Health insurers stepping up to end government veto power over insurance premiums

Station: 6PR
Program: Mornings
Date: 9/3/2017
Time: 11:10 AM
Compere: Gareth Parker
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia
GARETH PARKER: Well, private health insurance premiums and how much you pay for your private health insurance was in the news recently. We covered it on the program, because we’re only a few weeks removed from that part of the year where each of the private health insurers go to the Federal Government and say hey, here’s how much we want to put up our premiums by this year; will you approve it, or will you not? And the way that the system works is that each of the insurers, whether they’re HBF or NIB or Bupa or whoever you happen to be with, Medibank, they all go to the Federal Government and they say listen, we’ve done our sums, and we want X to increase our premiums by. The Federal Health Minister Greg Hunt looks at it all, and he says yes, that’s reasonable, or no, that’s not reasonable, and he signs them off. Well, the lobby group that represents the private health insurers thinks that that system needs to change.

My guest on the program is Rachel David. She’s from Private Healthcare Australia, which is the group that represents private health insurers, and I welcome her to the program. Good morning to you, Rachel.

RACHEL DAVID: G’day Gareth.
GARETH PARKER: Why is it that you would like to change the way that this approvals process for health insurance premiums works. So that’s number one, why do you want to change it, and number two, what do you want to change it to?
RACHEL DAVID: Look, I think that’s a reasonable question, and there are a couple of problems with the current system which we think is inadvertently keeping prices too high. The first problem is is that all the insurers are required to change their price on the same day of the year. That means if one of the insurers has a good year and wants to offer a lower price, the other funds don’t have line of sight into that like they would in a normal market, and therefore compete with it and also offer a lower price. So what tends to happen is funds will hedge their best and price in risks for- the risk of something possibly bad happening in the next 12 months, and if they all do that without line of sighting to the market, that keeps prices artificially high.

So that’s the first problem, and the second problem is what is the current role of the federal minister in the pricing decision, given that there are already numerous regulators that scrutinise the premium process and give feedback to the funds. And there’s no longer any real reason, given that the Federal Government rebate is no longer tied to the size of the premium; it’s tied to the CPI, and the Federal Government is no longer directly responsible for managing health funds as they’ve got rid of Medibank Private. That’s now a completely private organisation.

GARETH PARKER: Okay, so just on that last point, you’re saying that basically it used to be that – I think it was the Howard Government that introduced it – which was a 30 per cent rebate for everyone’s premiums. So in a circumstance where the Federal Government is saying well, we’ll wear 30 per cent of the costs of your premium, we want some say over what that premium is. But that was changed I think by Tony Abbott to say well look, no, we’re going to hold it at what it is now, and going forward we’re just going to index it by CPI.
RACHEL DAVID: Well, there was change by the former Labor Government…
GARETH PARKER: Labor Government, sorry.
RACHEL DAVID: And really after Medibank was privatised and after that decision was made, really that was time for I think the minister to hand us back to the regulators, which is the Department of Health and AHPRA, with some oversight by the ACCC obviously as well. They do a very thorough job. This is a highly technical exercise. It should not be a political exercise. It is a technical exercise between the accountants and actuaries that work for health funds that evaluate their risk, and the fact that that needs to be validated by the regulators. And really what we think is the minister really does not have a role in that, and there’s no role for it to be a political process.
GARETH PARKER: Okay, Rachel David, are you trying to tell the listeners that prices would be lower if the Federal Government didn’t have control over them?
RACHEL DAVID: Look, I think one of the things that needs to happen is that the process is depoliticised and handed to the regulators that are already doing a good job. But more importantly is this issue of the fact that the health funds all change their prices on the same day. Now, those issues are linked in that the reason that health funds change their prices on the same day is really to make sure that if the prices are going up that the federal minister isn’t bombarded with concerns about private health insurance all throughout the year. So the depoliticisation is important, but the really critical thing is we bring some price competition into the sector. So if one fund lowers its price in response to market conditions, the other funds have the opportunity to follow suit throughout the year.
GARETH PARKER: Well, why don’t- I mean, forgive me if I’m wrong, Rachel, but I can’t recall a private health insurer going to the federal minister saying you know what, we’ll actually reduce our premiums this year. That hasn’t happened too often, has it?
RACHEL DAVID: Well, it’s because the process is not in the public domain, the way it’s run. Now, there was a situation last year where the Government offered to change some regulations that were pushing up the prices of medical devices that funds were obliged to purchase on behalf of patients. And in that situation, some of the funds actually did offer to drop the premiums, or at least the premium increase a bit at that time in the year, but they were unable to do so because they were locked in to this 1 April date as a result of the premium round. Now had they been able to do so, other funds may have followed suit and people, even if the premiums didn’t go down dramatically or even if they rose less than they otherwise would have, consumers would still be better off.
GARETH PARKER: So, is your argument essentially that the market should be allowed to do the work of setting prices rather than the federal minister?
RACHEL DAVID: Yes, and in saying that bear in mind this is a highly-regulated market. There are a number of sets of eyes on the way that health funds set their prices. There’s the health department, there’s AHPRA that does the prudential regulation, and there’s also the ACCC which looks after consumers and consumers’ rights. So, it’s not as if we’re asking for open slather. There will still be a lot of scrutiny but we don’t believe this is a political process, it’s a financial and a factual process, and we believe that by freeing up the ability to alter prices during the year ultimately consumers will pay less.
GARETH PARKER: 92211882 is the number to call if you’d like to have your say about this today. Do you believe that the Federal Health Minister’s role in setting your private health insurance premiums should be scrapped or do you think it’s important that that be retained so that there is that element of government control over what it is that your insurer can charge? 92211882. My guest is Rachel David, she’s the Private Healthcare Australia CEO, the organisation that represents the private health insurance industry.

Rachel, is the suggestion that because health insurers only get one crack at this process each year that they are erring on the side of, well, let’s make a case to put up premiums because we don’t have an opportunity to change the prices during the year?

RACHEL DAVID: Well, they can’t respond quickly to market conditions, so that means if they have an unusually good few months they can’t respond to that until- and sometimes the lead time is up to 18 months before they can alter prices in a reaction to market conditions. And that really- there are very few markets that are regulated like that and that means that they’re looking sometimes two years down the track and they become very risk adverse when it comes to setting their prices. And so inevitably what happens is that there will be stat decs(*) built in to take account of what might happen in 18 months to two years time.
GARETH PARKER: Alright. Rachel, thanks for your time this morning.
RACHEL DAVID: Thanks Gareth.
GARETH PARKER: That’s Rachel David, she’s the CEO of Private Healthcare Australia, the body that represents private health insurers.
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