The Devil is in the Detail

It is not surprising that health insurance premiums are likely to increase again by 6 per cent this year. What is surprising, however, is that the federal government continues to support a system in which premiums have increased at more than double the rate of inflation — that is, by 40.9 per cent — since 2001.

Private health insurance is a taxpayer funded system which is unsustainable in the long run. Young people are abandoning health funds and older Australians, who have higher health costs, are joining in large numbers, primarily due to government initiatives to increase membership.

Concerns with the status quo

Private health insurance membership reached a peak in 2000 following the introduction of Lifetime Health Cover, the Medicare surcharge and the 30 per cent premium rebate. At this time, 45 per cent of the Australian population was insured. In 2005 membership rates had dropped to 43 per cent.

While the net figures show that only 32,000 people opted out of private health insurance, the devil is in the detail: 477,000 people aged between 0-54 years left funds while 445,000 Australians over 55 years joined. These figures suggest that younger people are leaving in droves either because they simply cannot afford insurance or because it is not cost effective for them to join.

Private health insurance costs represent roughly 3 to 4 per cent of the average annual family income. Further increases will see more families reconsidering, particularly younger families with smaller incomes, whether they can afford insurance. Minister Abbott proudly stated earlier this year that of the 9 million people with private health insurance, 1 million earned less than $20,000 per year. This illustrates the inequality within the system.

Tony Abbott’s suggestion that ‘if you don’t like the system, you don’t have to have it’, oversimplifies the issue. If private health insurance premiums continue to increase only the wealthy will be able to afford it. We risk developing a two-tiered, US-style health system where those who can afford it will have private health insurance and those who cannot will be forced to use a severely resource starved public health system.

Private health insurance policies are complex. There are over 40 funds available with varying levels of coverage. Consumers often do not fully understand what their package includes.

Some funds, such as Medibank Private, are taking novel measures to attract and retain younger members. The newest initiative, the ‘feelbetter rewards’ program ‘gives you the opportunity to purchase a range of specialty products at exclusive member prices’. Listed products range from hair straighteners to barbeques and camping equipment. While Medibank claims that these offers are made available through partnerships with companies and not revenues from premiums, it has angered many policy holders.

In further moves to entice younger members, health funds have been lobbying the federal government to be allowed to offer loyalty points and no-claim bonuses. Such schemes would be attractive to young, healthy Australians, but not so for older people with chronic illnesses. Providing such schemes challenges the notion of community rating, which ensures that those with chronic illnesses are not disadvantaged in the private health insurance market. It is expected that Abbott will make an announcement about this issue later in the year. The announcement will undoubtedly spark further debate.

Policy solutions

In light of these concerns, certain policy initiatives should be undertaken. The obvious first step would be to remove the 30 per cent rebate which costs the Government close to $3 billion per year. It is an inequitable allocation of resources; for those with equivalent health needs, younger Australians and those less well off are far more likely to be uninsured and thus gain no benefit from this massive government expenditure.

The rebate was initially introduced to shorten waiting lists and improve health care delivery, but there is no evidence that the rebate has achieved its aims. Public hospital waiting lists have blown out to all time highs in some states and emergency departments are groaning under the strain. Private health insurance as it stands is a massively taxpayer subsidised industry and taxpayers deserve a better return on their investment.

Regardless of whether the Government decides to remove the rebate, efforts must be made to simplify the market for consumers. The State of the Health Funds report released by the Private Health Insurance Ombudsman (PHIO) should be produced in a ‘consumer friendly format’ so that consumers can easily make comparisons between funds for the products that they are interested in purchasing.

The PHIO should be allocated resources to consult with consumer groups to increase awareness about the office and its function. Consumers need to be made aware that they can seek redress for their complaints.

Stronger controls should also be placed on premium increases because the current system prices some groups out of the market, particularly younger Australians and those from lower socio-economic groups. This figure could be estimated using economic modelling.

These policy prescriptions would divert more resources into the public system, thus providing more services for those most in need. Also, by introducing measures to simplify the private health insurance system, make it more ‘consumer friendly’ and cost effective, it would have the added advantage of encouraging — rather than discouraging — younger people to join.

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