New unit to lower health insurance premiums and improve competition

Parliament house flag post

New unit to lower health insurance premiums and improve competition

Posted 1/06/2012 by Amanda Biggs

The 2012–13 Budget included an announcement of funding for a new unit to advise the Government on private health insurance industry costs, insurance premiums and competition in the sector. Costing $2.3 million over four years—to be met by an increase in a levy imposed on private insurers—the unit will be established within the Private Health Insurance Administration Council (PHIAC), the independent regulator of the sector. One of the primary functions of the new unit will be to identify options to increase competition in the sector and put downward pressure on health insurance premiums (see Portfolio Budget Statement, p. 556).

Established in 1989, PHIAC's role is to monitor, regulate and maintain the prudential standing of the private health insurance industry as well as promote competition. PHIAC also supports and protects consumers, for example, by providing timely and reliable information about registered health funds to consumers.

The cost of operating PHIAC is largely met by a levy imposed on registered health insurers. The levy is calculated using a formula specified in the Private Health Insurance (Council Administration Levy) Rules. Money from the levy goes into consolidated revenue, and from there is appropriated back to PHIAC for its operating costs. In 2011–12 the levy raised $5.36 million. Beginning in 2012–13 the additional revenue from the increased levy will be $0.6 million annually; the levy was last increased by 2.5 per cent in 2011. An additional four staff will be added in 2012–13, taking total staffing numbers to 34.

A major challenge for PHIAC is achieving a balance between its three key objectives:
  • fostering an efficient and competitive private health insurance industry
  •  protecting the interests of consumers and
  •  ensuring the prudential safety of individual private health insurers.
Private health insurance in Australia is highly regulated which limits the extent to which competitive pressures can operate. For example, insurers cannot choose to insure only young healthy contributors who rarely make expensive claims. They must also insure older and chronically ill patients who are more likely to make claims. Unlike general insurance, health insurers cannot increase their premiums on the basis of a consumer's poor risk profile; instead all consumers generally pay the same premium amount (the exceptions are a premium loading that applies to those over 30 who delay purchasing cover and price differences across states). Health insurers must meet portability requirements (which ensure consumers can change funds) and apply maximum waiting time periods for pre-existing conditions. As well they must meet prescribed solvency, prudential and capital adequacy standards. Even the process for setting premiums, the price insurers charge for their products, is highly regulated with Ministerial approval required to increase premiums.

These arrangements are designed to protect consumers as well as reduce the risk that a fund might become insolvent and thus be unable to meet patient claims. PHIAC oversees these arrangements by conducting regular fund reviews, developing industry standards and administering and monitoring industry payments to the risk equalisation fund (which ensures the cost of high-cost claims is shared across the sector). PHIAC's efforts to protect consumers and ensure the prudential safety of health funds would appear to have been generally successful. No health insurer in recent times has failed, and all have maintained statutory capital and solvency reserves. The number of consumer complaints about health insurers made to the Private Health Insurance Ombudsman has remained relatively stable although last year did see a moderate increase.
But what about PHIAC's other objective, fostering an efficient and competitive private health insurance sector? The extent to which PHIAC has met this objective is much harder to ascertain.

One indicator of efficiency, management expenses as a percentage of income, has fallen slightly from an industry-wide average of 10.5 per cent in 2007–08 to 9.1 per cent in 2010–11 (see Operations of Private Health Insurers Annual Reports). However, achieving even greater cost reductions is not assured, given that improvements to a fund's bottom line through cost reductions might weaken any argument to Government to approve future premium rises.

Some efficiencies of scale have being realised through merger activities, with some smaller funds being taken over by larger ones. The number of registered funds has been falling steadily from 40 in 2004–05, to 38 in 2007–08, to 35 today. This trend is likely to continue. Attracting younger, healthier members who are less likely to make claims is also likely to continue as a key strategy, but it will become harder to do so, given the ageing of the population and the rise in chronic diseases.

Whether allocating more resources to PHIAC to foster competition and efficiency will result in more affordable health insurance remains to be seen, but given the structural barriers to greater competition, this task would seem difficult. Perhaps, as this earlier Flagpost suggests it is time to have a wider debate about the role of private health insurance in the health system, particularly as out-of-pocket medical costs, which are already high by international standards, continue to rise. Questions could include whether private health insurance should continue to be restricted to funding only ancillary services not covered by Medicare or the gap between the Medicare fee for in-hospital services and the amount charged to patients; or whether it should be expanded so that it can compete directly with Medicare across a wider range of services. Beginning to explore these issues in greater depth might be overdue.

Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print


Flagpost is a blog on current issues of interest to members of the Australian Parliament

Parliamentary Library Logo showing Information Analysis & Advice




refugees asylum immigration Parliament Australian foreign policy elections climate change social security women welfare reform Indigenous Australians Australian Defence Force welfare policy school education higher education private health insurance Taxation health financing emissions trading Senate Australian Bureau of Statistics employment people trafficking Asia statistics Middle East illicit drugs gambling health reform federal election 2010 income management Medicare disability Sport United Nations industrial relations constitution transport Australian Public Service politics criminal law Afghanistan health forced labour aged care aid Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget Carbon Pricing Mechanism dental health Fair Work Act voting law enforcement electoral reform public service reform OECD Australian Electoral Commission WADA child protection environment poker machines Australia in the Asian Century steroids National Disability Insurance Scheme detention 43rd Parliament slavery health system regulation domestic violence parliamentary procedure International Women's Day accountability defence capability multiculturalism ASADA Australian Federal Police governance labour force people smuggling debt international relations New Zealand food Australian Crime Commission pharmaceutical benefits scheme Human rights crime China leadership Census election results UK Parliament Papua New Guinea banking corruption pensions children's health Aviation federal election 2013 foreign debt gross debt net debt Senators and Members ALP Newstart Parenting Payment Youth Allowance sea farers violence against women vocational education and training military history by-election political parties High Court skilled migration mental health Federal Court terrorist groups science social media Higher Education Loan Program HECS federal state relations youth paid parental leave same sex relationships coal seam gas customs planning doping health risks Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy trade unions Foreign affairs election timetable Indigenous royal commission Productivity United Kingdom firearms public policy Population ADRV terrorism transparency research and development welfare ASIO intelligence community Australian Security Intelligence Organisation carbon tax mining employer employee renewable energy regional unemployment fishing European Union family assistance United Nations Security Council Australian economy forestry food labelling Drugs welfare systems Indonesia children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report energy social inclusion paternalism ODA Defence sitting days electoral divisions Southeast Asia administrative law universities TAFE Ireland citizenship asylum seekers early childhood education Canada Financial sector national security fuel disability employment Tasmania integrity standards NATO Australian Secret Intelligence Service sexual abuse World Trade Organization Australia public health housing affordability bulk billing water health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation public housing expertise climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare constitutional recognition of local government referendum consumer laws PISA competition policy US politics language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage rural and regional alcohol entitlements ministries Hung Parliament social citizenship maritime Iran ANZUS regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution prisons police deaths in custody electoral margins electoral pendulum electoral redistribution redistribution NSW redistribution WA redistribution ACT electoral boundaries ASEAN Sustainable Development Goals Double dissolution Senators safety vehicles MYEFO Pathology tertiary education Taiwan Xi Ma meeting family violence government financial advisers financial planners Financial System Inquiry Murray Inquiry China; Economic policy; Southeast Asia; Africa housing Speaker; House of Representatives; Parliament High Court; Indigenous; Indigenous Australians; Native Title ACT Indigenous education Norfolk Island External Territories emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Israel Palestine asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct retirement Parliament House standing orders prime ministers First speech defence budget submarines workers Somalia GDP world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Rent Assistance obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing Victoria astronomy resources sector YMCA youth parliament Korea rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra environmental law federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office work-life balance

Show all
Show less
Back to top