6PR Perth Live program interview with Dr Rachel David regarding premium increases

Station: 6PR
Program: Perth Live
Date: 23/10/2019
Time: 4:06 PM
Compere: Oliver Peterson
Interviewees: Dr Rachel David, CEO, Private Healthcare Australia


OLIVER PETERSON: It seems as though this is a story that plays out almost on a monthly basis. No surprises here, but if you have private health insurance, you’re set to face a hefty premium increase next year. Now, according to the Sydney Morning Herald today, that is likely to be twice the rate of inflation. And it’s being said this is due to the Health Minister Greg Hunt’s deal with the medical devices industry, which failed to lower costs as promised. And that’s going to frustrate you to no end.

So, have you done away with your private health insurance? Is it still value for money, or are you getting sick and tired of having to pay potentially double the rate of inflation when your health insurance goes up again in 2020? 922-11-882, Perth Live, it’s 6pr.com.au.

Rachel David is the Chief Executive of Private Healthcare Australia who joins us live on the radio this afternoon. G’day Rachel.

OLIVER PETERSON: It’s something I’m sure a lot of private healthcare providers reluctantly do, have to increase customers’ premiums year on year, but I guess you’re going to tell me they’re left with little choice.
RACHEL DAVID: Well, that’s for sure. The health funds don’t want to charge consumers one dollar extra for their health insurance. There’s absolutely no doubt, and our prudential regulator has confirmed this, that the reason that health funds premiums go up is because we’re paying more for healthcare claims. There are a couple of reasons for this, and one of them is the large baby boom population that’s now hit the age of what I’d call peak surgery and is requiring more surgery than ever before. And a lot of that surgery uses what I would call prostheses, which are your hip and knee replacements, your lens replacements for eyes, and some of the things that go in to keep your heart going, like pacemakers and artificial valves.

Now we in Australia have been paying some of the highest prices in the world for these things, and quite rightly that the Coalition Government negotiated with the industry, the medical technology industry, to bring some of those prices down in line with global prices. I mean, these are not new technologies in many cases. They are things that have been on the market for many, many years, but because the Commonwealth Government regulates the price and not the market, the prices haven’t declined along the lines that technology normally does. So, we were not only provided far more of these devices than ever before, but we were paying the highest costs. So quite rightly, Minister Hunt’s negotiated a deal, and the health funds in advance of that deal passed on those benefit reductions to consumers, so that last time we actually had the lowest premium increase that we’ve had in about 17 years. That was the right thing to do. But what we found over the last 12 months is that medical device companies have actually driven sales volumes to make up the difference. So instead of saving $250 million off premiums, we only saved 13 million. I don’t-

OLIVER PETERSON: [Interrupts] I’ll come to what price rises might be next year in just a moment, Rachel, but with any product, and I understand these are potentially technical and lifesaving surgeries we’re talking about in terms of pacemakers, for example, or somebody having a knee replacement or a hip replacement. But we all knew that our baby boomers were going to age. We all knew that there would be more strain and pressure on the health system. If it just comes down to a simple demand and supply scenario, why has it been, I suppose, the manufacturers of what might be a knee replacement – if I can make it as simple as that just for a moment – why haven’t they kept supply up with demand?
RACHEL DAVID: Well look, they- what has happened is that the Commonwealth Government has regulated the benefits or the prices of these things, so that one of the best hip replacements that we have that is- gets some of the best result is actually a 40 year old technology, but we still pay one of the highest prices- we still pay absolutely world high prices for that because the way it’s regulated, the price has not declined over time.

Now I don’t think- unlike the Sydney Morning Herald, I don’t think this is unsolvable. I think there are some things that we’re talking to the Government about that can help us keep premiums low. I- and you know, certainly the Commonwealth Government and the health fund, there is nothing that they want less than to see a big premium increase. [Indistinct]

OLIVER PETERSON: Alright, so what could Government then do to keep those prices lower? What pressure can you force the Governments to do so that you’re not then turning around and obviously having to hike the prices that the customers pay for their health insurance premiums?
RACHEL DAVID: Well, given the sheer amount of elective surgery or non-emergency surgery and mental healthcare that we’re now paying for, we definitely- what we don’t want to do is to reduce any of the value or the services that we’re actually funding. And I think that’s very important. So, the first thing is we don’t want to make the products any, you know- or reduce the value of any of the products, nor do we want to put any providers at risk. So, we don’t want to be in a situation where health funds and hospitals are going broke because the premiums they’re offering is inappropriate. And the regulator won’t let that happen anyway.

There are some things that can be done. And one of them is to further look at the medical device area. One of the ways in which volumes were driven up was by adding some of the smaller devices to the orders that were going to hospitals. So, while the price of a hip may have come down a little bit, there are a number of things added to the pack that went to the hospitals like glues and cements and tapes and other smaller things to make up the difference.

And we think those don’t need to be on the prostheses list, or the device list; they’re not actually implantable devices. And the hospitals can negotiate with the funds over the provision of those things, we’ll still pay for them but we’ll negotiate the price, and that’s the way it should be.

The other thing we’ve asked the Government to look at is some of the cost shifting that’s going on from state governments, the hounding of people entering public hospital emergency departments and asking them to use their private health insurance. Many of these people are presenting with short term medical conditions – like shortness of breath – which traditionally have been covered under the Medicare side of the system, and people have paid their taxes and they’re perfectly entitled to be treated as Medicare patients, but instead they’re hounded to use their private health insurance, they’ve paid twice, and this is putting upwards of a billion dollars a year pressure on premiums. That’s the other [indistinct].

OLIVER PETERSON: [Talks over] Sure, but you’ll probably hear back from the state operated hospitals as well that it’s working the other way – that people should be using their private health insurance as opposed to go to the public hospital.

I just want to ask for our listeners in particular, Rachel, they’ll be very interested in knowing what the premium might go up by next year. As you said, lowest in about 17 years this year, but on average 3.25 per cent. What would you forecast your premium to be hiked by in 2020?

RACHEL DAVID: Well look, we’re going to do everything in our power to keep premiums flat next year. At this point, we’re just in the process of preparing the data that needs to go to our regulator – APRA, which looks at it – and to the Federal Health Minister. And at that point, they’ll give us some feedback and make a decision. I can’t tell at this point. All we can do is look at the data that has been submitted for claims and look at the forecast over the next 12 months. But while there is this upward pressure on with an ageing population and chronic disease, we have to work extra hard to keep a lid on premiums.
OLIVER PETERSON: You can see that with already falling health insurance customer numbers that the premiums will see a further drop off.
RACHEL DAVID: Look, one of the issues that we have is we are regulated under a system called community rating, which means we don’t vary the premiums based on your risk. So, if you have three chronic conditions, you need surgery, and you know, you have cancer – you will pay the same premium as someone the same age who’s in perfect health. It’s not like your car insurance or travel insurance because of community rating.

Now, one of the side effects of community rating is that while it’s a very fair system it does mean that healthier people, to an extent, cost subsidise older and unhealthier people. And they get the impression that they’re paying more and getting less. Now, what we’ve asked the Government to do because of that is not to end community rating, because that would be very unfair for older people who’ve paid their premiums all their life, but to look at maybe rejigging some of the incentives and the carrots and sticks in the private health insurance regulations to help younger people get a foothold in the system and make premiums more affordable. That’s a longer term piece, and at the same time we’re looking at managing costs to make sure that premiums remain under control. But we do think, at this point, there is a need to rebalance the incentives to help younger people retain private health insurance.

OLIVER PETERSON: Rachel, I appreciate your time on Perth Live this afternoon. Thank you very much.
RACHEL DAVID: Thanks Oliver.
OLIVER PETERSON: She’s the Chief Executive of Private Healthcare Australia, Rachel David.

Over to you. One thing you can take away from that is your health insurance premiums will increase in 2020 – by how much? We don’t know, but this year, it’s the lowest in 17 years. 3.25 per cent. So it will probably go up even more than that, and that is certainly a lot higher than inflation will be this year.

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