Who benefits from health insurance reforms? Check the sharemarket.

This post originally appeared on John Menadue's blog, Pearls and Irritations. You can read it here.

The notable feature of Australia’s heavy investment in health insurance is the lack of hard evidence to support the cost and performance of subsidised private health insurance. For health fund members baffled about the real impact of the Government’s private insurance reform plan, there was one indicator immediately available. 

On the day of the reform announcement, the share price of the biggest publicly listed health fund, Medibank Private,  touched a year-long high of at $3.12.  But as Medibank members may realise, a rising share price may not reflect rising benefits for those paying the premiums. Earlier this year the fund  posted a $450 million profit while its benefit payments to members increased by just 0.6 per cent, in contrast to a 4.6 per cent jump in premiums. 

The Government’s reform announcement has come with many pages of detail.  However most of the provisions promising to deliver consumers a better deal have yet to be finalised and themselves hold out unpredictable consequences.

Much of the ingrained scepticism about health insurance flows from the continually rising premiums, the complexity and the lack of transparency of the thousands of policies on offer.  While the “major reforms to make private insurance simpler and more affordable” as described by Minister Greg Hunt are voluminous, their real world impact won’t hit until after they are implemented in 18 months.

The Government’s overhaul ranges from new 10 per cent discounts for young people, to higher permitted excess levels, prostheses price cuts and concessions for mental health patients.  The creation of new gold, silver, bronze and basic categories of insurance products is to take effect in April 2019.  These, says the Minister, will provide greater certainty about what each category will cover and make it simpler to compare the offerings of rival policies.  Minimum requirements for each of these are to be determined in the coming year in consultation with the industry and the Private Health Ministerial Advisory Committee.

It is a tribute to the Minister’s drive and determination that in only nine months in the job and in the face of deep differences between the funds, consumers, doctors and private hospitals, he has been able to get this far in constructing a package of reforms.  He says it is “essential for the health of our nation that we continue to maintain a strong and competitive private health insurance market and I believe these reforms will do just that”.

The Government is “investing” $6 billion a year in the private rebate “to help keep premiums affordable”.  These are strong claims by the Minister. It would be nice to see some equally strong evidence to support his assertions of a brighter future for health fund members. 

The notable feature of Australia’s heavy investment in health insurance is the lack of hard evidence to support the cost and performance of subsidised private health insurance.  This is a private sector which is showered with unparalleled government assistance, whether through subsidies like the rebate, regulations coaxing over-30s to sign up or pay more later, or tax penalties for uninsured people on middle to high incomes.

The Consumers Health Forum had proposed using the health insurance rebate as a lever to lift the performance of health funds, by requiring that only those funds whose policies meet consumer-friendly criteria of simplicity and transparency should be eligible for the rebate. That suggestion has not been adopted.

Ever since the introduction by the Howard Government at the turn of the century of the rebate and the “rush for cover” incentives, health insurance premiums have marched upwards, well ahead of inflation.  It might well be asked whether the rebate has indeed had an inflationary effect in the private health sector.  We don’t know the answers to such questions and whether the same amount of funding invested in a different way, say direct to public hospitals and private hospitals, would deliver a better bang for the buck.

That is why the Consumers Health Forum has called for more rigour and scrutiny in the funding of health insurance.  We have proposed that the Government institute a Productivity Commission inquiry into the funding of health insurance.  We also support stronger measures to make health insurance more transparent, including by way of public interest tests to enable immediate scrutiny of the value for money private insurance delivers to consumers. 

Two aspects of the PHI package which hold out some hope of improved insight into the cost benefits of health insurance are the proposed establishment of two committees to explore out-of-pocket costs and “low value” care. At a time of steadily rising cost and usage of health services, we can only hope these two inquiries result in a more transparent system offering better value to consumers.


About the author

Leanne Wells

Leanne Wells

Chief Executive of the Consumers Health Forum of Australia