Do exclusionary private health insurance products need a re-think?
A recent paper published in the Australian Health Review raises some important policy issues for the future of private health insurance in Australia but has been largely overlooked by the media and in public debate.
The paper is titled Reflections on the role of less-than-comprehensive (exclusionary) private health insurance hospital products in the Australian healthcare system by Dr Peter Thomas, Visiting Fellow at the National Centre for Epidemiology and Population Health, ANU. In the paper Dr Thomas argues that new private health insurance (PHI) products are significantly changing the nature of health insurance in Australia and challenging fundamental tenets of Government PHI policies, such as community rating.
He discusses the rise in popularity of policies which exclude or restrict specific conditions (or types of care) has grown from 5 to 24%. These range from policies which exclude one type of care to those which cover only care required by law, i.e. psychiatric and palliative care and rehabilitation services.
Dr Thomas argues that the rapid growth in these policies has been largely driven by government policy and legislative changes and that their overall impact is to undermine the aims and intentions of many of these policies and regulations. The three specific issues he raises are:
Community rating aims to make PHI fair by requiring insurers to charge all consumers the same amount, regardless of their risk status. However, insurers have responded to community rating requirements by introducing lower cost policies that exclude or restrict specified treatment. In practice, this means that instead of insurers refusing to cover high risk individuals, those who assess themselves as low risk can choose to reduce their cover in return for a lower premium. This undermines community rating as coverage open to all is damaged by the price differential that has been artificially created through self-assessed health risk. If community rating is to remain a central feature of private health insurance in Australia, then the long-term implications of less than- comprehensive products on community rating sustainability needs to be explored.
Ministerial approval for premium increases
Under the Private Health Insurance Act (2007), the Minister for Health and Ageing has the power to disallow any premium rise that they feel is not in the public interest. The aim of this is to minimise premium rises however, an unintended consequence of this is that insurers can use exclusions and restrictions to instigate a back-door premium rise. This means a member may have to pay beyond the stated premium increase to maintain the same level of cover or having their level of cover reduced. Over time, this can erode the value of PHI to consumers and reduce the level of coverage among the population as a whole.
Medicare Levy Surcharge
The Medicare Levy Surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public system. However, holding a less-than comprehensive private health insurance policy still exempts Australian taxpayers from paying the Medicare Levy Surcharge. This allows people to avoid the surcharge by paying premiums on a policy they are very unlikely to use as it provides a very low level of cover with high out-of-pocket costs, if used. A serious policy question arises over whether the government is getting good value for money in subsidising policies that have little or no prospect of being used in the private system and so cannot relieve pressure on public hospitals.
This paper makes a cogent and well-supported case for broadening the debate on PHI policies, including improving data collection about exclusionary products, which now make up over one-fifth of the PHI industry and given current trends are likely to continue to grow. Dr Thomas argues that sound policy responses to these issues require access to high quality data and proposes that the Private Health Insurance Administration Council start collecting and publishing data on the number and type of exclusions and restrictions, and the demographic uptake of such policies in order to assist researchers in understanding the actual private hospital coverage for different treatments and what this means for the healthcare system, as well as assisting policy makers in assessing the role and function of government support for private health insurance in Australia. Overall, the paper poses a challenge to both the Government and the Coalition as they consider their approaches to PHI regulation and subsidies in the process of developing their policy platforms for the upcoming election.