Dr Rachel David discusses health inflation and premiums on ABC Radio Canberra

Station: ABC Radio Canberra
Program: Drive
Date: 5/3/2024
Time: 5:18 PM
Compere: Ross Solly
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


ROSS SOLLY: Just before we go to Dr Rachel David, who is the CEO of Private Healthcare Australia, in announcing today a 3 per cent rise, the Health Minister, Mark Butler, said that he did have to take into account the years of record profits. Now, here’s some figures from the last 12 months or so: Medibank Private, the group net profit after tax, $511.1 million. They’ve put their premiums up today by 3.3 per cent. Bupa about $495 million. They’ve put their premiums up by 3.61. HCF net profit after tax, $171.4 million. Their premiums are going to go up 2.89 per cent. And nib Private, the group net profit after tax for 2023, $191.1 million, and they’ve announced today that their premiums are going up by 4.1 per cent. Dr Rachel David, CEO of Private Healthcare Australia, thanks for joining us.
RACHEL DAVID: Thank you.
ROSS SOLLY: So you actually had asked for 6 per cent. Are you happy to take this offer?
RACHEL DAVID: Look, the setting- premium setting process that we undertake with the Federal Government is a very highly controlled process. There are- there’s more than one regulator involved. So there’s APRA, the prudential regulator that goes through the figures with a fine tooth comb to ensure the funds can meet all their obligations under the law; and then the Department of Health that, as a regulator, also goes through the same process to ensure that the funds are behaving appropriately in terms of the health sector. And there are multiple cycles of this. So it doesn’t just happen once. They have to be fully satisfied that not a dollar is going astray or being wasted on something that is inappropriate. So, it is a cooperative process. The health funds make their books fully available to the government. Nothing is kept secret. And at the end of the day, it is not the health funds that set the price but it’s an evidence-based procedure that the Health Minister ultimately approves.
ROSS SOLLY: Yeah. Do you understand, though, why some people think how come when private health companies are making millions of dollars in profits here – and I just read out there some of the profits from some of the big private health insurance companies – that they still need to ask for a rise? Why can they not be happy with the level of profits they’ve got instead of fleecing the policyholders?
RACHEL DAVID: Well, look, I think you need to look at how much the funds are actually spending on claims and how long it would last even if they did actually start to pay some of that out in claims. So, last year, they actually paid out a record amount in claims, and they pay back far more than any other form of insurance for every premium dollar spent. Now, that being said-
ROSS SOLLY: [Interrupts] That being said, they still made a profit. A healthy profit.
RACHEL DAVID: Well, absolutely. They are private businesses after all. And if people are very concerned about that, they can actually look at those figures and choose a not-for-profit health fund if they’re concerned about the business model of the fund. But in reality, what we’re seeing there is there’s still a little bit of inflation in the profit numbers because of the consequences of the pandemic when there were some lockdowns. And you’ll recall that the health funds committed formally to returning any excess profit from that time period back to consumers, which they did at $4.3 billion, which they’ve paid back to consumers in various ways. So, that process is still continuing up until April 1. The Medibank give-back has still not occurred. So some of that money is making the profit numbers look bigger than perhaps they actually are.
ROSS SOLLY: Do you believe, Dr Rachel David, or does Private Healthcare Australia believe there is a breaking point in terms of consumers out there where- I mean, we just heard a couple of people telling Hinako today that 3 per cent is going to be really, really tough for them, that they’re not sure how they’re going to find the money to pay the increase in premiums. Do you believe there’s a breaking point? And are we nearly there in terms of how much people are prepared to pay for private health insurance?
RACHEL DAVID: Look, I think everybody in the community is struggling to some extent with cost of living pressures, bar a very few- very small number of ultra-successful people. Everybody that I know certainly is struggling with cost of living and other and health costs, and that is why everybody involved in the process of setting these prices went over the figures with a fine tooth comb to make sure it was absolutely not higher than necessary. But what we have to consider is inflation in the health sector. So inflation affects the health sector at the same as any other sector. And hospitals have had to pay far more in the last year for recruitment, power, and food than they have in previous years, and we have had to cover that to ensure that when people need care, they get the highest quality care possible and are not short-changed. So we have had to cover for that. Hopefully, now that inflation is beginning to get under control, that won’t be a factor. But the other issue is that the funds are actually paying for more procedures year-on-year. So that has to be taken into account as well.
ROSS SOLLY: Here’s a text which reflects a few people who are getting in touch with us now on 0467-922-666. This texter says: private health insurance, and I have it, is the greatest rort going and it happens with government imprimatur, sorry, and tax penalties if you don’t. There’s no pressure from government to provide value for money. This seems to be a common argument we hear, that it’s one thing to ask people to pay more and to pay a lot of money for private health, but then a lot of people seem very unhappy with the service that’s provided. And in fact, if push comes to shove, when the choice is there to be made, they’ll quite often go public rather than go to private anyway, because they don’t want to be stuck paying a big gap and doing all this other stuff that they get stung by.
RACHEL DAVID: Look, what we’re actually finding is that we really understand that this is a grudge purchase and that it’s a big sacrifice for a number of families. It’s not like, you know, you’re going to the shop and spending $700 on a new handbag or $15,000 on a new car and you’ve got something nice to bring home with you. Often you pay the premium, and it can be many years before that value comes back. But we know that it does come back because for every dollar that people spend in premiums, $0.86 will come back to them. But it’s over a lifetime. And some of that, and we heard the lady on the vox pops earlier who’d had two knee replacements, the cost of trying to fund that procedure yourself is well into six figures. And if you tried to get it in a public hospital, you could be waiting years, which might be fine for some people if they’re not working and if they lead a sedentary lifestyle. But a lot of people these days work well into their 70s. Many people, even in their 80s, lead a very active lifestyle and that’s just not acceptable to them.

So, we are seeing- we have seen probably about 14 quarters of growth in membership in private health insurance. So the sector is growing in spite of the challenges because people really do- when they really sit down and think about it, they actually value what the funds have to offer.

ROSS SOLLY: Dr Rachel David, appreciate your time this afternoon. Thank you.
RACHEL DAVID: No problem at all.
ROSS SOLLY: Dr Rachel David, who’s the chief executive officer of Private Healthcare Australia.
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