2UE Interview with Dr Rachel David, CEO of Private Healthcare Australia about why premiums are continuing to rise

Station: 2UE
Program: Drive
Date: 29th March 2016
Time: 4:23 PM
Compere: Bill Woods
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia
BILL WOODS: They say, and this is an estimate from surveys apparently, more than half a million people are going to dump private health cover this week, when most premiums are rising at more than three times the inflation rate. On Friday premiums will go up by about $200 a year for a family – this is average – and about $100 for singles.Now we’ve spoken to the AMA, we’ve spoken to the Health Minister federally, Sussan Ley said she wasn’t happy to make this announcement but she thought that being an increase that was a little bit lower than expected it was some kind of gain. Why not talk to the insurers themselves and find out the answers to a few questions here? Dr Rachel David is the CEO of Private Healthcare Australia, she joins us now.

Thanks for your time.

BILL WOODS: Now initially, I know we’re talking about a range of price increases here, and some insurers are hardly increasing at all, others going up substantially. Why is that? How does it get worked out?
RACHEL DAVID: Look, on average the increase this year was in the order of 5.6 per cent. Now we take that extremely seriously. We know that our members do not like to see costs go up. But remember that the cost of the services that we’re paying for and that we provide are going up exponentially every year. So we’re seeing the cost of health services, so hospital services, go up eight per cent a year, the cost of medical devices and equipment go up nine per cent per year, and the cost of doctors services going up seven per cent per year, so that when we look at how much we need to put our prices up to cover that we’re actually having to make efficiencies to deliver that.
BILL WOODS: Do you also factor in the likely result of people dipping out of private health insurance altogether so you lose a premium completely – do you factor that in as well, or is it a risk you take?
RACHEL DAVID: Yes absolutely. In fact it’s really very difficult for us, because often the people who do leave private health insurance are those people that don’t need to use it. And what happens is with time the people that are left in health funds, if that goes on, are people that are older, sicker, and likely to claim more. So absolutely we do everything to keep premiums down, and at the moment for every dollar of members funds that we receive we pay out 86 cents in the dollar in terms of the benefits that we pay. So health funds are efficient, and they’ve been getting more efficient with time, but we just cannot keep up with rising health costs and not raise premiums.
BILL WOODS: I’ll get to the gap in a minute, because coincidentally my wife and I were at a medical appointment today and the gap was extraordinary, but I’ll get to that in a tick.
BILL WOODS: The variation in rises, why does one company have a, say a 2.3 per cent increase in premiums and another 11.2? Is it just the circumstances of what they’ve had to pay out on that year, how do they calculate that? It’s all actuarial I guess.
RACHEL DAVID: Yes. The process to calculate that is very rigorous. Actuaries are involved, that is people that look at the risk and the financial risk that funds take on, and that- it’s about a two-month process to be able to evaluate what the pricing is going to be for next year. It entirely relates to what cost and benefits that fund in that last year has had to cover.
BILL WOODS: We saw a specialist today. The charge was $300 for an initial consultation, we were covered for 150. Now, that varies too, and I spoke to Brian Owler about this and he said there’s a whole range of reasons, and admitted that one of which was some doctors simply charge more than others and you need to actually do a bit of shopping around.
RACHEL DAVID: Yeah look I think that for patients concerned about out of pocket costs they absolutely must feel empowered enough to raise that issue with their GP. Health funds can cover you for hospital expenses if you have top hospital cover and you don’t pay an excess, you won’t have an out of pocket for that.
RACHEL DAVID: But for doctors’ fees, doctors control what doctors charge. We don’t have a say in it unless the doctor has made a special arrangement with us to provide their services as a no-gap product.
BILL WOODS: As in fact – and I hesitate to make this comparison, I don’t want to offend anybody – but as some car repair insurers do with certain car repair companies, they are recommended car repairers. And if the insurer has a deal with them it’s often easier and cheaper to go with them.
RACHEL DAVID: Yeah that’s absolutely right, but that’s up to the doctor, that’s not something we can force them to do. What patients can do is to talk to their GP about what specialists are likely to charge more for the same service, and what specialists are likely to give them a good deal and not charge a gap for the same service. In some cases that will be difficult, because there are only a few people that are available, but for most common procedures there are a large number of specialists who perform the same type of procedure. So people should feel empowered to talk to their doctor and ask for an alternative.
BILL WOODS: Now what about rewards for people who don’t claim? I know, again, we’re talking about a much more sensitive topic here than fixing your car, or indeed home and contents insurance in some cases, but is there some kind of incentive system built in there for people who don’t claim?
RACHEL DAVID: Not in government regulations at the moment. We’re looking at a number of ways in which we can encourage particularly younger members to stay involved and committed to health insurance, and that’s one of the many options that we’ve discussed in the current review that the Federal Government is doing of private health insurance. We have to look at all of these things and make sure we’re not introducing some kind of perverse incentive so that people who really need health care don’t actually go and get it. But that’s a good idea, and it’s one of the many things that we’re looking at in more detail.
BILL WOODS: Yeah, it might stop some of the more frivolous visits to the doctor for example, because as you say there’s a massive variation in specialists’ fees. So if GPs keep referring people to specialists for things that- and we had this story in the paper just recently about the number of referrals to specialists are probably unnecessary in a lot of cases. That might be an area where we can save the whole system a bit of money, whether it’s private health insurers, the government, everyone.
RACHEL DAVID: Look, I think the GP plays an important role here, and consumers and patients need to feel free to and feel empowered to ask doctors quite valid questions about the types of procedures they’re being referred to. For example, will a diagnostic test change your management with particular conditions, and what are the risks and benefits of me having surgery versus no treatment at all?
BILL WOODS: Finally, they say – and this is according to research surveys – more than half a million people will drop out of the private health system. We don’t know who insures them. When the dust settles, is it possible for some insurers to look at their figures, to look at their turnover and say well hang on a minute, we might have to drop premiums, because we’re not getting the turnover. Does that ever happen? It hasn’t happened lately.
RACHEL DAVID: Look, our pricing is based on a very comprehensive look at our risks and what we’re likely to have to pay out, and as I mentioned, that’s a long process that the actuaries go through.
BILL WOODS: And it’s a pretty accurate calculation, by the sounds of it.
RACHEL DAVID: It is accurate, and what our pricing is based on is [inaudible] that we need to pay out. The only way we can get premiums down in the long term is looking at how we better manage health costs. One reason that health funds were able to offer a bit of a lower premium increase this year is the Federal Government gave us an indication they would look at the very inflated medical device prices that are charged to private patients versus public patients. That’s been a problem for some years in Australia, that private patients were charged two to four times as much for the same device in some treatment areas as patients of the public system. The Government has indicated they’re going to look at those regulations and help us do something about it, but they can’t afford to drag their feet, and we can’t afford to drag our feet in helping keep some of these costs down for consumers.
BILL WOODS: Well it is a universal problem, isn’t it? And a number of ways of attacking it. Sometimes it has to come from every direction, and we certainly hope people stay in private healthcare, because those who drop out are going to cost the society even more money and there’s going to be a bigger problem. Rachel David, thank you very much for your time.
RACHEL DAVID: Thanks Bill.
BILL WOODS: Dr Rachel David is the CEO of Private Healthcare Australia.
* * END * *