6PR Mornings interview with Dr Rachel David re proposal to discount PHI for younger people

Station: 6PR
Program: Mornings
Date: 12/09/2017
Time: 10:48 AM
Compere: Gareth Parker
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


GARETH PARKER: Now, at the moment we know that health insurance costs you the same whether you’re 18-years-old or whether you’re 98-years-old – private health insurance that is. And the idea is that we all pay a universal rate, the insurers can then cover the costs that they bear and everyone’s covered at the same rate. It makes sense – universal coverage – I get it. What if young people though, got a discount? Why would health insurers be interested in giving young people a discount? Well, let’s find out because it’s a proposal being kicked around by the private health insurance industry.

Rachel David is the CEO of Private Healthcare Australia. Rachel, good morning.

RACHEL DAVID: Morning, Gareth.
GARETH PARKER: I’ve got that right, haven’t I? Everyone pretty much pays the same rate, the same price for a private health insurance product at the moment?
RACHEL DAVID: Yeah, well with just one exception and that is if you join for the first time over the age of 30, you pay a bit more for every year over the age of 30 that you join. That’s to stop people joining for the first time when they’re elderly and at the point at which they’re going to claim. And it helps for people to make a contribution to their own healthcare over their lifetime, particularly to support other people who are health fund members who might be at the point where they need to claim.
GARETH PARKER: Right. So that’s what’s known as the lifetime loading, is it?
RACHEL DAVID: That’s right. So if you join for the first time when you’re over 30, the theory is that the older you get, the more at risk you are of claiming and so you pay a little bit more.
GARETH PARKER: Okay. And so that’s to try and incentivise people to take up health insurance younger so they pay into the big pool and everyone hopefully gets covered. The idea is you pay more and claim less when you’re young and healthy, and you pay the same but claim more when you get older and perhaps, unhealthier.
RACHEL DAVID: Absolutely. And that’s a core part of what we call the community ratings system. Unlike health insurance in some other countries like the US where you have to pay more if you’re a sick person, we don’t discriminate against people if they’re sick, unwell or disabled. Everybody pays the same unless they join for the first time when they’re older.
GARETH PARKER: Okay. So why then would the industry consider a proposal for younger people to pay less?
RACHEL DAVID: The whole success of our health insurance system under the community ratings system relies on there being a big spread of age ranges. You can imagine if you only had sick, frail and elderly people in the health fund, you would pay out more than you took in in premiums and premiums would become extremely expensive for everybody and the market would contract so that only a very few people in the community could afford health insurance. However, if we keep people joining across a wide range of ages and make sure that everyone gets value according to the life stage that they’re at, then there’s a good mix of healthier people and less healthy people so that premiums stay low for everyone.
GARETH PARKER: So is the idea to try and get young people in the door who might otherwise be forgoing private insurance?
RACHEL DAVID: Yeah, I think it is. We know from our own research that younger people who are financially savvy and who are health system literate, and they’re about their own health, are more likely to join private health insurance. However, increasingly younger people – particularly when they’re first leaving the family home – are under a lot of pressure. There’s pressure from poor housing affordability in many capital cities, the cost of utility bills like electricity and the cost of paying back their education. Now, we think it’s worthwhile to help with that by offering them a bit of discount and by doing that will help keep premiums lower for everyone throughout life.
GARETH PARKER: Okay. So some older people might think it’s a bit unfair to undo this principle that everyone pays the same.
RACHEL DAVID: Well look, we’re not undoing it because if you join for the first time aged over 30 you’ll pay more anyway. But by giving younger people some encouragement to join even earlier than when they turn 30, that will help keep a ceiling on premiums for everyone. The worst case scenario is if because of other financial pressures like housing affordability is if really very low rates of people aged under 30 join, then premiums will definitely go up higher than they need to be for everyone else.
GARETH PARKER: Okay. So, is the concern perhaps that if people don’t take health insurance up at younger age, they may never take it up?
RACHEL DAVID: That’s certainly one risk, particularly if they don’t get to experience the benefits of private health insurance early they may never take it up. But probably a bigger risk is that they’ll reach a point in their life where something serious does happen, like a mental health condition or an accident, and they find that they would like to take it up but they’ve been priced out because they’re several years aged over 30 and it’s unaffordable.
GARETH PARKER: Okay. Can I ask you another question?
GARETH PARKER: Is it the case that if people tend to join younger then they tend to keep their coverage throughout their lifetime?
RACHEL DAVID: Yes, particularly if they have a good experience. And we know that health fund members who do join at a younger age have, for example, better dental health and better teeth than people without health insurance. And one of the reasons for that is that private health insurance reimburses about 90 per cent of dental services that are provided. So there are very real benefits for joining at an early age. And increasingly, health funds are focused on younger customers and what more value they can provide.
GARETH PARKER: Okay. We’ve done a lot of stories on the program this year about private health insurance. We know it’s getting more expensive every year – I don’t see that changing anytime soon – and health costs generally, not just private insurance but the public hospital system – pretty much anything to do with health – seems to be getting much more expensive at a rate higher than inflation. So, is a concern that fewer young people are actually taking up insurance because of those costs?
RACHEL DAVID: Yeah look, I think that certainly you’re right in saying that costs for the whole health system are going up. We know that public hospitals have had a 6.5 per cent per year funding increase approved. But I think for a lot of young people, they need to be educated and we need to help them understand that there are some conditions that could seriously stop them working or being productive, like a serious mental health condition or a sporting injury, and there are products available that are lower cost and that can help them get the value that they need from private health insurance. So we’re working on a number of ways to make it easier for consumers to choose a [indistinct] health insurance.
GARETH PARKER: Sure. If you want to introduce this scheme, do you need the government to change the law?
RACHEL DAVID: We do. It will require a change to the legislation and that’s something that we’re talking to the government about at the moment. We think that if this change is approved, that will happen pretty soon.
GARETH PARKER: Okay. Do you think that they’re likely to approve it?
RACHEL DAVID: Look, I think it tells a very good story for young people not only about the value of private health insurance but that you can get to that first step on the ladder and a find a product that will be affordable, even if you need to upgrade later at the time that you start a family or that your health needs change.
GARETH PARKER: Yeah. Okay. Well Rachel, thanks for explaining it to us on the morning program.
RACHEL DAVID: No problem, Gareth.
GARETH PARKER: Rachel David, Private Healthcare Australia CEO. Interesting proposal, isn’t it? I mean, I get the logic of it. I’ve got to say, I do get the logic of it. If you don’t have young healthy people who are participating in the system, then we’re all going to be in strife as we get older, so I get that. Interesting proposal, I wonder if the Government will take it up.
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