Delicate Operation: balancing public and private healthcare

It’s time to stop the death spiral of private health insurance. The AMA released its prescription for private health reform to provide policy solutions for Government to ‘stem the tide’ of insurance decline.

The AMA’s Prescription for Private Health Insurance reveals a trend in declining membership among young people and the impact that decrease has on the wider system.

The report finds that the take up of private health insurance has decreased for 20 quarters (or five years). The biggest drop in membership is among younger Australians.

Between December 2015 and December 2019, the number of hospital-insured young people aged 20-54 years dropped by 4.9%, while the number of hospital-insured people aged 65 years or older rose by 14%.

This has resulted in a greater representation of older Australians in the insurance pool, who make greater claims, which in turn pushes up premiums.

As premiums rise and affordability decreases, more Australians are priced out – including younger Australians and families.

Our healthcare system depends on its balance between public and private health.

Australia has buttressed diminishing capacity in the public hospital system by providing patients with treatment options in private hospitals. The private health system delivers nearly 60% of the elective surgery. Underpinning this balance is government subsidised private health insurance.

The decline in private health insurance threatens to destabilise this balance at a time when public hospitals are already being pushed to the brink of their ability to cope.

COVID-19 and its effect on wages and the economy threatens to exacerbate affordability issues. In April, 2.7 million people either lost their jobs or lost hours of work. The Australian Bureau of Statistics reported the official unemployment rate for May had increased to 7.1%, while the underemployment rate for May was 13.1%. Reduced employment and wages will likely force many Australians to limit outgoing costs, including private health insurance.

The AMA’s analysis suggests existing policy settings are no longer fit for purpose, partly due to premium cost changes, lower wages (compared to older generations), and Medicare and health fund rebates that lag behind the cost of service provision.

Despite the current predicament, the AMA suggests there are several levers Government could pull to reverse the backslide of private health insurance.

As it states in the AMA Prescription for Private Health Insurance, “To stem the exodus of policy holders, we need to increase the value and decrease the pressure on premiums, at the same time.”

The AMA recommends changes to the premium rebate, lifetime health cover loadings, Medicare surcharge levy, and discounts to young Australians and those on lower incomes, while also incentivising people to maintain their membership in the longer term.

In addition, the AMA recommends redesigning policies to ensure a minimum level of benefits are provided to improve transparency and provide value.

AMA’s Call for Action

Restore the private health insurance rebate for targeted groups to make private health hospital insurance affordable for younger Australians and those in the workplace on lower incomes.

Medicare Surcharge Levy

The Government should reconsider the MLS levels and thresholds, in order to determine what settings are required to deliver on the policy intent, in a coordinated way with all future reforms.

Minimum Payout

A minimum amount returned to the health consumer for every premium dollar paid. There needs to be a standardised return that is higher than the current private health insurance industry average right now.

Lifetime Health Cover Loading

Review of the Lifetime Health Cover loading and penalties – especially the starting age to make it an easy choice for Australians to stay in private health insurance for life. Review the way in which penalties ramp up for late entrants who join later in life and pay premiums just before they are most likely to claim.

Youth Discounts

Government youth discounts need to be enhanced and promoted. They also need to be aligned with our recommended change to Lifetime Health Cover loadings and premium rebate increases for targeted sections of the community.

Transparency and Out Of Pocket Costs

There needs to be a higher standard of transparency applied to health insurer policy documentation to clarify insurer policy benefit entitlements. Under policy fine print, benefit entitlements change according to the patient’s choice of doctor(s), choice of treating hospital, timing of treatment and insurer hospital/doctor contracting strategies. Private health insurance benefit variability generated by these factors is not addressed by Gold, Silver, Bronze and Basic.

The AMA considers transparency essential to restoring consumer confidence in private health insurance.

Regulation Of Private Health Insurers

The AMA calls for the establishment of an independent, well resourced, statutory body to regulate the legal conduct of the private health insurance industry. Although we have a well-resourced Ombudsman, a greater level of oversight will help instil confidence in the system, especially during periods of policy change.

*Source: The AMA Prescription for Private Health Insurance