Private health insurance policies are complex and do not readily support comparisons, accurate assessments of costs and, in some cases, may include possible misrepresentations of products and their value.1
While health costs keep rising by more than inflation the ease with which the Commonwealth approves insurance premium increases does nothing to exert downward pressure on those costs.2
Private insurers3 and private hospitals4 have stated that public hospitals treating private patients is largely to blame for premium increases, but their arguments ignore key data and do not consider the mixed public-private nature of Australia’s health system.
Hospitals funding reflects our mixed public-private system
About 90 per cent of care in public hospitals and 32 per cent of care in private hospitals is funded by governments.5
The number of separations that were funded by governments in public and private hospitals combined increased by an average of 2.7 per cent each year between 2010–11 and 2014–15. In the same period, the number of separations funded by private health insurance across the two sectors increased by 5.9 per cent.6
Between 2009–10 and 2013–14, after adjusting for inflation, total funding for public hospitals increased by an average of 4.2 per cent each year. However, the proportion of public hospital funding by the Australian Government decreased from 38 per cent to 37 per cent.7
More private hospital care is being funded by both governments and insurers
For private hospitals, the number of separations funded by governments increased by an average of 10.3 per cent each year between 2010–11 and 2014–15. Since 2013–14, separations in private hospitals increased by 5.6 per cent for both those funded by governments, and those funded by private health insurance.8
Private hospital funding from state and territory governments has almost doubled over the past decade—and is growing faster than funding for public hospitals.
State and territory governments’ recurrent expenditure in private hospitals in 2014–15 was $621 million, an increase of 19.4 per cent on the previous year, and almost double the expenditure in 2004–05 (in constant prices, $314 million). This represents an average annual growth rate over the decade of 7.1 per cent. In comparison, the average annual growth rate in state and territory government recurrent expenditure in public hospitals was 4.7 per cent over the same period.9
More public hospital separations are being funded by insurers—but there’s more to the story
In 2014–15, the net benefits paid by private health insurers in public hospitals was $1.06 billion. This was a growth of 8.7 per cent over the previous year. In the same period, the net benefits paid by private health insurers in private hospitals was $7.974 billion, or growth of 6.4 per cent over the previous year.10
There were almost 5 million separations in public hospitals during 2014–15, and of these 14.1 per cent (815,000) were funded by private health insurers. Between 2008–09 and 2014–15, the number of separations in public hospitals funded by private health insurance increased by an average of 10.3 per cent each year, or 4.4 percentage points over the period.11 However, the rate of growth in the number of bed days funded and benefits paid by private insurers for care in public hospitals is slower. As a proportion of bed days paid by private insurers across both public and private hospitals, public hospital care represented 10.38 per cent of bed days in June 2009, increasing to 12.4 per cent in June 2016. As a proportion of benefits paid for public and private hospital care by private health insurers, the public hospital share increased from 3.4 per cent in June 2009 to 4.3 per cent in June 2016.12
Private health insurance used in public hospitals represents only 7.6% of private health insurance total expenditure. Private health insurers use more of their funds on their own administration (8.8% or $1.23 billion in 2014–15) than in funding public hospital services (7.6% or $1.06 billion in 2014–15).13
What factors have driven growth of private health insurance use in public hospitals?
The Independent Hospital Pricing Authority’s recent report on public hospital service utilisation by private patients14 examined the extent to which activity-based funding, and its implementation in the states and territories, had contributed to the increase in use of private health insurance in public hospitals.
Beyond the scope of the IHPA report was analysis of the type of insurance products used in public hospitals, and the impact of the increasing number of product offerings from private health insurers with high gaps and multiple exclusions, and including public hospital only insurance products.
Statistics published by the Australian Prudential Regulation Authority15 do not identify public hospital only insurance policies; however data are published related to exclusionary and non-exclusionary hospital insurance policies. In the period covered by the IHPA report, the growth in exclusionary policies has been substantial. Of the approximately 9.5 million hospital policies in June 2009, around 10 per cent were exclusionary policies. By June 2016, 37 per cent of the 11,328,577 policies were exclusionary.
During the same period, changes to the private health insurance rebate income testing arrangements reduced the share of funding provided by the Australian Government through the rebate scheme. Coinciding with this, the proportion of overall hospitals expenditure funded by private health insurers increased from 7.4 per cent in 2011–12 to 8.3 per cent in 2013–14.16
It’s more than about who pays for what
Foundational principles of Australia’s universal health care system is that clinicians are free to provide their services as private providers; and that patient choice is available, both for services from clinicians and from hospitals. In many parts of regional, rural and remote Australia, there are no private hospitals available—and for patients to exercise choice regarding clinicians, the opportunity to use private health insurance in public hospitals must be preserved. Recruitment and retention of workforce in regional, rural and remote areas is also underpinned by the opportunity for providers to be able to offer private services in public hospitals.
State and territory health departments have protocols and guidelines regarding communications with patients about the use of private health insurance, and associated complaints mechanisms. A more fulsome analysis of public hospital service utilisation by private patients would examine how these protocols are implemented in hospitals, and any related complaints data.
The Australian health system and its model of universal health care are complex – with public and private providers, public and private sources of funding, concepts of patient choice and equity of access, clinicians as business owners and as employees, sitting side by side. Changes to that system, such as potentially limiting the use of private health insurance in public hospitals, need to be made with care as there are many possible consequences: including funding pressures for public hospitals, difficulties with recruiting and retaining clinicians, reducing choice for patients whose preferred clinician may also prefer to practise in a public hospital, and decreasing the value proposition for private health insurance where private hospital services may not be available. This issue should be examined as part of an overall review of health system funding in Australia – to ensure that we maintain a strong universal health system with care available and affordable for all who need it, not just those who can afford it.
Australian Institute of Health and Welfare 2016. (AIHW)  Australia’s health 2016 . Australia’s health series no. 15. Cat. no. AUS 199. Canberra: AIHW.
Australian Institute of Health and Welfare 2016 (AIHW) . Admitted patient care 2014–15: Australian hospital statistics. Health services series no. 68. Cat. no. HSE 172. Canberra: AIHW.
Australian Institute of Health and Welfare 2016 (AIHW) . Health expenditure Australia 2014–15. Health and welfare expenditure series no. 57. Cat. no. HWE 67. Canberra: AIHW.
Australian Institute of Health and Welfare 2016. (AIHW)  Non-admitted patient care 2014–15: Australian hospital statistics. Health services series no. 69. Cat. no. HSE 174. Canberra: AIHW.
Australian Institute of Health and Welfare 2016. (AIHW)  Australia’s hospitals 2014–15 at a glance. Health services series no.70.Cat.no.HSE 175.Canberra: AIHW.
Australian Private Hospitals Association 2017 (APHA) media release ‘Public hospitals’ greed pushing up health insurance premiums’ media release 10 February 2017: http://www.apha.org.au/wp-content/uploads/2017/02/Premium-increases.pdf
Australian Prudential Regulation Authority. (APRA)  Membership Trends – December 2016 (issued 14 February 2017).Viewed at: http://www.apra.gov.au/PHI/Publications/Pages/Statistical-Trends.aspx
Australian Prudential Regulation Authority. (APRA)  Benefit Trends – December 2016 (issued 14 February 2017). Viewed at: http://www.apra.gov.au/PHI/Publications/Pages/Statistical-Trends.aspx
Independent Hospital Pricing Authority 2017. (IHPA) Private Patient Public Hospital Service Utilisation.
Pascoe M 2017 ‘Forget the banks – health insurance makes them look like amateurs’ Sydney Morning Herald. Viewed at: http://www.smh.com.au/business/banking-and-finance/forget-the-banks–health-insurance-makes-them-look-like-amateurs-20170224-gukprj.html
Private Healthcare Australia 2017 ‘Public hospital (State Government) cost-shifting’ Ideas for improving the value and affordability of private health insurance 2017–2018 Australian Government pre-Budget submission 2017–18, p 8. Viewed at: http://www.privatehealthcareaustralia.org.au/wp-content/uploads/Private-Healthcare-Australia-Budget-Submission-2017-18.pdf