), whereas CPI has gone up between just 1.6 and 2.9 per cent and wages between 1.8 and 3.8 per cent.

Further, insurers are also putting more limits on cover, especially dental cover.

Indeed, the cost of dental cover is so high, with benefits so limited, that any sensible person would self-insure.

Small wonder people are either downgrading or abandoning their cover, especially as on the medial and hospital side they can fall back on Medicare.

The Government has devised a new star-rating system – Gold, Silver, Bronze and Basic – in an attempt to introduce more competition by giving patients more information.

However, the star system, which will come into force in April, just before the election, is riddled with complexity rather than simplicity.

The insurers will be allowed to add a “Plus” category to all but Gold. They will also be allowed to exclude up to 38 treatments, and the definition of those treatments are not clear.

It is bizarre that any genuine medical treatment can be excluded at all.
Every insured person will have to move to one of these categories.

It will either be a confusing nightmare or a bitter disappointment for patients to find that after paying premiums for years that they will not be covered for the treatment they need and will have to join the Medicare queue.

They will obviously ask why they bothered with private insurance in the first place.

The seeds of this systemic stress were sown by the Howard Government.

The answer is to move government money away from the inefficient private system and put it into Medicare; to raise the Medicare levy so it covers the costs; and the raise Medicare benefits so they more realistically relate to the costs of providing medical services.

A smart political party would offer root and branch reform of health insurance at the up-coming election.

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