Radio National Breakfast program interview with Dr Rachel David on the cost of private health insurance

Station: Radio National
Program: Breakfast
Date: 18/4/2018
Time: 8:05 AM
Compere: Fran Kelly
Interviewees: Dr Henry Cutler, Director, Macquarie University Centre for the Health Economy; Dr Rachel David, CEO, Private Healthcare Australia


FRAN KELLY: Right now, though, the cost of private health insurance is shaping up as a major issue at the next federal election, in the sense that it never goes away. We have both major parties at the moment claiming they have the plan to keep health insurance premiums under control.

Labor kicked off the year promising to cap private health insurance premium rises at 2 per cent for two years if it’s elected. Prime Minister Malcolm Turnbull then accused the Opposition of being out to destroy the private health insurance industry. Earlier this week, on Monday, we spoke with Rachel David. She’s the chief executive of the industry lobby Private Health Care Australia and she said that private health insurers are already doing what they can to keep costs down.


RACHEL DAVID: No one likes to see costs go up, but the only reason that premiums rise is because health funds are paying for more health care. 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.

[End of excerpt]

FRAN KELLY: That’s Rachel David, chief executive of Private Health Care Australia.

But health experts say more can be done to keep a lid on premiums, some arguing the $6 billion health insurance rebate – that’s money from you and I – could be doing more harm than good. Henry Cutler is director of Macquarie University’s Centre for the Health Economy. Henry Cutler, welcome to RN Breakfast.

HENRY CUTLER: Thanks, Fran.
FRAN KELLY: The Government’s pretty upbeat about its efforts to keep premiums under control and they’ve also introduced discounts for young people, as well as a rating system for insurance products. The Health Minister Greg Hunt has pointed out that this month’s average premium rise of just under 4 per cent is the smallest in 17 years. Do you think the Government has done enough to turn the tide on private health insurance costs?
HENRY CUTLER: Well, that’s a very good question. I mean, some of the reforms that were announced last year obviously go some way to trying to reduce some of those costs. So, there’s been negotiations, for example, on the price of prosthetics and devices. But, you know, I think more can be done. The real issue here is the volume of health care services, the volume of hospitalisations – that continues to increase. Whether it’s the responsibility of the government or the responsibility of private health insurers – I would suggest that the latter has some role in reducing that volume through investment in integrated care programs, investment in wellness programs, those types of things.
FRAN KELLY: I’m going to come to that, about what might be the drivers or the levers with which we can cut health costs, because as we heard Rachel David there, the CEO of Private Health Care Australia, she said the reason premiums are going up is because the industry is paying out more in claims than ever before as medical costs rise. Is that a fair- I mean, that’s a fair equation – if they’re paying out more, they’ve got to get more in.
HENRY CUTLER: That’s a fair equation but at the same time, I don’t think it’s fair for the private health insurance sector to put their hands up and say: hey, it’s not our responsibility – volumes continue to increase and we can’t do anything about it.
FRAN KELLY: Well, we do have an ageing population, though.
HENRY CUTLER: We do have an ageing population, that’s right, but there’s also the potential for private health insurers to invest in wellness programs, into integrated care programs, and they are doing that. The issue, though, is are they doing it enough? I mean, for example, we look at public health care system: it’s facing the same issues in terms of increased volumes. It is investing heavily in integrated care programs across states – hundreds of millions of dollars to try and keep people out of hospitals.
FRAN KELLY: So, this is the wellness emphasis you’re talking about?
HENRY CUTLER: That’s right: wellness programs, integrated care programs to keep people with chronic conditions out of hospital, for example, coordinated care programs, those types of things.
FRAN KELLY: Can you tell us more about that? Because as you may have heard, I did put that to Rachel David on Monday and she said they are doing a lot on that front and keen to do more but some of the regulations prevent them. But what does it mean? What does it actually look like, a more integrated medical system?
HENRY CUTLER: Yeah, so it’s- I mean, a lot of public hospital systems around the world are trying to integrate healthcare better, so having GPs, for example, work more closely with hospitals; having other individuals coordinate care across different healthcare services, so for example GPs, hospitals, allied health, those types of things.
FRAN KELLY: Haven’t we been trying to do more of that for the last 15 years?
HENRY CUTLER: We have, we have. And we haven’t got it right, I must admit, but we continue to improve. There’s lots of programs that are being undertaken in Europe, for example, that have shown some good results in terms of integrated care and health outcomes.
FRAN KELLY: And what that does is keep people well-er, but keeps them out of hospitals. There’s still health costs involved out of hospital and currently they’re not covered by health insurance, are they?
HENRY CUTLER: That’s right. So, you’re right, private health insurance doesn’t cover out of hospital services, for example GPs and specialist services. But at the same time, private health insurers can invest in these coordinated care programs. They can direct an individual to a GP, for example, if they think that through a coordinated care program that is required, or other health services. And we must remember that just over 80 per cent of all GP services are bulk billed. So, for an individual with a chronic condition, who’s generally older and a pensioner, they can generally access GP services for free.
FRAN KELLY: But wouldn’t that just shift the burden from the hospital sector and the private health insurance paying the bill to the taxpayer paying the bill through Medicare?
HENRY CUTLER: Yeah, but the question here is really around a reduction in costs. And so if private health insurers want to reduce their costs, to reduce the price of private health insurance, then in some ways they have to keep people out of hospital, because hospital is the most expensive health care service that someone can undertake.
FRAN KELLY: Okay. And on that issue, Australians are obviously struggling with the cost of private health insurance. Consumer group Choice found in its research released over the weekend it’s the second highest cost of living expense for people after electricity, and yet the subsidies keep going and the Government and the taxpayers subsidise the industry by $6 billion every year. Here’s what Rachel David had to say about that on Monday.


RACHEL DAVID: We’re paying $60 billion already for public hospitals. The waitlists in some areas, particularly out of 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- 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?

[End of excerpt]

FRAN KELLY: Is that a fair point; that it would just be a cost shift, a burden shift?
HENRY CUTLER: Well, I mean, I think it’s a little bit more complicated than that. So, if we are talking about reducing the rebate to save the Government that $6.5 billion per year, then there’s two components that we need to look at. One is the response of members in terms of an increased price due to the rebate. So, we know that there is-
FRAN KELLY: [Interrupts] We know that a lot of people would give up their private health insurance if they didn’t have the rebate.
HENRY CUTLER: We know that some people would give up their private health insurance. People still value private health insurance, even if their price increased, so there’s no suggestion that there would be a mass exodus, I think. And research would show that, that there wouldn’t be mass exodus from membership to no membership. The other issue is really, well, what proportion of people currently use the public system even though they’re privately insured. So, around one third still use the public system even though they do have private health insurance. So, those people leaving private health insurance wouldn’t impact the public system because they would already be using it anyway.
FRAN KELLY: They’re already in there.
HENRY CUTLER: That’s right. And then the final point really is: what can you do with that $6.5 billion?
FRAN KELLY: And that’s the question, isn’t it – $6.5 billion. At the moment, the health funds pay – as we heard Rachel David say – two thirds of essential non-emergency surgeries and 40 million dental services. That’s more than $20 billion in benefits, she told us, paid out for those services, versus a $6.5 billion subsidy.
HENRY CUTLER: Yeah, so, you’re right. I mean, the private health insurance obviously does contribute to those costs, but so does the government. So, private health care is funded not only by the private health insurance but it’s also funded by the federal government and it’s also funded by co-payments from individuals. So, there is research that has been done over the last few years to suggest that if we were to remove the rebate, then – and the government was to cover all costs of those members shifting into a public hospital system – the federal government would still make savings because even though their costs increased due to increased public hospital use, the savings from the rebate is more than enough to cover that.
FRAN KELLY: It’s quarter past eight; our guest is Henry Cutler from the Macquarie University Centre for Health Economy. Labor is calling- well, it said it’s promised a 2 per cent cap on premium rises in the first two years of Government. Others – well, we heard the Prime Minister there – would say that would just destroy private health insurance industry. But Labor’s also calling for a Productivity Commission review of the private health insurance industry. Rachel David said the industry is open to that, as long as it’s part of a whole of sector health review. Do you think a health review is needed now and- I mean, seeking answers; we’ve been seeking answers for a long time.
HENRY CUTLER: Yeah, yeah. I mean, I think a review would be good. In terms of the scope of the review, I mean, a whole of health system review is quite large, I mean, the health system is complex. I think a greater focus would be- a better focus would be on the financing of health care within the Australian health care system. So, taking into consideration both our private health insurance, but other ways health care is funded – i.e. through Medicare, through government funding.
FRAN KELLY: Henry Cutler, thank you very much for joining us.
HENRY CUTLER: Thank you very much.
FRAN KELLY: Henry Cutler, from the Macquarie University Centre for the Health Economy.
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