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Sep 2020

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Australia: Red tape reins in innovation at private health funds

Source: Asia Insurance Review | Jan 2020

Red tape has created an administrative nightmare that discourages the private health insurance industry from innovating to reduce costs, says Dr Stephen Duckett, health programme director at the think tank, Grattan Institute.
 
“Over-regulation has created a complacent industry that is over-reliant on direct or indirect taxpayer subsidies,” he said.
 
At present, insurers must charge everyone the same premium – no matter their age – under the ‘community rating’ principle. And if an insurer innovates to keep costs down, it loses much of the benefit through a process called risk equalisation. 
 
The only way that private hospital insurance can survive as Australia’s population ages is to make insurance cheaper for younger, healthier people, says Dr Drucker. The industry currently faces a demographic death spiral as costs for older people rise and younger people leave.
 
He also says that the Commonwealth spends around A$5bn ($3.5bn) each year subsidising private hospital insurance and another A$1bn on ‘general’ or ‘extras’ insurance. “This is questionable value for money,” he said.
 
“Our research suggests that too much of the subsidy goes to people who would have paid for insurance anyway, and pays for private care that complements - rather than replaces – public care.” A 
 
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