In order to maintain affordability of private healthcare insurance (PHI) for low and middle income earners and avoid increasing costs in other parts of the health system and economy, the PHI rebate should remain on extras, or ancillary, cover, says Private Healthcare Australia (PHA) which represents health insurers in the country.
In a submission to the government about proposals for the 2018-19 Budget, PHA says that no further measures should be undertaken to reduce the value of the PHI rebate, and consideration should be given to its restoration for low and middle income earners when economic circumstances permit. The rebate is granted, on an income-tested basis, by the government to help cover the cost of PHI premiums.
In addition, PHA recommends that the value of the Medicare Levy Surcharge should be recalculated and established such that it provides a strong incentive for people to take out and maintain their PHI membership in combination with lifetime health cover, and the proposed discount scheme for younger members. An increase of 50 basis points across the income thresholds is recommended. This would see the surcharge start at 1.5% and reach 2% for the highest income earners, that is, individuals who earn more than A$90,000 (US$72,000) or households with an income of over A$180,000 a year.
Outlining the contributions of PHI, PHA says that the insurance pays for close to two thirds of non-emergency surgery in Australia, 76% of same-day mental health treatments and 56% of all mental health care type admissions, 61% of joint replacements, 59% of chemotherapy and 86% of retinal procedures.
Currently, three in seven hospital admissions in Australia are funded by PHI, and PHI pays for five out of six admissions in private hospitals. In addition, under general treatment cover, health funds pay out more than A$2.628 billion (US$2.1 billion) for dental care, substantially more than is paid towards dental care by the Federal Government. The majority of dental health services provided to low and middle income earners are subsidised by health funds in some way.
More than 13.5 million Australians, or 55% of the total population, hold some form of PHI and almost half of them have an annual income of under A$50,000. More than 80% of Australians with PHI value the product and want to keep it.
PHA says that due to indexation and other changes to the PHI rebate made by previous governments, the value of the rebate as a proportion of premiums is declining and will continue to do so over time. This will exacerbate an affordability crisis in PHI that will have flow-through impacts on the public sector in key areas of non-emergency surgery waiting lists, mental health and dental care.
PHA also says that for decades, an inflexible regulatory environment has locked health funds into paying claims whether or not evidence supports the quality, clinical outcomes and cost-effectiveness of the services provided. This has the effect of protecting vested interests, but now more than ever, with flat wages growth and cost of living pressures impacting households, this inflationary dynamic needs to be addressed.
Cost savings proposals
Health funds have identified a number of measures that will deliver savings to both government and the industry. The measures outlined by the submission paper focus on:
- reducing fraud, waste and low-value care;
- eliminating perverse incentives to use hospital care as the default option;
- eliminating harvesting of private patients in public hospital emergency departments;
- giving consumers better tools for navigating medical specialist and allied health out-of- pocket costs;
- building on the initial reform of the Prostheses List; and
- maintaining the effectiveness of government incentives (PHI rebate, Medicare Levy Surcharge and Lifetime Healthcover).
Meanwhile, Health Minister Greg Hunt has revealed there is likely to be an average 3.9% rise in PHI premiums wef 1 April this year, which would be the smallest increase in 15 years. The rates of increase are due to be finalised soon.