ABC Radio Adelaide interview with Dr Rachel David regarding private health insurance

Station: ABC Radio Adelaide
Program: Afternoons
Date: 1/11/2017
Time: 1:22 PM
Compere: Sonya Feldhoff
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


SONYA FELDHOFF: Well, someone who can address Macy’s concerns, and perhaps yours as well, is Dr Rachel David. Rachel is the CEO of Private Healthcare Australia.

Rachel, good afternoon.

RACHEL DAVID: G’day Sonya.
SONYA FELDHOFF: Thanks for your time. Private Healthcare Australia represents who exactly?
RACHEL DAVID: We represent Australia’s top 20 health funds, based roughly on their size, which accounts for about 96 per cent of members of health funds in Australia.
SONYA FELDHOFF: So the claims that were made to the Parliamentary Committee by the AMA head yesterday about- how do you respond to claims that many Australians are buying useless health insurance, and the plea that they don’t need and shouldn’t need medical training to understand what what products cover?
RACHEL DAVID: Look, I think there are two separate issues there, which I might address separately. So the first issue is about the fact that private health funds and the AMA are in violent agreement that consumers and patients maybe need a bit more help to choose and use their health insurance. This is because the health system itself over the last 10 to 20 years has become a lot more complex.

There are a lot more treatments available, and secondly, the main concern that consumers have is the affordability of the premium, and because of concerns about affordability, more products with exclusions of particular types of medical treatment have been introduced onto the market in the last 10 years, and that means there are more products to choose from, and you do need to be mindful and understand how different medical treatments are described to understand what’s in and what’s out of those products with exclusions.

SONYA FELDHOFF: Do you see private health companies as having a responsibility to be as clear and transparent as possible on that front?
RACHEL DAVID: Well, absolutely, as does everyone else in the private health supply chain. So working together on this is the most important part. Already the health funds have made a significant investment in delivering the Government’s gold, silver, bronze, basic products classification, which will be rolled out in about 12 to 18 months’ time.

We’ve already made an investment in standardising the medical or health terms that funds use so people can better compare what’s in and what’s out, and we will be re-investing in the Ombudsman’s website, which helps- it’s a very independent site; it’s not run by an aggregator or a comparator company. It’s an independent site which will help patients and consumers choose a product from the entire range that’s currently available, not a selection.

SONYA FELDHOFF: So Rachel, from what you’re saying, you think things should be better in the future than they have been in the past?
RACHEL DAVID: Look, I think everybody who’s operating in the private health sector can do a better job with explaining to consumers what they’re buying and what they’re not. It is a complex system. Health funds are not permitted, for example, by regulation to cover some things, and it’s important that consumers are aware of that at the time that they’re considering buying private health fund products.

But that being said, when we’ve surveyed probably 20,000 consumers to get an understanding of what’s driving them to take up private health insurance in the last 18 months, and we’ve found that overwhelmingly people value the health insurance product that they’ve got. So we found that 84 per cent of people who have private health insurance understand the need for it and value their product, which is something that we can really build on, in terms of helping them understand what it is they’re covered for, and also what out of pocket costs they’re likely to experience in the process of claiming.

SONYA FELDHOFF: Obviously, you represent the large majority of private health insurers, and there seems to be a lot of change happening with this new standardised process. It’s probably hard for you to say, but has there been a tendency to muddy the waters in the past on what is covered?
RACHEL DAVID: Yes, it’s absolutely not in the interests of health funds to make things more confusing for their members. The best thing a health fund can have is a longstanding relationship with the member, and the biggest disaster a health fund can face is if a number of members leave. So, that’s why health funds are committed to investing more to help consumers choose and use their health insurance, and there’s absolutely no evidence that health funds are confusing customers intentionally.
SONYA FELDHOFF: Rachel, can I ask you then about this shareholder question? I mean, obviously, you are private health companies. You are there to help consumers, but you are also there as a business and you need to make money for your shareholders. How do you balance that to the point that we- because there are a lot of people, and I can read you texts right in front of me now of people who are cynical about the amount of money that’s going in their premiums, which they believe is really more for the benefit of shareholders than for clients. Now, you’re in a difficult position, because you do have to look after your shareholders; you’re a commercial business, but where is that fine line about looking after both?
RACHEL DAVID: Alright, so I’m going to run through a few numbers with you now, so bear with me, but I just think it’s important that people understand the facts behind what is being claimed, understand what it is that health funds actually do. So out of the 20 health funds that we represent, two have shareholders. The rest have various not-for-profit and private business structures where they have members, so we’re really only talking about two funds that have shareholders out of a total of 20.
SONYA FELDHOFF: [Interrupts] But how many clients do those two represent? Because they would be the biggest ones, wouldn’t they?
RACHEL DAVID: Not necessarily, no. There are two, there’s a mid-sized fund and a large fund, not the largest, that are for-profit, but it has no impact on the claims, on the amount of claims they pay out for members. So, the claims ratio for health funds, or how much money members get back for every dollar they spend on premiums, is 86 cents in the dollar. That is far higher than any other form of insurance. Other forms of insurance are claims ratios 40 to 60 cents in the dollar, so that’s the first thing to be aware of.

The second thing to be aware of is the profit margin of funds, which is reported to our regulator on a regular basis, is 5.13 per cent, and that has remained dead stable over the last 10 to 15 years. It has not changed, so not only is the profit margin stable, we are paying out more back to members than any other form of insurance in the sector.

Then you look at the issue of management expenses, which is the other thing we’re measured on, and waste. Our management expense ratios have declined to the level of 8.9 per cent, which is not only the lowest they’ve ever been, but is far lower than other equivalent financial service institutions. So the health funds are running very lean.

So when it comes to this perspective that there is a pot of gold somewhere that health fund members can’t access because it’s being squirrelled away or it’s going to shareholders, this is simply not borne out by the facts. Upward pressure on premiums is coming from inflation within the health sector from …

SONYA FELDHOFF: Well, if that’s not the reality, Rachel, though, you have a really big problem though, don’t you, in addressing the perception at least, because as I said, I can read you texts that all complain about not only the cost of premiums but the gaps. Even though they spend thousands of dollars in premiums a year, the gaps that people have to pay. So if you say the figures don’t bear or the facts don’t bear out that part, you’ve got a really big perception issue that you’ve got to address.
RACHEL DAVID: Well look, I think one thing that people need to understand is this is an issue for the whole health system. For the Medicare system, which covers our public hospitals, their costs have been going up at 8 per cent per year, and that was funded through a 6.5 per cent increase that was built in from the Commonwealth, and that comes out of our taxes. So the Medicare system is also inflating, in terms of its cost, and we have to fund that out of a shrinking tax base.

The issue with private health insurance is people get that price signal directly in the premium increase. Now, health funds are working very hard with government, with hospitals and doctors to make sure that the input costs are kept as low as possible, and that waste is minimised so there is no upward pressure on premiums, but the issue is that people, as we’re living longer, are simply using the health system more.

That’s what’s driving the costs up. No one is to blame, as such, but the input costs and the cost of people using the health system more and more as the baby boomers get older means that the hospital accommodation costs are going up, allied health costs are going up, doctors’ costs are going up, and the costs of medical equipment and technology are increasing, and that’s as a direct result of the fact that we’re all using the health system more, whether it’s the private side or the public side.

SONYA FELDHOFF: Well, Rachel David, thank you very much for joining us on the program today. Very much appreciate your time.
RACHEL DAVID: Thanks, Sonya.
SONYA FELDHOFF: Rachel is the CEO of Private Healthcare Australia.
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