ABC News Breakfast Interview with Private Healthcare Australia CEO Michael Armitage

Interview with Private Healthcare Australia CEO Michael Armitage


Station: ABC News 24
Program: ABC News Breakfast
Date: 30th March 2015
Time: 7:34 AM
Compere: Michael Rowland, Virginia Trioli and Paul Kennedy
Interviewee: Michael Armitage, Private Healthcare Australia CEO
Now, millions of Australians with private health cover will be slug with a 6 per cent price hike this week. So, why are premiums rising by almost three times the rate of inflation and can that increase be justified?
VIRGINIA TRIOLI: Michael Armitage is the chief executive of Private Healthcare Australia, the organisation which represents the industry, and he joins us now. Michael Armitage, good morning and thanks for making time for us.
MICHAEL ARMITAGE: Good morning Virginia.
VIRGINIA TRIOLI: How do you justify such a rise in premiums?
MICHAEL ARMITAGE: Well, firstly we know that a rise of that level is never popular so we’re not surprised when people focus on it, but we have to pay for the increases in premiums that we pay out on behalf of our members and the independent regulator said that last year the increase in what we paid out on behalf of our members went up by 9 per cent. Now, most Australians know that if the outgoings on their behalf are going up by 9 per cent, that they have to pay more. Now, one of the dilemmas of course is that we don’t have any control over those costs and we think there are ways in which that could be better handled and perhaps the increase in premiums could at least level off if not go down.
VIRGINIA TRIOLI: Well, you’ve got an increase year on year. There was a significant increase last year as well, there’s this increase this year now, which is three times the inflation rate, there’s $6 billion spent each year on the private health insurance rebate. This is the nature of being in insurance, if you can’t make it work for you, if you can’t have fat enough margins to make it worth your while, then perhaps the fault is maybe on your end.
MICHAEL ARMITAGE: Well, the margins are in fact very slender. The independent regulator again reports regularly on the net margin and that’s sometimes as low as 2 per cent or 3 per cent. So it’s very – most of the money that people take in – the funds take in, goes out on behalf of the members, but costs are increasing dramatically. I mean for argument’s sake, what we term the high claims, in other words the highest amounts we pay out, two years ago that was $4 billion; this year it’s $5 billion. It’s gone up by a billion dollars in two years. Now, someone has to pay for that and, sadly, we have no control, as I said before, over those increases. We think we could help the Government to keep some of those under control, but at the end of the day someone has to pay for that. It’s gone up by a billion dollars in less than two years.
VIRGINIA TRIOLI: How do you believe you could help the Government keep that under control?
MICHAEL ARMITAGE: Well, at the moment, private health insurers are prevented from paying for any care in the primary care sector. I think most Australians would acknowledge that a better integrated primary care is a better way of handling health care, apart from the fact it’s where people want to be treated rather than going into hospital, it’s also the cheaper end of care. Once people get into hospital and they start having procedures done and prostheses inserted and they get cross infections and they go to intensive care and so on, up go the costs. We think we should be able to be better engaged at the primary care end and hopefully keep people out of the expensive end.
VIRGINIA TRIOLI: But that of course totally changes if you do that at the primary if you’re there – by primary we mean GP level. If the private insurance sector is there as well, that completely changes the nature of health care provision in this country, which is universal access to primary health care; it changes our Medicare system drastically.
MICHAEL ARMITAGE: No not at all. There are nuances which would easily see this applying to every Australian. So universal care would still be the linchpin, the underpinning of the system, but Virginia, yes, there are some changes necessary but the very fact that you’re interviewing me and saying, this can’t go on, a 6 per cent increase three times the rate of inflation, I should add incidentally it’s not three times the rate of health inflation but that another issue, but the very fact that you’re interviewing me means that this is a major concern. I don’t think we can just keep going along as we are and expecting that somewhere a magic genie is going to pull a solution out of a hat. We have to address it and try and keep people at the less expensive end of the care spectrum.
VIRGINIA TRIOLI: So just before we get on to our discussion, just to quickly clarify if I can, you also admit this morning that a 6 per cent increase on last year’s was it 5.2 per cent, I think it was, increase?
MICHAEL ARMITAGE: No, 6.2 per cent last year.
VIRGINIA TRIOLI: 6.2 last year and then again this year, that that – even in your view as someone who works in this sector – that’s unacceptable; that’s not sustainable?
MICHAEL ARMITAGE: No I don’t say that, but what I say is there are ways in which it can be changed and if people want to change it enough, we’re willing participants in that conversation. We’re not sitting here in a bunker saying, just give us more money so that we can just continually pay it out on behalf of our members. We want to be willing participants in the system and hopefully make it a better system.
VIRGINIA TRIOLI: What you’d end up with the system you’re proposing today though is very definitely a totally bifurcated market, if you like, in terms of health access and health provision, an almost completely private one and then the other – the public one as well and there’s surely got to be inequity in there.
MICHAEL ARMITAGE: Yeah, absolutely, we agree. And in fact we think that there are ways in which people who presently don’t have private health insurance, if they wanted to be treated in this integrated primary care system, perhaps the Government might even pay for their particular low level of care. There would be a universal service obligation, it’s called. It’s done all around the world in lots of places. This is not revolutionary. All we’re saying is let’s look around the world, take the best bits of what worked brilliantly and then let’s do it.
VIRGINIA TRIOLI: Look, there are other elements to this as well though, according, I think, to the latest Medicare Private annual report, the chief executive of Medibank Private is paid $1.2 million. Now, if the executives of the funds were paid a little less, perhaps the premiums of ordinary Australians wouldn’t be going up so high.
MICHAEL ARMITAGE: Look, I don’t think there’s any question that if the salaries were not so high there would be more a little bit more left for the premiums.
VIRGINIA TRIOLI: So that’s gouging isn’t it, when it comes to a really important public service provision which is health care?
MICHAEL ARMITAGE: Well, firstly it’s been privatised, so it’s a private company. Secondly, they’re in a market they have to compete with and, thirdly, that’s a commercial decision for the board members of Medibank Private.
VIRGINIA TRIOLI: Does it sit comfortably with you?
MICHAEL ARMITAGE: Beg your pardon?
VIRGINIA TRIOLI: Does it sit comfortably with you?
MICHAEL ARMITAGE: Well, look, I think if you’re running a business that’s worth perhaps $5 or $6 billion, that’s a lot of money. I want the best possible person in there and I think in today’s market where people are paid very large salaries I’d love to be paid that sort of money – where people are paid very large salaries to manage a business of that level of income and that importance in the Australian health care system, you’ve got to have the best people.
VIRGINIA TRIOLI: All right, well, I have – just finally this morning, I have private health insurance and I guess I’ll be paying this increase as well. Am I going to get anything more for my money?
MICHAEL ARMITAGE: Well, what you get is security.
VIRGINIA TRIOLI: I already have security because I pay my premium. What else am I getting?
MICHAEL ARMITAGE: But if you didn’t – If we didn’t put the premiums up, we might have a situation like an HIH disaster in health care. I mean our premiums are strictly regulated by the independent regulator and whilst they don’t want them to be too high, they also say that they have to be high enough to pay for all the claims in the coming 12 months. That’s known as being capitally adequate. So that means that no fund is actually able to say, for argument’s sake, we’re not going to have an increase this year so that we can buy market share, which would be perhaps good for the people who bought it that year, but they mightn’t then be able to pay the claims. So what you get is an assured position that we will be able – which ever fund you’re with – will be able to cover the claims that you might have this year. I hope you don’t have any, but if you do, you’ll be covered.
VIRGINIA TRIOLI: I would have thought that anyone with private health insurance would make that assumption anyway not withstanding a premium increase.
MICHAEL ARMITAGE: But that’s because of the rules.
VIRGINIA TRIOLI: I hear your point Michael Armitage.
VIRGINIA TRIOLI: Thanks for joining us this morning, thank you.
MICHAEL ARMITAGE: Thanks Virginia.
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