The challenges of private health insurance for allied health in primary care

Australia spends considerable money on its health. In 2014-15, the Australian Government spent $66.2bn to fund the health system, almost $7bn of which went to fund private health insurance. With health costs growing rapidly, governments are increasingly seeking to curtail spending and this has driven a strong focus on supporting use of private health insurance.

The allied health sector is an essential part of our health system, providing crucial services for many Australians. Many of our biggest current health challenges, including the growth in chronic and complex conditions, mean consumers increasingly depend on allied health care. Yet government funding for allied health services represents only a fraction of overall spending meaning consumers often depend on paying for services themselves. As a result, many consumers use private health insurance to subsidise the allied health services they use. Many families rely on Extras cover to help cover allied health treatments such as physiotherapy or dietetics. Almost ten percent more Australians have Extras cover (55.7 percent) than hospital treatment insurance (47.1 percent) showing the importance consumers place on access to these services.

Private health insurance and the need for subsidised allied health care

Despite the popularity of Extras policies, private health insurance provides only limited and highly variable access to allied health services. Both consumer organisation Choice and the Grattan Institute have expressed concern about the function and value of these policies, noting that only hospital insurance functions as true insurance. Choice noted that Extras treatment insurance coverage can vary widely in the services that are covered and the way benefits are paid and may not necessarily provide value for many consumers.

Health insurance benefits paid out by health insurers for non-dental primary care services totalled less than 6 percent ($781 million) of payments from private. The large increase in complaints to the Private Health Insurance Ombudsman over the last two years, shows the significant gap between the needs and expectations of consumers and the insurance products available. The Australian Government has taken early steps to combat the failures of current insurance products with the establishment of the Private Health Ministerial Advisory Committee and an increased focus on improving product information and consistency between providers. Yet even if those reforms are successful, a range of issues still concern the allied health sector.

Impact of private health insurance funding of health services

Access to rebates for services has a significant impact in driving consumer choices about the types of health care they access. Where there are multiple options for dealing with a particular health condition, consumers are understandably more likely to choose the option funded by insurers.

Yet the way insurers determine which services to fund lacks transparency and may not be consistent across insurance providers and products.

A recent article published by allied health professionals from the University of Sydney noted significant inconsistency in funding for allied health services with nutritionists more likely than dietitians to be funded for nutrition services, physiotherapists more likely to be funded for hand splints and orthoses than occupational therapists and orthopaedic surgeons more likely than podiatric surgeons to be rebated for foot and ankle surgery.

Similarly, Arthritis Australia and Rheumatology Australia have presented research suggesting that at least 10 per cent of joint replacements in Australia are avoidable resulting in unnecessary spending of some $200 million each year. Their submission estimated that programs based around allied health services such as physiotherapy and occupational therapy could be provided to people with hip and knee osteoarthritis for around $750 per person preventing many joint replacement surgeries and their related costs (~ $25,000). Yet funding remains focused on medical interventions rather than preventative care.

Preferred provider relationships

Where allied health services are funded by private health insurers, those providers frequently find that they are impacted on by the insurers’ ability to pay different benefits payments to different providers based on contractual arrangements. Insurers have recognised that they can increasingly control costs by entering into exclusive agreements with private providers or establishing their own health providers. Those providers attract higher benefits payments for consumers leading many to switch from one health service to another. The Australian Dental Association has accurately noted the strong likelihood of anticompetitive behaviour that can arise from such relationships and that the government has stepped in to reduce such behaviour in other industry areas.

Allied health providers are increasingly faced with the choice of securing their customer base by entering into preferred provider agreements with insurers or losing customers to preferred providers who attract higher rebates.

Those with preferred provider agreements are under significant pressure to keep costs low which conflicts with their ability to provide high quality care.

This raises significant questions about whether insurers should be able to freely choose which services to subsidise and how much, particularly as these products are generally at least partially funded by the public purse through health insurance rebates. The question becomes particularly pertinent when an insurer is both the recipient of premiums, the payer of benefits and the beneficiary of payments for services through ownership of health services.

Private health insurance and equitable access to allied health services

The goal of government funding must be to use public health dollars to ensure access to health services. Yet private insurance is disproportionately held by middle and high income earners. The ABS Health Survey noted people living in areas with relatively high socio-economic disadvantage have the lowest levels of private health insurance in Australia (33.4%), while people in low disadvantage areas had the highest levels (79.4%). The growth in chronic disease means consumers increasingly need allied health services, yet funding for these is inflexible and limited and has the lowest uptake by disadvantaged Australians.

Government funding of private health is also growing rapidly, outpacing spending growth in other areas.

The Grattan Institute has calculated that the government subsidy for private health insurance is expected to grow by 7 percent from 2015-16 to 2018-19. This compares with 3.2 percent growth in overall Commonwealth health spending and 6.7 percent growth in Commonwealth support for public hospitals.

Given finite public health funds, Australians must ask whether health insurance spending by the government is appropriate in place of increased funding of more equitable universal access programs such as the Medicare Benefits Schedule.

Determining the role of private health insurance

Private health insurance has the potential to provide important access to allied health services for many Australians but if governments are to continue funding insurance rebates then the community should rightly expect these products focus on health outcomes, not profit. That will require more consistency between insurance products and greater transparency concerning efficacy and costs. An increased focus on equity is also important to ensure that increased government funding for private insurance does not result in decreased public funding and a two tier health system.