6PR Mornings interview with Dr Rachel David on the Federal Opposition Leader Bill Shorten’s plan to cap the price increases of private health insurance premiums

Station: 6PR
Program: Mornings
Date: 5/2/2018
Time: 9:08 AM
Compere: Gareth Parker
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


GARETH PARKER: Federally speaking, when it comes to politics, there was a big policy announcement by the Opposition leader Bill Shorten over the weekend. He wants to cap the annual increase that you pay on your private health insurance premium to 2 per cent for the first two years after he would be elected as prime minister presumably. So, a 2 per cent cap for two years in a row. He says this will save $300 – or thereabouts – for a family each year. I wonder what you make of it; 922 11 882. I don’t know how it would work to be perfectly honest, I don’t know how it would work, I wonder what the consequences would be.

Let’s try and answer some of those questions with the CEO of Private Healthcare Australia, Rachel David. Rachel, good morning.

RACHEL DAVID: Morning, Gareth.
GARETH PARKER: How would this work?
RACHEL DAVID: Well look, we were a bit taken back by the announcement because there wasn’t any consultation with the private health industry. It’s something that sounds great in theory, in this era of populous politics, fixed price rises at 2 per cent, it sounds like a good idea. But in reality it’s going to be very difficult to make this work because the reality is the only reason why health fund premiums go up is because they are paying for more healthcare. So for example, last year we paid for an increase of 5.2 per cent to private hospitals, over 7 per cent to public hospitals to treat patients there, and 3 per cent extra to cover the gap for medical specialist services. So, if we were to then fix prices at a 2 per cent increase, it means we’re not going to be able to pay as much for public and private hospitals, and for medical specialists to cover the gap, that’s the first consequence.
RACHEL DAVID: And that could lead to increased co-payments for consumers or even restriction of access to services for the first time in private health.

The second consequence is what happens at the end of those two years where the price has been fixed as health costs and health utilisation has continued to grow. To meet credential requirements that are set by APRA and to catch up, our back of the envelope calculations – because we’ve only had a day to come to grips with this – show that probably the minimum premium increase that folks would be looking at is just above 11 per cent.

RACHEL DAVID: So, it’s not a long-term solution.
RACHEL DAVID: As we’re getting older and we’re using more health services in public and private hospitals, the only solution is to manage the input costs, to make sure we’re not paying for low value care and wasteful care, to make sure we’re not overpaying for medical devices and for services that people don’t need.
GARETH PARKER: So, you started off by alluding to the fact that you think this policy is just populism, and putting a cap on premiums might actually result in health insurers saying: well, that’s fine but we just won’t rebate as much of your costs of medical care as we do now, so there’ll be bigger gaps.
RACHEL DAVID: Well, that’s right, and the issue is you’ve got to ask yourself as people continue to use more services: where is the money coming from? We have an ageing population, we have an increasing dependency ratio of fewer people coming into the workforce and paying taxes and paying their private health versus the dependent older population. And people- just last year alone, we paid for 25,000 more admissions for chemotherapy, 13,000 additional admissions for stroke, we paid for 5000 additional admissions for mental health conditions, this is going to continue and the only way we can keep downward pressure on premiums is to ensure that we’re not wasting members’ money and wasting taxpayers’ money by paying for low value care, and overpaying for medical equipment.
GARETH PARKER: Bill Shorten said over the weekend that Australians are being ripped off by the private health insurance industry, that it’s time to put balance back into the interests of families, and that prices are up and profits are way up as well.
RACHEL DAVID: Look, I just don’t think there’s any evidence for that. Private health insurers have an incredible level of transparency that they’re required to commit to by their regulators, by APRA. And all of their input costs and financial information is disclosed to APRA in the premium setting process, it’s scrutinised by the Minister for Health himself. And what that shows is that private health funds profits have remained totally stable over the last 15 years with a margin or a net profit of between 5 and 6 per cent. At the same time as they’ve had to manage this, a tsunami of rising health costs based on the ageing population, there is absolutely no evidence that there is a pot of gold being stockpiled in health funds that is being withheld to members and then consumers.
GARETH PARKER: Okay, 922 11 882 if you’d like to talk about that this morning. I’m interested to know what you think of this proposal; on a hip pocket level it’s pretty appealing. I mean, we’ve had the discussion on the program plenty about private health insurance premiums continuing to outpace inflation by a large margin. And even this year, when talked about the increases for next year that have been announced recently, only 3.95 per cent – I say only in inverted commas – compared to an inflation rate that’s running about half that.

Rachel David, the one thing Bill Shorten is right about is that people are really sick of their private health insurance going up faster than inflation. There’s no doubt about that.

RACHEL DAVID: There’s no doubt that people hate costs rising, particularly as wage growth has remained low close to the last decade. And we really understand his frustrations with that. But the problem is that it’s a very direct price signal that goes to consumers every year. The same level of cost increase – in fact, it’s a higher level of cost increase – is occurring in the public hospital system but that’s been disguised by the fact that it comes back to our taxes and people don’t get that very direct price signal. In fact, demand for public health is so high that many public hospitals have resorted to seeking additional funding from the private health funds by putting pressure on people to declare their private health insurance status.

So, there’s no conspiracy here about why costs are going up. The only reason why premiums are going up as fast as they are, are because people are accessing more healthcare. Why? Because over the last 100 years we have gained an extra 30 years of life and most people want to live that life the best way they can. So, they’re not just having a hip replacement and going and sitting on the couch and dying, they’re having a hip replacement and going back to work and looking after grandchildren and engaging in the community.

GARETH PARKER: So, that all costs money though. I mean, that’s a good thing, isn’t it?
RACHEL DAVID: It all costs money, and that is the only reason why these costs are going up. If you peg them back to 2 per cent, firstly it’s going to rebound back on the public system, and secondly that is really going to restrict the funding we’re able to give to hospitals and to doctors to carry out these procedures.
GARETH PARKER: Okay. So, if there’s one thing that policy makers – I don’t care if it’s Labor, or Liberal, or whoever – if there’s one thing that governments should be doing to try and get those costs down, what is it from your point of view, Rachel?
RACHEL DAVID: They need to aggressively address waste in the input cost area. Now, the Coalition Government has made a good start on this by looking at the incredible overpayments that were occurring in Australia for basic medical devices like hip replacements and knee replacements. Australian private patients are paying the highest costs in the world because of out of date regulations, and the Coalition Government was very good at getting some of those regulated prices down.

That process needs to continue, there needs to be increased focus on areas where we are simply paying too much, compared to the rest of the world, for medical equipment. And then we need to look very carefully in the public and the private system to make sure that the healthcare that we’re providing is actually resulting in the outcomes we want, and isn’t wasteful, and its over servicing, or just simply low value care, procedures and interventions that actually don’t make the patients’ life better.

GARETH PARKER: But bottom line eh? An arbitrary cap will not do anything to solve any of those issues, it will what? The bill will eventually become due I imagine.
RACHEL DAVID: Yeah well, exactly right. You can’t just put an arbitrary cap on this, anymore than you can say: well, petrol prices are only going to go up by so much, or energy prices are going to go up by so much. Sooner or later it will come back to bite you and in this case the effects will happen sooner rather than later in terms of increased costs for consumers and reduced access.
GARETH PARKER: Alright. Thanks, Rachel. Appreciate your time this morning.
RACHEL DAVID: Thanks, Gareth.
GARETH PARKER: Rachel David, she’s the CEO of Private Healthcare Australia.

Interesting that she described Bill Shorten’s plan as populism, went straight to that. I wonder what you think of it. I mean, governments and in fact the hospitals – private hospitals and especially public hospitals – all need to get a handle on this issue of rising healthcare costs, of rising demand for healthcare, we need to do things more efficiently, or it will send us all broke. There’s no doubt about that. And I don’t think that by simply capping an arbitrary cap on how much your private health insurance goes up, I don’t think that that actually solves any of the underlying issues here. Will it work in terms of Bill Shorten’s electability, though? I wonder. Is it popular? Let me know, 19 999 677 or e-mail [email protected].

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