Let’s Talk About Health Insurance Reform Instead Of Health Reform

Medicare is funded partly by a 2% Medicare levy (with exceptions for low-income earners), a 1% additional levy imposed on high-income earners who have no private health insurance, and the bulk is funded by government from its general revenue.

Because Medicare costs tax payers billions of dollars every year, the government of Australia keeps reducing what it can pay for health care under Medicare. Some people choose to take out private health insurance to give themselves a wider range of health care options and more comprehensive cover.

The government recently approved an average of 5% increase in health insurance premiums to be effective from April 1, 2017. This is way above the 1.5% increase in inflation. The increase will add an extra $298 a year to the cost of an average health insurance policy and may encourage more insurers to promote downgraded cover to retain members. In response to the approved increases, the leader of Greens, Richard Di Natale, slammed private health insurance as “a total waste of money.”

Taking a closer look at private health insurance, one can see that Richard Di Natale may be right. The public health system provides good services and the bulk of the services are covered by Medicare. What Medicare does not cover, most private health insurance schemes do not cover anyway. Yet, there is a lot of evidence indicating that private health insurers have been enhancing their profits in the last ten years through premium increases that are well above inflation. In the last 15 years premiums increased by more than 150% yet inflation remained almost around 1% per annum. Total profits gained by health insurers rose from $177.6 million in 2008 to $1.5 billion in 2015.

Insurance is a method of risk management. Ideally, people limit their risks by paying a premium while the insurance company carries the burden of open-ended risk. That is why insurers can cover the cost of a new car in the event that a car is totaled through no fault of the driver.

Yet, when it comes to health insurance, the insurance companies limit their exposure while the insured person carries the open-ended risk. That defeats the whole idea of risk management for the insured person. Private health policies are being watered down to make them affordable. In other words, the insurers want to keep customers but they don’t want to provide adequate cover. Their members suffer financial loss while in a private hospital. The Australian Medical Association estimates that around 35% of all private health policies now contain exclusions compared to only 10% in 2009. With all the limitations it really shouldn't be called insurance anymore.

In a nutshell, health insurance companies are making profits by watering down benefits while increasing premiums every year. They do not pay for primary care services (which are covered by Medicare) yet they expect to access members’ records at the GP. They even complain to the AHPRA about delayed medical records. The government subsidizes the private health insurance premiums, costing the tax payers between $7b and $9b per year.

The system is clearly broken and there is an urgent need for health insurance reforms. Government is trying to manage part of the problem by reducing benefits under Medicare, leaving the majority of the population unable to afford health care. Now there is the added level of the population that depends on junk health policies because they cannot afford the continuously rising premiums. Meanwhile the government keeps subsidizing an inefficient and ineffective private health insurance industry.

Australian Private Hospitals Association (APHA) CEO Mr. Michael Roff said, as he welcomed the new Minister of Health and Sport, Mr. Greg Hunt, “The new Minister could act quickly to end these junk policies, a move which has bipartisan support. These policies cost Australians, while providing little real cover beyond the services already covered by Medicare. Doing away with these policies would be an easy win for the new Minister.”

One way is to scrap private health insurance completely. Numerous reports from government, consumer groups and peak health bodies over most of 2016 made this assessment and seem to agree with this. By scrapping private health insurance, the government saves the $7b to $9b in subsidies.

After scrapping all private health insurance, one possible option could be an expansion of Medicare as the only health insurer. At one level people are covered by Medicare as is the case right now. Then they can purchase extra cover from Medicare on a private basis if they prefer private hospitals. Because it is just one insurer, it is easily regulated and claiming is easier for everyone.

Alternatively, private insurers would be allowed to continue but they should all fall under a national set of rules and benefits and premiums. Every benefit that is covered is clearly stated. A person can choose whether to be covered by Medicare or by the private insurers, and choice is based on personal reasons. But at the end of the day, every person will be covered and premiums will be regulated.