Increase in Private Health Insurance


Station: 5AA
Program: Mornings
Date: 1st April 2014
Time: 11:07AM
Compere: Leon Byner

Interviewee: Dr Michael Armitage, CEO, Private Healthcare Australia

LEON BYNER: Well, one of the most important contingencies for all of us is good health and sometimes, you can never predict that that may not be the case, you can have an accident, you can have an unforeseen event, or you might just be maturing in life and as one gets older the body’s Xerox machine is less good at duplicating itself, and so that thing called ageing and maturing creates a few issue along the way.But there’s been a bit of a shock for some today, and that is that the cost of health insurance, private health insurance, has gone up as it does annually, except that this time the consumer groups are saying, well, look, the increase here is a very significant one, in fact, one of the most significant in a while.So there two things. Why are we paying more? Is it that health inflation is actually above the normal cost of living inflation and if that’s the case, okay, fine, but how are people going to find the money to insure and is it really a message to say just be sure you’re on the right kind of table for what you expect in case, God forbid, something happens?

Well, let’s talk to the Australian Health Insurance Association’s Dr Michael Armitage.

Michael, thanks for joining us.

MICHAEL ARMITAGE: Good morning, Leon.
LEON BYNER: Can you, first of all, explain what the actual increase is and why it is high?

Well, the increase is what has been agreed after all of the funds put all of their figures for the coming 12 months in front of the government actuary and the independent regulator and they are forced by law to have what’s called capital adequacy. In other words, to be able to fund their expected claims for the coming 12 months. And each year, towards the end of the year or in the early part of the year, the minister announces the average increase, and that is 6.2 per cent this year, and that is the average of what funds will go up by – sorry, premiums will go up by.Like every average, it is just that, and yes, there will be people who will highlight that there will be people who will pay more than that, but because it’s an average, there’ll be the same number of people who will pay less than that, so that’s what averages are all about. But the most important thing is we, as an industry, absolutely understand that people hate paying more for anything, but the independent regulator reported that for the year ending in December last year, the outgoings, the benefits that we paid on behalf of the members went up by 9.1 per cent.

So, Leon, I think most sensible, rational Australians would think, look, if the outgoings have gone up by more than nine per cent, the input has to increase and we managed to keep that to 6.2

LEON BYNER: I want to ask you if you were to make a list of the things that are driving the increase, are we talking mainly here about hospital [indistinct]? What’s been – if you had to list the top three or four of the cost drivers to force that nine per cent pay out, what would that be?
MICHAEL ARMITAGE: It’s a very perceptive question. It’s the sort of thing we look at all the time, obviously.
MICHAEL ARMITAGE: There’s no doubt that a more ageing population, as you indicated in your introduction, an ageing population definitely uses more health services, number one.
MICHAEL ARMITAGE: Number two, we are just finding that the cost of technology are just galloping ahead and everyone expects to get the newest – I must say, it’s not necessarily the best, but everyone expects to get the newest bit of technology, and the utilisation rate is also high. For argument’s sake, when I went through medicine, which is now an awfully long time ago, sadly, but when I went through medicine, something like a hip operation or a knee operation was almost a last resort for people who were immobile because of pain.
MICHAEL ARMITAGE: Nowadays, people are almost lining up to have it at 50 or early 50s.
LEON BYNER: Okay. So are we really saying that prosthetic – see, this is interesting. Once upon a time, the surgeons would, if you like, open you up and stitch you up, but now increasingly you’ve got all these prosthetics and all these clever scans that we have now. Is it the equipment and just the cost of having these that’s a big part of this?
MICHAEL ARMITAGE: There’s absolutely no doubt that there’s a very large part of any increase, not only in Australia, around the world.
MICHAEL ARMITAGE: And whilst – as I said before, we understand that people don’t like paying more. It’s very important equally to realise that although, as a nation, we do pay more for our healthcare, it’s not as if we get nothing for it. I mean, our life expectancy has gone up by something like 30 years over this last century.
MICHAEL ARMITAGE: So we’re actually living a whole lot longer and when people say to me, oh, it’s darned expensive or it’s too expensive, I say yes, but we’re all living a whole lot better and for a whole lot longer. So we’re actually – I like to think of it as kind of we’re investing this money really in having a better and a longer lifespan.
LEON BYNER: There was a time when, if you went with a health fund, you’d get some quite unusual or eccentric style extras, and they were often advertised and at the time they became the butt of criticism from many social commentators who said, look, why don’t you spend your funds on more core business? But I’ll tell you the one thing that I hear, Michael, over and over – and I’m talking, by the way, with Dr Michael Armitage, who is the Australian Health Insurance Association senior spokesperson.The thing that I hear a lot, and I’m sure you hear it too, is that I go to hospital and I’m supposed to have full cover, but then I have these extra charges which the funds tell me they can’t cover. Can you just explain that?
MICHAEL ARMITAGE: Sure. And, Leon, it is one of the banes of our existence, because we try to make our members happy and we understand that if you’re on Blue Ribbon cover or premium cover or whatever, you actually would expect that there would be no gap.
MICHAEL ARMITAGE: However, the dilemma is the providers do, in fact, often charge more than agreed fees, and we are simply unable to continue to chase whatever they might charge because if we do, next year we’ll have to go in and have an even higher premium increase, which is the subject of what we’re talking about.
LEON BYNER: So really, you’re saying the lesser of two evils is to have some people pay that money otherwise everybody’s got to pay a much higher fee and you might end up with a – instead of 6.2, it’ll be eight or nine, is that what you’re saying?
MICHAEL ARMITAGE: That’s exactly right. And, Leon, in an effort to overcome this, many of the funds have what are called preferred provider relationships, and so they go to the doctors or the dentist or whatever and they say look, if you’re going to get X as the normal fee, we will give you X plus – the plus might be some considerable amount – if you will guarantee that the patient will have no added extras. And so there’s quite a few of those.But the dilemma is the provider then says to us, well, look, our contract when you walk in – when Leon Byner walks through the door of a surgery, the contract is between you, as the consumer, and me, as the doctor, and it’s not between me and your health fund. So I can charge whatever I want. So what we find is that if you’ve arrived in dirty clothes and with holes in your shoes, they will take that preferred provider arrangement, but if you’ve arrived in a Rolls-Royce with a chauffeur, they might charge you more.So we’re doing everything that we can because we absolutely understand how frustrating and irritating and how angry people can become about it.
LEON BYNER: Okay. Let me ask you something. Are you really saying then that if you’ve got a procedure you need to do and you’re paying what you believe is a reasonable premium, and most people would say that, right, you think they’re smart to go and have a look at these sort of easy claim preferred provider schemes where the likelihood of an extra charge will be minimised? Is that what you’re telling us?
MICHAEL ARMITAGE: There’s absolutely no doubt that most of them have got preferred provider arrangements with a variety of dentists and doctors and physios and so on, and there is every chance that you will get the service done with no gap, and being frank, something like 88 per cent of services around Australia are done at no gap. So these arrangements have actually worked, but the problem is it’s that 10 or 11 per cent who get a gap who are the ones who are vocal.
LEON BYNER: Alright.
MICHAEL ARMITAGE: And I certainly understand that, or I’m not blaming them for that at all, but of course if you’ve gone and you’ve been paying your insurance for a while and you go off and have a lump removed or something like that and you don’t get a gap, you tend not to ring up Leon Byner and say hey guess what, I didn’t get a gap. So the problem is it’s the small number that are the vocal ones.
LEON BYNER: Alright, let me ask you this though and that is that when you get your private health insurance, it’s always wise from my point of view to ask a lot of questions, because sometimes you might get a cover and you’re covered for some things that you may never need, but the stuff you do you mightn’t be as covered well as you should be. So whose job is it? Is it really – it’s really up to the consumer or is it up to the companies to say hey, what suits you?
MICHAEL ARMITAGE: Well Leon, ultimately it is a case of caveat emptor. It is a case of the consumer must purchase a product that suits them. However, the last thing we want is for a disgruntled member, we don’t want that. It’s in our interest to have members happy and in fact the legislation says that we have to provide people with an information statement, which tells them exactly what they’re covered for.
MICHAEL ARMITAGE: The problems however are two. One, people sometimes don’t read that as well as they should and so they say oh look I’m covered for x and y.
MICHAEL ARMITAGE: That’ll be okay and they don’t really take it in. We have to give them the information, but we can’t make sure that they actually understand it, number one. And number two, what’s much more likely, is that someone will take out a product when they’re 35 and they’ll say hey, you know, I’m fit and healthy and I don’t need – I haven’t got arthritis and so I’m all okay and my heart’s good and so on. And then they don’t change the product for say a decade and when they’re 45 they have an unusual heart attack or they find that they fall over and they break their leg or they need a new hip or something and it’s not covered, because the product that they took a decade ago had that specifically excluded.Now the benefit of that exclusion was that they paid less, but the negative of it is that when they need it, it is simply excluded from their product.
LEON BYNER: Alright. Dr Michael Armitage, thank you. That’s the head of the Australian Health Insurance Association.What’s your take on this? I mean obviously health cover is very expensive. I mean it’s an important part of one’s well being, because, you know, it’s that old almost fire insurance isn’t it? It’s like all those little wonderful little things around the streets we have in case the firies need them to put water on a property that’s on fire. Most of the time you don’t need them, but they’re there just in case and health insurance is pretty much the same thing.
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