Presssure mounts for Budget reform of private health insurance

With just over a week to go before the 2017/18 Federal Budget, private health insurance (PHI) is emerging as one of the key pressure points for both the Government and the Opposition.

Despite the failure of successive governments to evaluate the PHI rebate scheme against its stated objectives, it is patently clear that it has failed to contain health care costs or reduce pressure on the public system.

A mounting case for change

The most recent edition of the Consumer Health Forum’s Health Voices publication also makes clear that PHI is failing to meet the needs of many consumers, including groups with the highest level of health care need such as people with chronic illnesses, people with mental illnesses and those living in rural and remote areas (see summary below).

The current situation was neatly summarised by Elizabeth Savage, Professor of Health Economics, University of Technology Sydney, in her recent article in The Conversation.

The level of private health coverage remains high; premiums continue to grow driven by higher fees, more services and technology costs; and the budget cost of the subsidy increases with premiums. Insurers claim they cannot control health costs, and the state of the public hospital system is much as before.

The way forward

The policy solutions to this problem may be clear – as Ian McAuley points out in his contribution to Health Voices (see below) there is overwhelming evidence from health systems worldwide that a single national insurer gives countries the greatest opportunity to contain health care costs while maximising equity of access to both public and private health services.

However, achieving this outcome at a political level will be challenging, due to the vested interests and lobbying efforts of the PHI industry and those whom it benefits.

One of the important parts of any reform process is identifying workable alternatives to the current situation.  This can be a challenge in relation to PHI, as after almost 20 years of the PHI rebate, it can be difficult to envisage a health system that does not rely on this ongoing industry subsidy.

Reminding ourselves that our tax-payer funded subsidy to the PHI is a choice – and that as a community we can choose to invest this funding elsewhere in the health system – is a crucial step in finding our way out of our current policy dilemma.

AHCRA campaign

This is why the Australian Healthcare Reform Alliance (AHCRA) has decided to run a campaign on alternatives to the PHI rebate in the lead-up to next week’s Federal Budget.

Every day of the week prior to the Budget we will present a different option for re-directing funding from the PHI rebate to an area of the health system where we believe it would provide better value.

AHCRA hopes that this will be a valuable contribution to the current debate on the value of the PHI rebate and PHI more generally.  We urge both the Government and the Opposition to carefully consider the many voices advocating for reform in order to improve the efficiency, equity and value of our health system.

CHF’s Health Voices publication – key comments

The following is a summary of the key comments from contributors to the most recent edition of CHF’s Health Voices which focusses on PHI:

Leanne Wells, Chief Executive Officer of the Consumers Health Forum of Australia.

Private health insurance represents an increasingly disturbing paradox in Australia……..The multi-billion dollar subsidies for health insurance which were supposed to ease pressure on public hospitals have failed to stem longer waiting times for elective surgery in public hospitals or to meet the public need for services for many chronic conditions including mental illness. The notion that private health insurance would drive efficiency and add other value to our system turns out to be a hollow promise for many consumers.

Rebecca Randall, policy officer at the Consumers Health Forum (reporting on CHF’s extensive consumer consultations on PHI)

Consumers are highly sceptical of the value of private health insurance. They are aware of insurers’ large profit margins and cite this as a reason that they feel that they are paying unnecessarily high premiums. Despite the tax incentives to have private health insurance, a number of participants expressed that they would prefer to pay higher taxes and contribute to the public health system in this way rather than paying for a product they feel was not of value to them or others.

John Menadue, AO, former senior bureaucrat and business leader

PHI is like a Trojan horse to lead us away from world’s best practice in health care, a single public payer with services provided by both private and public providers.  It threatens our universal health system through seriously weakening the ability of Medicare as a single funder to control costs. We have seen the enormous damage that PHI has wrought in the US. We are steadily going down the same dangerous path. On present trends, we will have a divided healthcare system. One system will be for the wealthy with a safety net system for the indigent.

Ian McAuley, adjunct lecturer in public sector finance at the University of Canberra and a fellow of the Centre for Policy Development

Is there anything PHI can do that isn’t done more efficiently and more equitably by a single national insurer, such as Medicare in Australia and similar schemes in Canada, the UK and the Nordic countries?  The evidence from comparing health financing schemes among prosperous “developed” countries is that the more countries rely on PHI to fund health care the more is the total cost of health care, without any improvement in health outcomes.

Part of the problem lies in PHI’s high bureaucratic cost. In Australia only 85 cents in the dollar passing through PHI makes its way to fund health care, compared with 95 cents when health care is funded through taxation and Medicare….there is no way a multitude of insurers, all with their own corporate structures and retail presences, and with their spending on promotion to tout for customers, can match the administrative efficiency of a single payer.

Dr Christine Walker, CEO of the Chronic Illness Alliance Australia

The benefits of PHI are limited for people with chronic illnesses, who often have low incomes and face out-of-pocket costs. At the time of writing, premiums have just risen by nearly 5 per cent leading many people to forecast they will drop PHI entirely. This suggests that the investment by Government into the rebate will become largely wasted. It also suggests that those people still well and on reasonable incomes will have to forego any preventive health programs.

Ainslie Cahill, CEO of Arthritis Australia

….for people living with chronic conditions like arthritis, private health insurance does little to help with the high and ongoing costs of managing their condition such as medications or the cost of specialist appointments outside of hospital.  Caps and limits on the benefits paid for allied health services also limit the utility of ancillary cover for accessing multidisciplinary care in the private sector. This issue is keenly felt by people with arthritis, where most care is provided in the private sector

Matt Levey, Director of Content, Campaigns and Communications at CHOICE, Australia’s largest consumer organisation.

Private health insurance has become a perfect storm for Australian consumers. Premiums have increased an average of 54.6 per cent since 2009, well ahead of CPI. According to CHOICE’s national Consumer Pulse survey, it is the hardest market for people to find the product that best suits them. This toxic combination of surging prices and complexity is leading many Australians to downgrade or drop their cover completely.

David Butt, CEO, National Rural Health Alliance

In terms of value, many people in rural and remote Australia do not see the value in private health insurance. The value of private health insurance comes from being able to access a ‘private service’ with choice of doctor. In rural and remote areas, private hospitals are generally not available unless people are prepared to travel often significant distances, which is disruptive both socially and economically. In addition, there is often little choice of doctor – in rural areas there may be only one or a limited number of doctors and as such the idea of choice is meaningless. Further, there is dubious value in extras cover – there may be few if any providers in the local area thus making the product not usable in many rural and remote communities.

Professor Malcolm Hopwood, President of the Royal Australian and New Zealand College of Psychiatrists

Despite the fact that mental illness represents one of the largest burdens of disease in Australia, 13 per cent of the non-fatal burden of disease and 24 per cent when you include substance use disorders, fewer than half of all private health policies from the major insurers cover the cost of admission into a private psychiatric facility.  Is it morally justifiable for insurance companies not to cover such a large percentage of the burden of disease?

Increasingly restrictive policies for psychiatric care mean that more and more people are finding that they are not covered for a range of psychiatric services. Many policies, in some cases even top level private health policies, do not offer cover for ongoing psychiatric services such as out of hospital care, outreach programs, day programs, checkups, consultations and electro-convulsive therapy.

Lin Oke, Executive Officer at Allied Health Professions Australia (AHPA)

The goal of government funding must be to use public health dollars to ensure access to health services. Yet private insurance is disproportionately held by middle and high income earners….The growth in chronic disease means consumers increasingly need allied health services, yet funding for these is inflexible and limited and has the lowest uptake by disadvantaged Australians. Government funding of private health is also growing rapidly, outpacing spending growth in other areas…..Given finite public health funds, Australians must ask whether health insurance spending by the government is appropriate in place of increased funding of more equitable universal access programs such as the Medicare Benefits Schedule.

Disclosure: Jennifer Doggett is the Chair of the Australian Healthcare Reform Alliance (AHCRA)