ABC Radio Melbourne Mornings program interview with Dr Rachel David about value for money in private health insurance

Station: ABC Radio Melbourne
Program: Mornings
Date: 16/7/2019
Time: 8:35 AM
Compere: Jon Faine
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


JON FAINE: Year after year, the cost of private health insurance goes up by more than inflation and we’re told that’s because we’re getting better value money, that health costs are soaring, that new equipment, new technology and new pharmaceuticals are being included and that this is about as good a system as it gets.

Well, serious questions now are being posed about value for money in private health insurance but also as you’ve been hearing on AM this morning, some scary predictions about what it means for the future if younger Australians don’t take up health insurance, and on current trends they’re not, then the people who are in the insurance pool are the more expensive older people and the costs will continue to go up and up and up.

And that has a spiralling effect. As the costs go up, people get less value so more and more people pull out and on it goes. And that’s where the death spiral scenario comes from. Rachel David is CEO of Private Health Australia. Rachel good morning to you.

RACHEL DAVID: Morning, John.
JON FAINE: Do you think we get value for money with health insurance?
RACHEL DAVID: Well look, I think the issue is a number of people are getting value for money, but as you’ve correctly said, it is people aged over 55 that are now seeking medical treatment in almost record amounts. And really there’s no new information in the Grattan Institute report. We have known for years, as a country and as the Federal Government has articulated before, there would come a time when the baby boom population would reach a certain age, would be consuming record amounts of health services and it would be challenging for younger generation to fund that either through their taxes or through health insurance premiums which is why we also are calling for further reform.
JON FAINE: Increasingly, people adopt what they’re calling self-insurance. In other words, you kind of in your own head or maybe actually financially in a separate bank account, put aside the money you would’ve paid on premiums, put it aside and you kind of run your own little insurance fund. Doesn’t that work for people?
RACHEL DAVID: Well, look I think it sounds nice in theory but the reality is most people grossly underestimate how much even a routine hospital visit would cost. So to give you an example …
JON FAINE: [Interrupts] Well, if you’re in the public system – to interrupt, I’m sorry but if you go public, it doesn’t cost you much at all.
RACHEL DAVID: Well it depends on what you’re going in for. A number of procedures you have to wait for over two years. That includes waiting for an outpatient appointment and then a further wait for surgery after that. So a standard hip replacement, for example, if you’re in pain and you can’t walk, you might wait, in most situations, you’d be waiting well over a year maybe two years for that procedure in a public hospital maybe a little bit less if you’re lucky. But to fund that yourself with no other complications or out of pockets, you’re looking at an average of $28,000 and that’s completely out of reach for people to save that amount with other costs that they have to bear on an average income.
JON FAINE: And with the example you just used, you have cemented, you have reinforced the perception that it’s for old people. Talking about hip operations and replacement does not resonate with anybody under 50.
RACHEL DAVID: But what does resonate particularly for younger people is the growth in the need for admission to hospital for mental health conditions. It is the largest reason why people under 30 claim on their private health insurance overtaking reproductive health for women some time ago. So there is value at that level but the government does need to work with us to do more to keep health insurance in rates of younger and working people because if it works, it is a very efficient way to provide funding for essential non-emergency surgery and mental health care.
JON FAINE: It’s effectively become catastrophe insurance though, hasn’t it?
RACHEL DAVID: Well it actually provides a number of things. So, you know, whether it’s elective surgery that you know you’ll need in future or the highly unexpected admission for a mental breakdown that you didn’t see coming or whether it’s dental care, there are a number of roles that it plays and this also was articulated by the Grattan report that maybe those roles need to be clarified by the government. But the best thing that regulators can do, at the moment, is to help us take out unnecessary costs by reviewing the regulation that still, even today, is forcing us to pay record prices for medical devices and it’s forcing us to pay for prolonged hospital admissions that aren’t necessary by any objective standard or judgment.
JON FAINE: Okay. So I’ve got lots of lots of text messages and I’ll get to calls in a moment as well 1300-222-774. Do you think you get value for money from health insurance? And if you’re a younger listener, I’d love to hear from whether or not you’re one of those people who is a- who are abandoning private health insurance leading to the death spiral scenario that Professor Stephen Duckett outlined on AM earlier this morning.

But while I have you Rachel, I do want to basically put the spotlight back on the private health insurance companies. Why don’t they offer more choice in their products? Why on earth would older people still want to take out insurance policies that include things like having children and all sorts of things that don’t apply to them? And why would young people want to take out policies that cover them for things that aren’t going to affect them for decades later in life? And you could bring the cost down by having more tick the box – yes, I do want, no, I don’t want options available within the menu.

RACHEL DAVID: Well look, we could do that under- but it’s not possible under our current regulatory system and it could potentially make the system very unfair.
JON FAINE: [Interrupts] Well it might make it more competitive and that might make it fairer. I mean unfair for who? …for the providers or the customers?
RACHEL DAVID: Well for the customers- that would actually be a risk rated system in which people whose health was poorer would have to pay a much higher premium…
JON FAINE: [Talks over] Why?
RACHEL DAVID: … than people whose health are better.
JON FAINE: [Talks over] They could choose what they want cover for and what they don’t care about.
RACHEL DAVID: Well I guess it’s an issue for the regulators. At the moment, all the regulators and both major political parties support a community rating system, where there is a degree of cross subsidy between healthier people and people that are older and sicker.

So under that system, we have to bundle some products together or some services together so that some healthier people are actually supporting people that are older and in turn when they become sick, the idea is that younger people will join, grow the pie and they in turn will be supported.

Now that has broken down because we have a very large population, sometimes called the Baby Boomers, but that being said, a large population that’s now hit 55 and over, that is requiring a record amount of surgery, they are living longer, we’re having cardiac implants put into people in their 90s, hip surgery on people that have turned 100, this is not- this is something we’ve known was coming but has not been planned for well by governments and maybe even the private sector itself.

And now is the time, we know what the problems are. Now is the time to go in and fix them, take unnecessary costs out and look at really indexing the subsidy or the rebate for younger people and lower income earners.

JON FAINE: Thank you Rachel. Rachel David, CEO of Private Health Australia.
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