The Value of Private Healthcare

14 November 2019

The private health insurance sector is in a ‘death spiral’ as membership levels are falling, coupled with a growing perception that out-of-pocket costs for consumers are too high. Are existing private health insurance reforms and price transparency enough? Should we have more subsidies for the private sector or more public provision? The issues are leading to fundamental questions about how both public and private healthcare are financed and delivered in Australia.

Dr Stephen Duckett, Health Program Director, Grattan Institute – The fall of private health insurance

Private health insurance has changed dramatically over the past few decades. In 1996, practically everyone who had it had ‘top cover’ – everything was covered and there was no mandated up-front payment (‘excess’). This has now changed. The overwhelming majority of Australians with insurance have either an excess or exclusions or both. The risk profile of private health insurance is also getting worse – young and healthy people are dropping out (or not joining). Something has to change.

Professor Anthony Scott, Melbourne Institute: Applied Economic & Social Research – Are Doctors charging too much?

A key driver of the declining value of private healthcare are high doctor’s fees and out-of-pocket costs. This presentation will examine the evidence on the scale of the problem, review whether price transparency policies work, and suggest other ways to reduce out-of-pocket costs.

Dr Michael Walsh, Cabrini Health – The outlook for private hospitals

For over 50 years in Australian health policy there has been a strong nexus between private medicine, private health insurance, and private hospitals. The perceived value proposition for those choosing private health insurance has been quicker access to the care they need, provided by “top” doctors in well-equipped and comfortable private hospitals. Today, Australians are questioning whether this value proposition is worth the asking price. Over the decades, private hospitals have evolved into accessible and efficient providers of elective procedural work, but they are less well adapted to dealing with complex medical conditions and integrating with the increasingly important out-of-hospital services demanded by today’s consumers. For the future, private hospitals will seek to diminish their reliance on private health insurance revenue by diversifying their revenue sources and containing investment in expensive infrastructure while boosting investment in integrated care networks. They will pursue scale through partnerships, mergers and acquisitions in order to reduce corporate overhead costs, enhance clinical governance, improve ability to invest in digital transformation and strengthen their negotiating position with private health insurers and other purchasers of hospital services.

Mr Ben Harris, Private Healthcare Australia – How are private health insurers responding?

Australia’s private health system is relied on by 13.6 million Australians. More than half of them have disposable incomes of less than $50,000 per year. Without private health insurance millions of Australians would be forced into the public system, which is already under pressure. Financial incentives, including the means-tested PHI rebate, are a proven way to promote participation and keep private cover more affordable for all Australians. Health funds have delivered the Government’s PHI reforms but more needs to be done, including further reform in the medical device sector.

PHA has developed a proposal to improve youth participation in PHI, which will help keep premiums down for everyone:

• Restoring the rebate to 30% of PHI premiums for participants under the age of 40, effectively delivering an additional 5% reduction in PHI premiums for younger members

• Introducing a Fringe Benefits Tax exemption applicable to private health insurance premiums for employees under the age of 40

• Increase awareness of existing PHI initiatives such as the newly introduced age-based discount and the Lifetime Health Cover policy

Dr. Ruth Dunkin, Adjunct Professor and member of the Advisory Board, Australian Health Policy Collaboration, Mitchell Institute, Victoria University – How should the ‘system’ respond? Is muddling through enough?

Australia’s health care system is not meeting the evolving health challenges of today, particularly the rise in chronic diseases, which account for 90% of all deaths and disproportionately affect disadvantaged communities. Over one third of the burden of chronic disease is considered preventable. Consecutive Australian governments have sought advice on how to deal with the pressures on the health system, instigating multiple national reviews over the past 35 years. Successive reviews have consistently identified system stewardship, system financing, service design/ delivery and health workforce issues as the major contributors to Australia’s complex and often inefficient health system. There is considerable agreement across reviews, presenting a clear road map for reform. Comprehensive and coordinated care that is ongoing, rather than episodic and additional or different infrastructure, services and skills are required to effectively prevent and manage chronic disease. Structural reforms, backed by collaborative leadership and action, are essential. The two immediate priorities for change are to establish a national steward to oversee the implementation of a long-term plan for the health system, and, to reform the financing of health care to make it simpler and more focused on outcomes.