How to counter the walled garden of health insurance

Private health insurance has become a perfect storm for Australian consumers. Premiums have increased an average of 54.6 per cent since 2009, well ahead of CPI. According to CHOICE’s national Consumer Pulse survey, it is the hardest market for people to find the product that best suits them. This toxic combination of surging prices and complexity is leading many Australians to downgrade or drop their cover completely.

Health insurance is also a sector where everything is connected to everything else. Like a magician pulling endless handkerchiefs from a hat, issues around premium increases quickly lead to questions around strained hospital funding, growing out-of-pocket costs for patients, remuneration for healthcare professionals, and inevitably, tensions around the role of private provision of healthcare.

Value for money… for who?

It is worth reminding ourselves of the first principle – how do we provide the community with equitable access to quality healthcare? Recognising that every Australian already has health cover through Medicare, we require those on higher incomes to contribute more.

As a result, Private Health Insurance is a very strange market; one where some customers are grudgingly pushed into products they don’t want let alone understand, subsidised by the entire community through rebates.

Insurance providers regularly point out the amount of regulation that constrains their industry. But when demand for your product is guaranteed through a combination of legislated carrots and sticks, it is fair to ask what the community should expect in return.

CHOICE thinks at the very least, the community should expect products that increase equitable access to quality healthcare, in theory by reducing pressure on the public healthcare system. A good start would be removing subsidies for ‘junk’ insurance. We define these as:

  • Private hospital policies that only provide cover for a very small number of procedures such as accidents, wisdom teeth removal, appendix surgery, knee investigations and reconstructions.
  • Private hospital cover for accident and ambulance only.
  • Public hospital policies that only provide cover in a public hospital – while you can choose your own doctor you’ll have to join public hospital waiting lists.

If a hospital insurance policy does nothing more than provide accident coverage (in which case you’d be taken to the closest emergency department), covers a small handful of procedures, or simply your choice of doctor in a public hospital, then it fails the community value test.

One response to claims of ‘junk insurance’ is to say we need fit, healthy Australians to buy health insurance they won’t use to subsidise those with higher risk profiles. To some extent, this is the reality of the community rating principle and the risk equalisation that supports it.

But there is a difference between selling people policies they are unlikely to use (this is how insurance works) and cover that they simply can’t use without entering the public system (this is ‘junk’). There must be a more efficient and direct way to support risk equalisation than spending millions subsidising and marketing health insurance policies that are little more than tax breaks undermining perceptions of value.

CHOICE supports calls from Consumers Health Forum that only value-for-money policies should be eligible for the rebate. The same criteria should be considered for policies that exempt consumers from the Medicare Levy Surcharge. The aim should be structural reform that simplifies policies, and gives both consumers and the community genuine value.

Do I need health insurance?

In January this year, CHOICE launched a new online tool, ‘Do I need health insurance’? In a market dominated by insurers and commercial comparison sites, all with a vested interest in selling insurance no matter what, we’re aiming to fill an information gap. So far over 50,000 Australians have used our tool to navigate their options.

Much more should be done to improve information for Australians considering taking up or changing health insurance.

This does not necessarily mean more information, but instead redesigning mandatory requirements through consumer-led testing. For example:

  • Most people will not read or understand a lengthy list of detailed exclusions from a policy before they buy it – but they might pay attention to a single sentence saying a policy covers less than 1 per cent of treatments in a hospital.
  • It should be much easier to find exactly what procedures are covered under a policy, accessible when it’s needed, and comparable to other policies.
  • Let’s test providing premium statements that highlight the amount a policy has increased in dollar and percentage terms, how much cheaper or more expensive it is than comparable policies, with a link to shop around for a better deal in a comprehensive, unbiased comparison.

We must maintain a baseline of standardised, comparable information about policies, provided regularly to all customers. Some people will read this information. Many will ignore it, just as they do in other markets. But increasingly the real potential of standardised product information is in the third parties who can provide it to consumers in more personalised ways.

Current commercial comparison sites are not transparent or comprehensive. Many use their websites as funnels into call centres, where ‘comparison’ gives way to sales. Government-run alternatives often suffer from a poor user experience and negligible marketing budgets. It’s not as if the government is in the business of giving away meerkat dolls.

But in a digital world, this is an argument for making comparison better, rather than leaving consumers stuck in walled gardens of their own providers. Giving people easy and trusted access to their own data – for example, how they used their existing extras cover over the last year, pre-loaded into the comparison tool of their choice – could make genuine inroads into complexity.

This is one small part of a bigger picture. The most perfect information in the world won’t necessarily make health insurance any more affordable, especially when it’s tied to so many cost drivers in the wider healthcare system. But if we are going to insist that health insurers play the role of privatised tax collectors, then we at least need to make sure the community benefits, and that consumers benefit from products they can understand and use confidently.