News eDaily31 Oct 2017

Australia:Insurers need to change to reap US$100-bln health savings

31 Oct 2017

Reform of Australia's health system could save A$140 billion (US$107 billion) over 20 years, with room for improvement in almost all areas, with insurers, doctors, patients, hospitals, and legislators all needing to make a change, according to the Productivity Commission.

In its report titled “Shifting the Dial: 5 Year Productivity Review” released last week, the Commission said that there are many avenues for obtaining large public interest gains by making Australia’s health system more oriented to achievement of outcomes rather than payment for services.

Exploration for these gains could consider: the design and purpose of private health insurance (PHI), says the report. There are multiple concerns about PHI, including premium pressures, risk equalisation arrangements, administrative costs, rebate arrangements, regulation, out-of-pocket expenses, and product coverage and complexity. The cost of prostheses has been a major concern for the industry (accounting for about 14% of PHI-funded hospital costs) and is under review by the Prostheses List Advisory Committee.

One main recommendation is a renewed focus on preventative health from individual practitioners, hospitals and insurers, but none of them have any real incentive to do so.

For example, risk equalisation in Australia's health insurance is what prevents an insurer from charging more for any individual based on their age or health. However, it means there's no motivation for insurers to promote preventative health care because if their customers are less healthy than the rest, other insurers will pick up the slack.

Other insurers without this risk equalisation requirement have independently started taking steps to encourage healthy living among their customers. An example is life insurance brands that offer substantial discounts for healthy lifestyles.

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