Private health insurance – is it delivering good value?

Private health insurance is an important pillar of Australia’s health system, but increasingly there is doubt about whether it delivers good value for consumers, or even whether it meets their needs.

Premium rises continue to outpace inflation and with many policies now costing thousands of dollars a year, health insurance is becoming less and less affordable.  Yet while PHI premiums continue their steep rise, the benefits of health insurance for consumers are reducing.

In particular protection against high out-of-pocket health costs is by no means assured.

Rising premiums, together with government policies to support the uptake of private health insurance have seen a proliferation of lower cost policies offering reduced cover.  ‘Junk’ policies, policies that provide cover only for services in public hospitals and policies with exclusions and excesses are now common. Unfortunately they mean that people may not be covered at all for procedures they may require, or the benefits they receive fall well short of expenses and expectations. Thirty percent of policies now have important exclusions such as joint replacements or cardiac treatment.

The complexity of the private health insurance market, where thousands of products are available offering various combinations of benefits, exclusions, excesses and preferred provider arrangements, can make it hard for consumers to find the right cover for their needs, especially when their future health needs are unknown.  Too often, people don’t know if a policy is good value for money until they try to use it.

Then there is the increasing gap between the scheduled Medicare fee and the fees actually charged by providers, which private health insurance is unable to cover.  Often the extent of the out-of-pocket costs is unknown or difficult to determine, as you need to contact your insurer, the hospital and the various health care practitioners involved in your care to find out. Preferred provider arrangements may mitigate this risk to some extent by providing no gap or known gap services, but this is reliant on your provider of choice having an agreement with your insurance fund.

Too many people with arthritis who have joint replacement surgery in the private system report that despite Medicare and private health insurance they face thousands of dollars in out-of-pocket costs for their procedure.

Finally for people living with chronic conditions like arthritis, private health insurance does little to help with the high and ongoing costs of managing their condition such as medications or the cost of specialist appointments outside of hospital.  Caps and limits on the benefits paid for allied health services also limit the utility of ancillary cover for accessing multidisciplinary care in the private sector. This issue is keenly felt by people with arthritis, where most care is provided in the private sector.

On the other hand, private health insurance does offer consumers timely access to elective surgery. For people with arthritis needing expensive joint replacement surgery, who face long waiting times in the public sector, this is a significant benefit.  The median waiting time for these procedures in the public system is 196 days, but in some states waiting times are close to a year.  In the private sector, joint replacements can often be done within a couple of weeks.    While this is a major benefit at an individual level, at the health system level it raises major questions about the equity of a system which allows those who can afford it to jump the queue and receive services ahead of those who cannot afford to pay, but may have greater need.

If premiums continue to rise at recent rates, we will soon come to a tipping point where more and more people abandon private health insurance.  This will increase pressure on the public system and amplify the inequity between those who can afford to pay for private care and those who cannot.

What is needed is an overhaul of private health insurance arrangements in Australia, both at the industry and the government policy level.

In particular, the government’s private health insurance rebate, which is evidently not achieving its objective of making health insurance more affordable, needs to be urgently reviewed.

Other measures that should be implemented are those which will:

  • Support the provision of clearer, more easily understood information about private health insurance policies, to make it easier for consumers to understand what is and is not covered by their policy and to compare products to find one that best suits their needs.
  • Improve transparency and access to information about provider fees for health services, including out-of-pocket costs.
  • Develop standardised packages of health cover designed to meet the needs of different types of consumers.  This should include packages for people with chronic conditions that support team care arrangements and provide improved benefits for medications, specialist care and allied health.
  • Improving management of people with chronic conditions in the community will reduce costs for insurers by reducing demand for expensive hospital procedures such as joint replacements.
  • Limit the health insurance rebate to only those policies which provide reasonable value and which support evidence based interventions.  The government would not support certain unproven natural therapies through Medicare, so why should it subsidise them through its private health insurance rebate?
  • Reform prostheses pricing arrangements to reduce the costs of prostheses in the private sector, which are substantially higher than prices paid in the public sector.
    Consumers deserve a health system which delivers equitable, accessible and affordable health care. It is time for the role and operation of private health insurance to be reviewed to ensure it is helping, not hindering the achievement of this goal.