6PR Mornings program interview with Dr Rachel David on encouraging youth participation in private health insurance

Station: 6PR
Program: Mornings
Date: 4/10/2019
Time: 10:37AM
Compere: Gareth Parker
Interviewees: Dr Rachel David, CEO, Private Healthcare Australia


GARETH PARKER: The private health insurance industry is still trying to figure out how to keep younger people prepared to pay the health insurance premiums. We’ve covered this story. It’s been an unfolding story over several years.

But there’s a new suggestion at the private health industry today. The CEO of Private Healthcare Australia is Dr Rachel David

Rachel, good morning.

RACHEL DAVID: Morning, Gareth.
GARETH PARKER: So you want employers to be able to buy insurance on behalf of their employees?
RACHEL DAVID: Look, that’s right. This is one of the ways that we have considered to address every significant demographic challenges that’s being faced by the health funds as the baby boom population, that large population that’s now hitting about 70, it has reached the age of what we’d call peak surgery. And they’re having more procedures and more hospital admissions than ever before to stay productive. The generations behind the baby boomers are finding it hard to keep up with some of the premium increases that are going towards funding this.

So to help under 40s get a foothold in this system and also gain some of the very significant benefits from private health, like treatment on time, broader access to mental health services and so forth, we’ve asked that the Government consider that employers be exempt from fringe benefits tax if employees wish to receive better private health insurance as a benefit of their package.

GARETH PARKER: Okay. Why would employers want to do that?
RACHEL DAVID: Well, look, I think it helps employers remain competitive particularly in an area when you’ve got groups that are traditionally had high levels of health insurance now struggle to afford it like your teachers, nurses and police. Employers can be competitive and attract good people who are in those professions that start out at low income levels, and they can begin to attract the best people by offering them health cover as part of a package. In addition, it does give them access to some of the services that health funds provide to keep healthy like- and a healthy workforce is important when it comes to things like sick leave and so forth. Health funds on a number of loyalty programs around preventive health and provide free dental health checks and access to allied health services for example which are very important at helping people stay well and keep out of hospital.
GARETH PARKER: I could be wrong about this but I can’t see employers doing this out of the kindness of their heart. Wouldn’t employees just prefer a pay rise and then they can figure out what they want to do with the money whether that’s buy health insurance or spend it on something else?
RACHEL DAVID: Well, I think- just to be clear, it’s not the- I mean, this would be out of people’s existing salaries. It would be a tax-effective way for employers to offer a salary package to consumers. The Federal Government would actually have to fund the tax exemptions so-
GARETH PARKER: [Interrupts] So it would effectively be like a salary sacrifice arrangement. So you’re paying for your health insurance with pre-tax dollars instead of post-tax dollars.
RACHEL DAVID: That is correct and the employer, regardless of whether they were not-for-profit or a full profit employer, would not face the fairly significant fringe benefits tax charge that would otherwise come with that. But it will come at some cost to the Federal Government. Some of which, not all of which, some of which will be offset by taking the pressure off public hospital funding.
GARETH PARKER: Okay. Would it represent a new larger subsidy to your industry?
RACHEL DAVID: It will represent an increase, a targeted increase, in the subsidy to younger people, which is aimed at improving their participation in the system. Thereby lowering premiums for everyone, increasing the leverage that consumers that are able to pay something towards their own healthcare have and therefore, reducing the pressure on public hospitals waiting lists.
GARETH PARKER: Okay. Would another way of doing the same thing be to make private health insurance premiums income tax deductible?
RACHEL DAVID: Look, that’s what used to happen many years ago. We think that an FBT exemption is probably more targeted and therefore more affordable for the government. We don’t want to leave the government with a huge liability here because we think that some more modest and targeted measures will actually have the desired effect.
GARETH PARKER: That’s the proposal. What do you think of it? Workers, bosses too. I mean I have spoken to people who run companies in this city who say, look I’d like to be able to offer my employees such a benefit but it’s too tricky with FBT so we don’t bother, and there’s no capacity to do it. I have seen some criticism raised this morning, if you’re playing Rachel, that says it would be a step towards an American style health system, where private insurance is tied closely to employment. It actually impact- and we got very different systems we’ll be clear about that. But in a practical sense its often a barrier to people changing jobs. Because they have to hang onto their health care. Is that a legitimate concern?
RACHEL DAVID: Look, what we’re proposing is nothing like the way it works in the US. There are multiple ways to access health insurance in Australia that aren’t tied to the employer. And we are in no suggesting that this be compulsory for employers to offer health insurance packaged in this way. Or suggesting that it’s the only way that private health insurance subsidies should be paid.
GARETH PARKER: So have you had any traction yet? I mean, you’ve put this submission to government, have you had any word back yet?
RACHEL DAVID: Look what the coalition government did when it was re-elected in May, was it was acutely aware of the very significant demographic challenge that faces the private health funds and therefore the health sector itself. So they went out to the industry and basically asked for proposals from the private health sector and the broader health sector about new and different ways that we could look at fixing this. And they’ve indicated that they want to look at a new round of health insurance reform. So, we’re part of that process. This is part of our submission into that process. And we’re fortunate that we’ve had some productive discussions with them already and we look forward to hearing what happens.
GARETH PARKER: Okay. 922 11 882 if you’d like to weigh in on this. I mean, we’ve spoken before whether or not the industry is in a death spiral, which is an emotive term. But what it describes is the fact that younger people, less and less willing to do this. Is the principal that’s under pinned the private health insurance system, that everyone pays the same. It’s called community rating; everyone pays the same for the same level of cover. Can that be sustained in an environment when the proportion of working aged people paying into private insurance is much lower than it once was at a time where the cohort of people spending money on treatment, and therefore wanting to call on their insurance is higher than it’s ever been, and growing?
RACHEL DAVID: Yeah, look that is in a nutshell absolutely our challenge. And that’s why younger people have the perception their premiums are going up and they’re getting nothing back. In fact the longer you hold onto your health insurance the more likely it is that you’ll get everything you’ve put into it back. But the reality is that there is an immediate perception that if you’re younger, that you’re paying in more and more money and you’re not seeing the benefit. This will help address that because community rating only really works if every generation is the same size and has the same claiming patterns. And we’ve known for some time that with the baby boomers coming through, that was never going to be the case. This will help address it. We think it’s a modest proposal compared to the investment the Government would have to make if participation dropped so significantly that we were back to 90’s level. And those people were then back on the public hospital waiting lists. So we do think that this will help make it sustainable but it’s a very significant challenge and we’re very open to working with the government to address it.
GARETH PARKER: Okay thanks very much for your time.
RACHEL DAVID: Thanks Gareth.
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