Home World Business Hunt’s reforms healthy for insurers’ profits; lock in second-rate public hospital system

Hunt’s reforms healthy for insurers’ profits; lock in second-rate public hospital system

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The stock market reaction tells one of the stories about federal Health Minister Greg Hunt’s health insurance reform package: it was written by the private health insurance industry for the private health insurance industry.

The two listed PHI companies, NIB and Medibank, were up and out of the blocks first thing on Friday morning as Hunt fell into line with their desire to reverse the outflow of customers from the industry. More carrots and sticks for consumers to enrich the sheltered workshop that is PHI, penalising consumers if they don’t pay, promising discounts if they start paying early.

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Big changes to private health insurance

Health minister Greg Hunt and Prime Minister Malcolm Turnbull explain what the biggest changes to private health insurance in more than 15 years mean for you.

The changes are primarily about forcing reductions in one area of private hospital costs – medical devices – and making PHI more marketable to those under 30 with the offer of higher excesses to reduce annual premiums, youth discounts and “gold, silver, bronze and basic bronze” packages. (Shame they didn’t adopt HG and Roy’s description for the fourth category – “the potato medal”.)

A friend observed it sounds like PHI will be marketed like sports betting – cash out halfway through the race, an extra fiver on Winx, a saver if up by 24 …

Or the offering may end up more like Foxtel packages – to get the sport you want, you still have to pay for a lot of rubbish that comes with it.  

As the market reaction signalled, what the reform clearly doesn’t do is put pressure on health insurers to cut their own costs as they continue to operate in a cost-plus world, fronting up each year for the government to rubber-stamp premium increases. And it promises the insurers will have more customers pushed in their doors.

And there’s already a gap between what the industry was promising would happen to premiums if it got its way, and what will happen. The industry said a $200 million reduction in prosthesis costs would result in a 1 percentage point reduction in premiums. The reforms are touting a $300 million reduction, but NIB CEO Mark Fitzgibbon is being quoted as saying that, after a premium rise of 4.84 per cent this year, next year will see a rise at “the low end of 4 per cent”.

The less obvious and much bigger story is that the Hunt/PHI reforms seek to lock in a second-rate public hospital system for Australians. That’s the implicit reality of government policy – the public hospital system is a bit crappy, so you really need private health insurance.

What the private sector has not been able to do is demonstrate that it delivers superior health outcomes more efficiently. What the private sector has not been able to do is demonstrate that it delivers superior health outcomes more efficiently. Photo: Glenn Hunt

The industry’s desire was spelt out by NIB’s Fitzgibbon in February: “We need to be thinking about how do we create a future in which 70 per cent of the population have health insurance – and it did before Gough Whitlam introduced Medicare.”

Ah, the good old days.

The implication is a second-rate public health system for those who can’t afford or who can’t be forced into PHI.

If it was policy to have a first-rate universal health care system, large-scale PHI wouldn’t make sense – why pay a fortune in insurance for something you might not need and, if you do, you can get just as well for “free”?

That’s the implicit reality of government policy – the public hospital system is a bit crappy, so you really need private health insurance.

The economics of continuing to channel the health dollar through private insurers skimming their costs and (very healthy) profits also is questionable.

Moving some of the nation’s health costs off the government expenditure account into the less-visible but still real “tax expenditures” list is a poor pea-and-thimble trick.

What the private sector has not been able to do is demonstrate that it delivers superior health outcomes more efficiently while happily selling fear – the “fear” that the public system is not much chop and will kill or maim you.

As they get on top of the Big Data they gather, the private health insurers know quite well where the inefficiencies and overservicing lie. The higher cost for prostheses in private hospitals as compared to the ones in public hospitals has been one of the obvious follies. There are others, such as the abuse of “rehab” private hospitals, clusters of overservicing specialists and some doctors exploiting the opaque nature of medical performance by charging way over the odds for procedures delivered with no superior skill or outcome.

Given the power of other vested interests, there’s little a motivated insurer can do about that lot, but the promised reforms do suggest more evidence can be sought.The insurers might be able to justify themselves if they could solve those problems and thus, perhaps, offer an economically rational reason for their hand in the public purse.  

The government’s reforms ameliorate an immediate concern for the insurers – the exodus of young people in particular who have done the maths and realised they are being screwed.

The reforms don’t begin to tackle the greater inefficiency of the taxpayer coughing up for both tiers of the system, instead of concentrating on delivering a first rate public offering.

Instead, the reforms implicitly promise the public system will be second-rate. Either that or there’s an implicit admission that the private system is a con.

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