Radio National Breakfast program interview with Dr Rachel David on cost of living pressures and rising private health insurance costs

Station: Radio National
Program: Breakfast
Date: 16/4/2018
Time: 7:41 AM
Compere: Fran Kelly
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


FRAN KELLY: Cost of living pressures are front and centre of the federal Government’s agenda. Look no further than the focus almost daily on electricity prices. But equally vexing for governments and particularly for consumers are rising private health insurance costs. The annual increase in health insurance premiums came into effect on 1 April and the average rise was just below 4 per cent, which the federal Government trumpeted as the lowest since 2001. But some new analysis by the consumer advocacy group CHOICE has found that some insurers, more than a dozen of them in fact, have increased their premiums by more than 10 per cent, and in one case as much as 45 per cent. The high cost of health insurance and a growing number of exclusions from policies has consumers wondering whether they’re getting value for money. Dr Rachel David is the CEO of Private Healthcare Australia, the peak body representing the private health insurance industry.

Rachel David, welcome to RN Breakfast.

RACHEL DAVID: Morning, Fran.
FRAN KELLY: So, premiums are rising well above inflation, insurers are excluding more and more procedures from their policies, and the gap costs are more prevalent. People are paying more and getting less. How is that fair and sustainable?
RACHEL DAVID: Well look, I would challenge the proposition that people are paying more and getting less. No one likes to see costs go up, but the only reason that premiums rise is because health funds are paying for more healthcare. Most of that is more use of health services by the baby boom generation getting a bit older and using health services more, particularly for things like joint replacements, lens replacements and the wear and tear issues we have as we get older. So, in fact, health funds paid out more this year in benefits than ever before, but it’s a very direct price signal to the consumers pocket every year on 1 April. The same growth is occurring in the Medicare side of the system in public hospitals, but the price signal is less direct if it go through the tax system.
FRAN KELLY: But people are voting with their feet, aren’t they? I mean, you may say they’re getting more, but people feel like they’re getting less and they- I mean, one recent survey found that 78 per cent of people strongly agreed or agreed with the statement that private health insurers put profits before patients. They’re not happy.
RACHEL DAVID: Well look, that’s absolutely right and we’re doing everything we can to put a lid on those costs. This year, one of the reasons that we were able to put a lid on costs was because of the work we did with the federal government to change the regulations about how much we paid for medical devices.
FRAN KELLY: But can I just interrupt you there? Putting a lid on costs, how does that- you’ve seen the CHOICE analysis. You also could see that 12 insurers have put their costs up by more than 10 per cent. St Luke’s, which is a Tasmanian-based provider, had a premium hike of 45 per cent. How is that putting a lid on costs?
RACHEL DAVID: The 3.95 per cent was the lowest average increase in 17 years, but it is an average. A large number of people had a premium increase that was much less than that and some people had a premium increase that was more. And some of the smaller funds that had been struggling to keep a lid on some of the rising health costs have had a higher premium increase.
FRAN KELLY: [Interrupts] Just to be clear though, Rachel David, that translates, for some families, an increase of $800 a year in their private health insurance premiums. How do you justify that?
RACHEL DAVID: Well look , we justify it by the fact that health funds pay for two-thirds of essential non-emergency surgery in Australia, 40 million dental services, and most of the admissions or mental healthcare…
FRAN KELLY: [Interrupts] And how much does all that cost? Do you have a global cost for all that?
RACHEL DAVID: Well look, we pay out more than $20 billion in benefits for those services, and it’s rising at over 4 per cent per year. Historically, the rises in costs have been at 6 per cent. But bear in mind, Fran, that in the public hospital sector, every year costs have gone up between 8 per cent or over, and they’ve got a 6.5 per cent increase, rusted on by the federal government over that time, up until 2023. So, this is not an issue that’s confined to the private sector. It’s the whole health sector that is subject to rising costs and it’s based on the demand for health services that we’re seeing at the moment.
FRAN KELLY: Okay. So, there’s something wrong with this more- this bigger picture, and I’ll come to that in a moment. But at the moment, your sector is heavily subsidised through the 30 per cent private health insurance rebate, the Medicare levy surcharge, and the lifetime cover benefits nudging people to take out private health insurance. Very expensive measures designed to take the pressure off the public health system, but people aren’t- but they’re not taking the price pressures off patients and taxpayers are funding that to the tune of $6 billion every year – that’s how much the rebate costs. It’s an incredible subsidy to a private sector, isn’t it?
RACHEL DAVID: It’s a subsidy that is very efficient in terms of bringing down the cost of elective surgery for low and middle-income earners, and without that rebate that would put the cost of being able to access common procedures completely out of reach for a large number of Australians. And bear in mind, this is a $6 billion subsidy compared with over $60 billion for public hospitals. If that subsidy was to go and private health insurance was to collapse or struggle, there is no plan B as to how the two-thirds of elective surgical procedures, the 40 million dental services, and the 60 per cent of mental health services that are currently being reimbursed by private health insurers will be funded.
FRAN KELLY: Well, that $6 billion would go a long way towards it wouldn’t it? I mean, presumably some people would still keep their private health insurance.
RACHEL DAVID: But think about the maths, Fran. We’re paying $60 billion already for public hospitals. The waitlist in some areas, particularly outer suburban areas, have blown out to more than three years, and for $6 billion – which is an order of magnitude less – you’re able to fund half the population to be able to help them access elective surgery in the private sector. Now how is that two-thirds of elective surgery going to fit back into the public sector at the moment?
FRAN KELLY: Okay, but the other – going back to what patients and consumers are getting, you have to concede that the product is not fulfilling needs of the . The Commonwealth Fund report suggests that Australia is 11th out of 12th worst countries for out-of-pocket expenses, out-of-pocket costs for healthcare. So not only are people being forced into paying for the product, not only do they feel that the product is too expensive, but then they’re getting whacked with these out-of-pocket costs. It’s a poor product.
RACHEL DAVID: Well look, no, it isn’t for people that have had to use it. And in terms of health insurance, while we acknowledge those costs, when we survey people who have health insurance and have used it, more than 80 per cent of them value of product and really want to keep it. If everyone despised health insurance and found it useless, this wouldn’t be an issue. They simply wouldn’t take it up.
FRAN KELLY: Well, yeah. We’re forced to take it up, because otherwise you have to pay the Medicare levy, or if you take it up late you have to pay more.
RACHEL DAVID: Well, look…
FRAN KELLY: A lot of nudging going on there, isn’t there? Well, I’m not sure what- that the people over 65 that we see who contact us, who are desperate to keep their health insurance because they live in an area where it’s the only way they can access medical procedures, would feel the same way. Now yes, there are products with exclusions, but they have been created because of consumer demand for a less expensive premium and we’ve seen a number of older people contact us, particularly because they don’t want to pay for pregnancy and IVF services. That’s fair enough. As you get aged over 50, so products have been created to help them and to help younger people get a foot in the market [indistinct].
FRAN KELLY: Sure. And part of the problem is people can’t see and understand what their product is covering. The AMA reports doctors find the vast majority of patients don’t know what their insurance covers.

You’re listening to RN Breakfast. Our guest is Rachel David. Rachel David is the CEO of Private Healthcare Australia. Rachel, just two final points. What about this notion that the private health insurers have not invested enough in wellness programs to keep people out of hospital? Integrated care programs for people with chronic conditions, for instance? Should the industry do more on that front?

RACHEL DAVID: Look, pretty much every health insurer does have a wellness program in place with their members, should they want to access it. But a big problem that we have is that health insurance is not allowed to cover medical services that occur outside of hospital, and that’s a big cause of the out-of-pocket expenses that some patients experience as well. We’re working with the federal Government to try and change that, particularly in some treatment areas like mental health rehabilitation and cancer. But at the moment, health funds are effectively locked out of co-funding medical services in the community.
FRAN KELLY: So Rachel, I think everyone listening would think you’ve come up for a lot of- you’ve come up with a lot of defences of why the medical private health insurers are actually doing a good job, and they’re doing a good job on premiums. And yet, as I say, that latest survey – 78 per cent of respondents – disagreed with that. So, what is- that’s a disconnect there. What is your idea for changing it? Do you support, for instance, a written branch review of the private health insurance system?
RACHEL DAVID: Look we’ve had a number of reviews already and most of which – including by Productivity Commission and it’s Shifting the Dial report…
FRAN KELLY: And Labor’s calling for another one of those.
RACHEL DAVID: Yeah. And look, I don’t think there’s any harm in looking at this from a root and branch perspective, but it needs to encompass the whole health system and how these things are funded. I mean, everybody is acutely aware what the problems are in terms of the direct price signal of rising premiums and the out-of-pocket costs that some people experience, but the reality is a number of those issues are beyond the control of health funds and are rusted on by regulation. Some of which have been present for decades and which isn’t fit for purpose. So look, I think it would be- there would be no harm in doing a further review, but it can’t just focus on the private health fund. They are the end payer in a long supply chain that comprises hospitals, doctors, allied health professionals and corporations. So, we need to be really clear- and actually increasingly, public hospitals which are encouraging people to use their private health insurance in the public system, which accounts for about $1.8 billion in premiums.
FRAN KELLY: Okay. Well, it won’t surprise you that as we’ve been talking, the texts and tweets have been flowing in. And one question asked a lot – just briefly, we are out of time – but how much of the money goes to share dividends?
RACHEL DAVID: Eighty six cents in every dollar in premium income gets paid back to the member.
FRAN KELLY: Okay. Alright, Rachel David, thank you very much for joining us.
RACHEL DAVID: Thanks Fran.
FRAN KELLY: Rachel David is the CEO of Australian Healthcare- sorry, of Private Healthcare Australia.
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