Exodus from private health insurance slows but more reform needed

The long-running decline in private hospital cover may have stabilised but there is a prescription for further reform.

Nov 17, 2020, updated Nov 17, 2020
Federal Health Minister Greg Hunt. (Photo: AAP Image/Michael Dodge)

Federal Health Minister Greg Hunt. (Photo: AAP Image/Michael Dodge)

In the September quarter, the proportion of Australians with hospital cover bounced back from 43.5 per cent to 43.8 per cent, where it was in the March quarter. That is according to the latest data, published today by the Australian Prudential Regulation Authority.

Queensland has one of the lowest rates of hospital cover in Australia, with 40.5 per cent, which has been attributed to the state having historically had a strong public hospital system. The Palaszczuk government has warned, however, that the public system is under pressure from an influx of patients as people ditch unaffordable policies.

In an effort to maintain a balance between the public and private systems, and ensure those who can afford to contribute to the cost of care maintain health insurance, the Federal Government is once again looking at reforms.

The latest items on the reform agenda include the complex and sometimes controversial policy settings around risk equalisation, where the government helps the industry balance members’ health and financial burdens. It is a fundamental element of community rating, where Australians are meant to be protected from health-related policy discrimination.

The Department of Health today released tender documents showing risk equalisation will be the subject of one of two private health insurance studies, funded through a $2.4 million allocation in the recent federal budget.

Federal Health Minister Greg Hunt has declared the challenge for government and industry is “to continue to reduce the pressure on health insurance costs, but also to increase the value proposition”.

The government wants advice on whether, or how, the settings could be adjusted to reward good health practices, rather than simply help compensate for members’ poor health.

“It has been suggested that prospective risk equalisation would incentivise insurers to focus more on prevention, avoidable hospital admissions and alternative care settings and also increase the cost-effectiveness of the services they fund,” the documents state.

“This reduction in claims costs would have the added benefit of reducing premiums and increasing the value of PHI products”.

Even APRA, the regulator, has called for a review of risk equalisation settings, amid concerns the industry is unsustainable. NIB managing director Mark Fitzgibbon has long complained of insurers with a higher proportion of younger members, such as NIB, having to cross-subsidise funds with older members.

The other study will look at Lifetime Health Cover premium surcharges that penalise people who delay taking out insurance until later in life. The government wants advice on whether LHC remains “fit for purpose,” after introducing premium discounts for young people and allowing children to remain on family policies for longer.

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