PHA Independent Chair’s Speech to the Actuaries Institute – Future of Health Seminar

Private Healthcare Australia Independent Chair, Hon. John Hill

Speech to the Actuaries Institute – Future of Health Seminar

23 October 2019

Grand Hyatt, Melbourne

On 7 May 2017, before the Federal Budget of that year, the Australian Health Care Reform Alliance called on the Government:

to abolish the PHI rebate in today’s budget and use the saved funds to establish an independent health body and meet other areas of greater need within the health system.

The media commentary came from the AHCRA Chair Jennifer Doggett who highlighted mental health, primary health care, dental care, public health, indigenous health and public specialist services as areas which could do with the extra cash.

As a former Labor health minister – over seven years in SA – I would never disagree that these are not areas of great need and could all do with extra resources.

The question, though, is not whether they need extra support, but would it be sensible to fund these areas of need by taking away subsidies to lower income people who choose to contribute to their own health care needs by buying private health insurance?

That is the question that I will explore today.

There is a campaign from some circles to abolish the PHI rebate and it is consistently pushed year after year – in the world of federal politics it has never really gained any genuine traction.

Tim Woodruff, the President of the Doctors Reform Society, in an article published online in Croakey on 22 August this year, argues that the subsidy should be removed, although he acknowledges that it would need to be done carefully and slowly to manage the build up in capacity in the public system to cover the 60% of elective surgery currently done in the private sector.

He rejects the concept that private health insurance should be an option for all Australians; as he says:

PHI could be in Australia what it is in the UK, an expensive insurance product for the wealthy to use to choose their hospital and doctor, the timing of admissions, and the quality of non medical ancillaries such as the view from the hospital bed.

Fortunately, this view is not part of the political mainstream in Australia.

In a speech on 5 March 1984, the first anniversary of the introduction of Medicare, then PM Bob Hawke said:

 Let me stress that this government has no intention of nationalising health care in this country…There is no plan to end private practice. We regard private practice as a fundamental and essential part of our health care system.

Indeed, Hawke went on to explain the government’s ‘new system of private hospital subsidies’.

What Jennifer Doggett and Tim Woodruff highlight is that there are many ways that a nation’s health system can be designed. The current Australian model is unique, with its blend of public and private and it is effective: regularly rated amongst the very best in the world in terms of access and outcomes. Importantly, in terms of outcomes Australia rated #1 and the UK #10.

Some figures:

As of 30 June 2019, 11.22 million Australians – i.e. 44.2% of the population had hospital insurance cover and 13.59 million [53.5%] had general treatment cover [the extras].

In total 13.6 million [53.6%] Australians had some form of private health insurance. Collectively they paid $24.56 billion in premiums and received $21.128 billion worth of benefits – i.e. a return of 86 cents on each dollar invested into health insurance compared to the 69 cents return for general insurance.

An estimated $6.3 billion was paid to Australians by the Commonwealth in 2018-19 to subsidise their PHI fees via the PHI Rebate. For the record that is far from the $12b often cited by opponents of the policy – those seeking to have the rebate abolished and redirected to the public system.

It is unlikely that transferring that $6b would have a substantial upside on the public sector, which now costs state and federal governments in excess of $52.6 billion a year (which represents 10% of government tax revenue). It would however have a substantial downside.

Supported by the rebate, consumers invested an additional $18.2 billion into their own health care via their private health insurance premiums during this period ($13 billion for hospital treatment and $5 billion for extras). That is $18.2 billion that State and Federal Governments did NOT have to contribute.

Let’s examine the subsidy and its effect – it’s been in place now for 20 years and has largely [with other measures such as Lifetime Health Cover and the Medicare Levy Surcharge] stopped the decline in PHI participation. When it was introduced by the Howard Government in 1999 PHI participation had fallen to around 30%.

Who gets the subsidy?

First, it is important to note that the PHI Rebate does not go to private health insurers, it goes to consumers and the PHI Rebate is means-tested so it goes to those most in need.

The private health insurance rebate applies to hospital, general treatment and ambulance policies. If you earn less than $140,000 as a single, or $280,000 as a family and are entitled to Medicare, the Government’s private health insurance rebate will reduce the amount you pay for your private health insurance. Generally speaking, the older you are and the less you earn, the higher your rebate will be.

More than 75% [75.1%] of people with PHI have an annual income below $90,000 – more than 25% [26.5%] have an income below $30,000 – including 267,942 pensioners who have made the decisions to continue accessing private health insurance.

In addition, there are more than 124,000 self-funded retirees with an annual income of less than $50,000 who have retained PHI. Far from being a plaything for the rich, only 8.2% of people with PHI have annual incomes of more than $150,000.

Why do so many people on low to middle incomes pay for private health insurance?

The motivations aren’t complex: In terms of health cover they want peace of mind, choice of doctor, a private room where available and possibly most importantly, timely treatment.

While there is no quantitive data available for private hospital waiting times – it is generally understood that it takes only between 14 to 28 days from booking surgery and receiving it.

In the public hospitals, which are often overwhelmed with emergency cases, the median waiting times can vary considerably across institutions and procedures. Figures for 2017-2018 showed that median waiting times varied between 15 days [for breast lump excision and/or biopsy] and 248 days [for septoplasty]; importantly and painfully, the median wait for total knee replacement was 198 days with 363 days wait at the 90th percentile.

And we need to bear in mind that these are measurements of times between specialist visit and procedure – which are negligible in the private sector – and not necessarily the first specialist visit, often multiple visits occur before surgery is booked.

Figures from Western Australia show that at the end of December 2017 almost 80,000 people were waiting for their first appointment and of these 50 percent had been waiting for more than 267 days.  And once the surgery had been booked the median wait was another 34 days.

What would be the consequence of following the advice of the Australian Health Reform Alliance and the Doctors Reform Society suggest and abolishing the rebate?

  1. Low income earners would face very difficult choices.

Based on the age tiers and present conditions, abolishing the PHI rebate would see PHI premiums increase by as much as 33.4% for under 65s, as much as 41.3% increase for 65-69 year olds and by as much as 50.2% increase for over 70s. (Source: PHA estimates)

  • For example, a 30 year old female with an average annual income of $50,000 will pay up to $687 per year more for top level cover as she makes plans to start a family.
  • A 72 year old female pensioner will pay up to $1,022 per year more for mid-level cover
  • A married couple in their 30s planning to start a family, in the base income tier of $180,000 or less will pay up to $1,540 per year more for top level cover
  • Married pensioners in their 70s, will pay up to $2,044 per year more for their joint mid-level cover.
  1. With the full removal of the rebate and assuming hospital cover participation level drops back to around 30% (pre-rebate 1999 level), based on current numbers, approximately 3.6 million insured Australians would eventually let their PHI lapse.

It would mean that approximately $4.4 billion in total hospital claims costs would be transferred out of PHI to the public hospital system, in addition to more capital expenditure and running costs required by public hospitals to meet this extra load.

We are not on a good trajectory. If private health insurance coverage falls to 40% over the next five years, 1.5 million additional Australians will be relying on the public system by 2025, in addition to projected population growth. If coverage continues to decline over the following decade to 30% between 2030-2035, that would add $19 billion to public hospital budgets each and every year.

Let me put that amount – $19 billion – into perspective for you. That’s roughly the current spend on every single public hospital in South Australia and Victoria combined.

  1. State budgets would be under even more pressure, even with reallocated ‘rebate’ funds.

PHA commissioned a report by social policy research firm Evaluate in 2017 which found that:

The PHI rebate is a highly efficient way of funding non-emergency surgery, in-hospital mental health care, dental and other community-based allied health care. Each year, Australian governments spend an average $424 on private hospital care for each privately insured member, both directly and through rebates. Consumers then spend an additional $815 on that care. Another way of saying this is that every dollar the government spends on the PHI rebate attracts $1.60 to $2.40 in additional consumer contributions.

As a health minister I always monitored the number of citizens with PHI – because I knew that every drop in participation meant greater pressure on our public system and greater pressure on the budget. In 2006, the S. A. Treasury calculated that at the then growth in health expenditure of around 6% per year, compared to the State’s annual revenue growth of 3% – sometime in the 2030s the entire State budget would be taken up by health expenditure.

Clearly that is not sustainable – major reform with a focus on prevention, primary health, out of hospital care, efficient use of available resources – in fact all the things that the AHCRA advocate for are desperately needed. But trying to manage this very difficult reform agenda while dealing with a huge increase in elective surgery caused by the collapse of PHI coverage would be impossible for even the most enthusiastic state minister.

The private health insurance industry is working on the following initiatives which will be of benefit to its customers as well as public health consumers:

Medical devices reform:

In spite of the Federal Government taking steps to reduce some of the highly inflated costs of medical devices, the latest APRA data shows that device companies have responded by driving sales volumes to make up the difference.  Growth this year has been 8.6%, which given hospital claims are stable at 0.3% needs an explanation.

Inflated prices for established medical technologies must come down in line with the rest of the world if the private health sector in Australia is to continue its excellent track record in funding innovation.  One of the most commonly used implants – cardiac stents, are five times the price in Australia as they are in New Zealand.

Gaming by state hospitals:

Coercing patients to use their PHI when they present to an emergency department is a revenue raising measure and increasingly, we are seeing State Government’s set targets on this basis.

We need to ensure private health insurance members get the medical care they pay for, without having to subsidise State Government public hospitals.

Out-of-pocket expenses:

We know that of pocket costs are a major issue for consumers and that greater transparency on cost is needed. Heath funds are working with government and stakeholders to enable consumers to identify and select suitable providers at the time of referral. Doctors should list their fees and charge on the government’s website. Paying more, doesn’t mean you’ll get a better outcome.

Encouraging youth participation:

Young people receive value from PHI, especially in the areas of mental health and dental care. We need to do more to demonstrate the value of PHI to keep young people engaged in our ‘community rated’ system. Recent PHI reforms include youth discounts to encourage the under 30s to join and the mental health safety net, meaning young people presenting to hospital with a mental health condition can have their wait period waived.

Care in the right setting:

Removing red tape to allow insurers to fund more care out of hospital will also reduce costs. In-hospital treatment doesn’t have to be the default method of care as some patients prefer to be treated at home if suitable, (for example post-operative rehabilitation and chemotherapy in the home).

 Commitment from health funds: 

 Heath funds have demonstrated their commitment to the PHI reform process. Health funds committed to returning all savings from medical device reform to consumers by way of lower premiums – and delivered the lowest premium increase in almost two decades, this year, at 3.25%.

Benefits paid to members have risen directly in proportion to premiums with a claims ratio of 86 cents in the dollar paid back to members. This compares with 67 cents for general insurance.

The average net margin for health funds has reduced from 5.2% to 4.9% over the last 12 months.  Management expenses have remained stable at 9% as has net profit after tax remaining stable at $1.38 billion for the year ended June 2019 when compared with the previous 12 months – again this compares extremely favourably with general insurance which has management expenses of 25%.

This is impressive given health funds have had to absorb the significant cost of implementing the government’s PHI reform program.


There is a good reason the proposal to abolish the PHI rebate has never gained traction with mainstream political parties in Australia.

It would have an extremely negative impact across our whole health system.

From a financial perspective alone – for every dollar the Government spends on the PHI rebate it would cost $3.78 to purchase the same services from the States.

In summary:

  • Australia’s private health system is relied on by 13.6 million Australians.
  • More than half of them have disposable incomes of less than $50,000 per year.
  • Two thirds of planned surgery is performed in the private sector which reduces hospital wait times in the public sector for those who need it most.
  • Without private health insurance millions of Australians would be forced into the public system, which is already under pressure. Financial incentives, including the means-tested PHI rebate, are a proven way to promote participation and keep private cover more affordable for all Australians.
  • The Government has committed to restoring the rebate to 30% for low and middle-income families when the Budget permits.
  • This will make the system more affordable and accessible for everyone.


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