Issues for consideration at roundtables on private health insurance - November 2015

This is an issues paper that has been developed to guide discussions at the roundtables

Page last updated: 13 November 2015

Introduction

Australia has a mixed public and private model of health care funding and service delivery. Private health insurance offers members greater choice in the provision of treatment, coverage for some services not included under Medicare arrangements, and may offer shorter waiting times for some services.

As at 30 June 2015, 11.3 million Australians were covered by hospital treatment cover (47.4% of the population) and 13.3 million Australians had some form of general treatment cover (55.8% of the population). In 2014-15 the Australian Government spent $5.8 billion on the Private Health Insurance Rebate.

In common with public health funding, private health insurance sustainability is being impacted by:
  • the growth in chronic disease;
  • increasing patient expectations about access to services;
  • the number and range of health services provided;
  • the increasing cost of those services; and
  • an ageing population.
The Australian Government is undertaking a number of reviews aimed at ensuring that consumers can access affordable, quality and timely health services into the future. These include the White Paper on the Reform of the Federation, and the Government’s reviews of primary health care and mental health.

Private health insurance has important links to these reviews. As such, on 28 October 2015 the Minister for Health, the Hon Sussan Ley MP, announced consultations focused on the value of private health insurance for consumers and its long term sustainability.

Scope of consultations

The consultations will consider potential future roles for private health insurance within the context of broader changes being considered by the Government.

The Department wants to work positively with stakeholders to identify reform options which would enhance the value of private health insurance for consumers, and opportunities to amend unnecessary or inefficient regulation which adds costs for consumers.

Key areas for discussion

  1. Improving value of private health insurance for consumers, including through the consideration of changes to regulation.
  2. Broader system reform including the Reform of the Federation (RoF) and Primary Health Care Advisory Group (PHCAG) and mental health processes – implications for private health insurance.
  3. Stakeholder directed discussion on possible private health insurance reform options.

Issues for discussion

Information and complexity

Many consumers have expressed concerns about the complexity of private health insurance products and the lack of information provided by insurers. The ACCC has also highlighted concerns about this issue.

Can the complexity of policies be simplified and information be provided to consumers in a more transparent and convenient way to allow informed choice? If so, how?

Exclusionary products

Some health insurance policies have exclusions or restrictions. This means that particular services are not covered by those policies. In 2014-15, the number of policies for hospital cover that exclude certain medical services and also require patients to pay an excess and co-payment increased significantly. These consultations will explore the pros and cons of exclusionary products.

Are exclusionary products currently delivering value for money to consumers?

Effective use of Government incentives

There are three major Australian Government incentives in place to encourage take-up of private health insurance: the Private Health Insurance Rebate; the Medicare Levy Surcharge; and Lifetime Health Cover. Some stakeholders have suggested that the current rebate model is not effective in supporting the affordability of private health insurance.

Is the current government funding model of the Private Health Insurance Rebate maximising the benefit for consumers? If not, what other models could be implemented to maximise the benefit to consumers?

Value for rural and remote consumers

These consultations should consider how to maximise the value of private health insurance for rural and remote consumers, who often question the purpose of having private health insurance when it can be difficult to access private hospital services.

Are rural and remote consumers currently getting value for money from private health insurance? If not, how could this be improved?

Aboriginal and Torres Strait Islander people

These consultations should consider how to maximise the value of private health insurance for Aboriginal and Torres Strait Islander consumers.

How could private health insurance be improved for Aboriginal and Torres Strait Islander people?

Private patients in public hospitals

Many insurers offer policies that only cover patients for treatment in a public hospital. Some stakeholders have argued that these policies are inconsistent with the objective of reducing pressure on public hospitals and do not provide value for money.

Do these policies adversely impact public patients in public hospitals? Is there any value in them for consumers?

Prostheses listing and reimbursement processes

Insurers are required to pay a benefit for all prostheses listed on the Prostheses List, with that benefit set by the Prostheses List Advisory Committee. The prostheses listing process is administratively complex. Stakeholders have raised many issues with the Department, including that the process results in inflated prices which are passed onto consumers in premiums.

Can these processes be improved to decrease the costs being borne by consumers through premiums and gaps, while still offering consumers access to appropriate prostheses? If so, how?

Risk equalisation

Some stakeholders have suggested that the current arrangements reduce the insurers’ incentive to manage their own costs and focus on prevention..

Can the risk equalisation arrangements be improved to increase the incentive for prevention and, at the same time, not inflate premiums for consumers? If so, how?

Coverage of selected non-admitted hospital procedures

Private health insurance does not routinely cover medical services that are provided out-of-hospital. Some of these services were previously provided to admitted hospital patients, but due to developments in clinical practice can now be provided in outpatient, community or home settings. Some stakeholders have suggested that private health insurance should be able to cover these services. They have also suggested the division between admitted and non admitted services adds to confusion over what is and is not covered by their policy.

Would consumers benefit if private health insurance was able to cover non-admitted hospital procedures; for example, private hospital emergency departments, renal dialysis, radiation therapy, medical oncology or chemotherapy?

Purchasing / contracting arrangements

These consultations should consider whether there are hurdles to innovative purchasing / contracting arrangements for accommodation and services in hospitals, prostheses and devices and out of hospital ancillary services. One example raised by stakeholders is default benefits - levels of reimbursements that insurers are required to pay in instances where a hospital does not have a negotiated contract with an insurer. While these were designed to assist stand-alone rural and regional hospitals with which insurers may not have wished to contract, some stakeholders have suggested that their application to all hospitals places an artificial restriction on contracting, leading to inflated private hospital prices and premiums for consumers.

Do the current purchasing/contracting arrangements deliver value for money for consumers? Can these be improved? Are there hurdles or impediments to innovative purchasing / contracting models for hospital and out of hospital services which add cost to consumers’ premiums and out of pocket expenses?

Other regulatory issues

Insurers are subject to a range of regulations through the Private Health Insurance Act 2007. Stakeholders have raised premium increases and the Government’s role in annual premium setting as an issue. These consultations will consider the effectiveness of the current regulatory regime and how it could be improved.

What regulatory issues are driving up costs to consumers of private health insurance? Can these be addressed? If so, how?

Broader health system reforms

These consultations will need to consider private health insurance reforms in light of other current health system reform processes the Government is undertaking, including the Reform of the Federation, the Primary Health Care Advisory Group, and mental health reform.

The future of private health insurance

While short-term reform is important, these consultations are also seeking to explore long-term, strategic reform options. This includes questions of what the role of private health insurance should be in our mixed system; whether insurers should be financial organisations or service providers; and what is the best way for the Australian Government to support the private health industry.

We are seeking your views on the future of private health insurance, and what stakeholders and the Government need to do together to achieve that vision. The intent of the consultation is to have a positive, solutions-based discussion focussed on ways to deliver an affordable and sustainable private health industry that delivers value for money to consumers.