Dr Rachel David spoke with 6PR about health inflation and Australia’s community rating system for health insurance

Station: 6PR
Program: Mornings
Date: 19/12/2023
Time: 10:37 AM
Compere: Gary Adshead

Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


GARY ADSHEAD: Dr Rachel David is the Private Healthcare Australia’s Chief Executive and joins us on the line. Thanks very much for your time, Rachel.
GARY ADSHEAD: Now I think- so, last year as an example, HBF the premiums went up by 4.49 per cent. I think HCF 3.3 per cent by September. So there’s always an increase. Just first up, why is there always an increase to your premium with private health?
RACHEL DAVID: Well, health funds themselves don’t want to put up the cost of health insurance by a single dollar. It is- We really understand that consumers are doing it tough. But what the price rises reflect is the underlying cost of health care, particularly the cost of treatment in hospital, which has grown really significantly in the last year, as people have caught up on surgery that was put off during the pandemic, and more older people have joined a health fund. So hospitals are really struggling with inflation at the moment. There’s been inflation in the general community, but it has affected hospitals disproportionately, particularly the costs of recruitment, power and food. And to the extent that most hospitals have a contract with a health fund to deliver services. But out of contract, hospitals have been approaching health funds for more money almost every week over the last year because of the pressures of inflation. So the funds are doing everything they can to minimise waste and to ensure that the full brunt of it is not passed on to consumers. But it is tough at the moment, and we’re caught between wanting to make sure that consumers can afford health insurance, but also making sure that if they need it, that they’re not short changed. If they need to go to hospital, that they can access the hospital and the best quality of care available.
GARY ADSHEAD: Yeah. What’s the balancing act like at the moment? That in terms of knowing that if insurance premiums keep going up and up, there might be more people drop out? I think I think the current rate of people in Australia, or ratio of people with private health insurance in Australia, is around 45 per cent, and correct me if I’m wrong. But how do you sort of deal with that? The fact that people might just go, well, I’ve got to let something go and it might be this private health.
RACHEL DAVID: Look at the moment, they’re roughly- 55 per cent of the population, or 15 million people has some form of health insurance, from the smallest amount to the biggest amount of cover. And one of the big motivating factors at the moment has been that waiting list for many common procedures have blown out in public hospitals. There’s been a lot of pressure on public hospitals as a consequence of the pandemic. And that includes not just waiting lists, but issues like ambulance ramping and overcrowding. And so to- so people have perceived that, and have and have wanted to have more control over the timing of things like surgery and access to inpatient mental health care, which can be very difficult to access in the public sector. So that’s why they’re doing it. And in fact, about an extra million people have joined a health fund since March 2020.

Now, in terms of cost of living pressures, you know, people that need surgery will prioritise their health insurance over other things in the family budget, and- or if they perceive that they need surgery, they will prioritise health insurance. And so we’ve got to make sure that they’re looked after. There are some things that are within the control of health funds to cut back on. But there are some things that aren’t. And they are the rising costs of food, electricity, wages and so forth that hospitals need to need to cover. We’ll negotiate with the Federal Government about what is the most appropriate price. In the end, it is the Government’s decision. Our pricing is regulated very closely, both on the financial side and on the health side. But if I can give you an example of what we’re trying to do, that we know that the input costs of how hospitals run has gone up by close to 6 per cent, so their costs have increased by close to 6 per cent. We will deliver under a 6 per cent premium increase by trying to keep costs down in other areas. But unfortunately, because of the inflation situation, it is highly likely that most people’s premiums will go up next year.

GARY ADSHEAD: Alright. When do you decide that, by the way? When do you work that out?
RACHEL DAVID: Essentially there is a period that goes on now of negotiation between each individual fund and the Federal Government. They need to make a detailed submission about what their costs are and what their likely costs are going to be over the next 12 months. And by early next year, that- some type of announcement is usually made by the Federal Government about what the average increase will be. And it’s implemented from April 1.
GARY ADSHEAD: Can I throw one thing at you to see your reaction?
GARY ADSHEAD: If- okay, so here’s me, for example. Yeah, I’ve got some private health insurance. I never use it, but I’m still paying my premium. Should I be rewarded in some way with a premium cut, because I don’t put any pressure on the system whatsoever other than pay my premium annually?
RACHEL DAVID: Look, there is a discount that is available for people who join when they’re young, in their 20s, but any sort of discounting in addition to that is very closely regulated. And big discounts are actually- other than this regulated discount that’s already in the system, discounting is actually not allowed, because it would create kind of a perverse incentive [Indistinct]…
GARY ADSHEAD: [Talks over] To keep fit, and not need to go to hospital.
RACHEL DAVID: Well, I think the fear is that it would create a perverse incentive. So there would be insufficient funds to treat people once they got very sick, or for people who are very sick. In health insurance in Australia, we don’t vary the premium based on risk. If you are very sick when you join a health fund, you’ll pay the same premium as someone who’s well. But that does create some problems in the system as you can imagine, including feelings of resentment from healthy people that perceive that they’re getting nothing back, and it becomes a grudge purchase. It’s not just like me going to a shop and spending a lot of money on a handbag, I get something to take home. I’m buying health insurance in case something happens, or because I know I’m likely to need it in- you know, when I’m older. So, we are, as an industry, trying to do as much as we can to provide health and fitness tools for members when they’re younger. And some things like if you’ve got extra cover, free dental scale and clean, and various other allied health services that you can get which help prevent illness later on.

But it is it is a feature of our system in Australia to make sure that people who are very sick don’t get slugged enormous amounts. The department- or our regulators do limit the amount of discounting that can be given to a younger or healthier person.

GARY ADSHEAD: Yeah. So there’s no way that the idea that I’m talking about whereby I get regularly checked up by a doctor, the doctor says everything’s fine thereof. Therefore, I can take a reduction in my private health on the basis of that. You don’t think that that’s at all plausible?
RACHEL DAVID: Under our current system, which is called the community rating system, that’s not possible. So the only discount that’s available is based on age.
GARY ADSHEAD: Okay. Well, I am not getting any younger so I’ll probably hang in there with it at 57.
RACHEL DAVID: Good to hear.
GARY ADSHEAD: You never know what’s around the corner. Hey Rachel, thanks very much for going through all that with us. Appreciate it.
RACHEL DAVID: Thanks, Gary.
GARY ADSHEAD: Good on you, doctor. Rachel. David there, Private Healthcare Australia CEO.
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