The Commission of Audit certainly has Croakey readers and contributors on high alert for next week’s budget. There was much to digest in the recommendations, and a variety of voices are being raised to urge the government to proceed with caution.
In a previous post, anonymous health policy analyst “William Foggin”, questioned why governments aren’t tougher on private health insurers. The Commission of Audit recommendations raise many more questions, particularly around the role of health insurers.
Today an article by Dan Harrison in the SMH quotes NIB chief executive Mark Fitzgibbon as suggesting that discounts could be provided to those who “pursue better health behaviour, like not smoking and losing weight”.
“William Foggin” wants to know if Australians are ready for “private health insurers in their bedroom and their kitchen?”
‘William Foggin’ writes:
Much of the commentary on the health recommendations of the Commission of Audit has focussed on those dealing with co-payments and mandatory private insurance for the better off.
Today I’d like to focus on several other recommendations dealing with private health insurance, as exemplars of the superficial and ill-informed thinking that led to the Commission’s conclusions.
It recommended that the government should no longer approve premiums, but should simply monitor them, and that as a result the Private Health Insurance Administration Council should be merged into a super-sized health productivity and performance commission with six other bodies.
Now I don’t think that it was right to recommend that the government should no longer approve premium increases. As long as the government is paying between a quarter and a third of aggregate premiums I think it should have a role in preventing possible price gouging. And in an environment where some people have to buy insurance, I think this role will be even more important.
But my real problem is with the recommendation that consequent on the move to price monitoring PHIAC should be merged into a health productivity and performance commission.
PHIAC has no legislated role in relation to premiums. Its function is to ensure the financial stability of the industry: it is essentially the APRA of health insurers. It sets and monitors solvency and liquidity standards, as well as standards for corporate governance. It is a fiduciary regulator.
I can only imagine that the Commission had no insight into PHIAC’s real role when it recommended it be merged into a body dealing with health care performance. By all means recommend a merger with APRA, especially as more and more health insurers are diversifying into general insurance. But a merger with the safety and quality commission or the mental health commission? Really!
The other recommendation that demonstrates a lack of insight and analysis is the one to “relax… community-rating to allow health funds to vary premiums to account for a limited number of lifestyle factors, including smoking”. Various insurers have been arguing for this for some time, and on the face of it is has a certain plausibility.
However, there are a number of issues with it.
The first is that tobacco is unambiguously bad for your health and reasonably clear cut – you either smoke or you don’t. And there is at least one disease that predominantly affects only smokers. The problem is what comes after smoking? Poor diet? Risky sexual behaviour? Excessive alcohol consumption? Reckless driving?
And how will compliance be assessed? Diet diaries? Condom counts? Is the Australian population ready to have their health insurer in their kitchen and their bedrooms?
The second is that charging smokers more probably may not make sense actuarially in terms of lifetime health care costs. Those of us of a certain age will remember the “Yes Prime Minister” episode in which smokers are portrayed as public benefactors who contribute voluntary revenue and die young. Science has now caught up with art – a Dutch study has concluded that:
as people lived longer and suffered other diseases.
I suspect that the Commission didn’t even begin to think about these issues.
The real issue is that their superficial approach to these comparatively minor recommendations was also applied to their major recommendations.
For example, why $15 for a co-payment for a Medicare service? Was there any modelling of the impact this might have on demand or any sensitivity testing of different amounts? Was there any literature review, or focus group testing? If there was it has been kept quiet. When asked about the $15 on Lateline Tony Shepherd said:
As the non-executive chair of Transfield Mr Shepherd received $372,320 in 2011-12 – or well over ten times the basic wage. His view of what is “reasonable” may not be the same as people on the basic wage.
“William Foggin” is the pen-name of a health policy analyst who wishes to remain anonymous.