Competitive constraints in private health insurance raised—but a broader debate needed

Parliament house flag post

Competitive constraints in private health insurance raised—but a broader debate needed

Posted 29/11/2012 by Amanda Biggs

Competition in the private health insurance market is the focus of a recent discussion paper released by the independent regulator, the Private Health Insurance Administrative Council (PHIAC). The paper is the first prepared by the new Premiums and Competition Unit (PACU) which was established in the last budget to help foster competition in the Australian private health insurance market. The paper aims to ‘promote discussion and stimulate comment on the nature of markets and competition’ in private health insurance, with a view to feedback informing a final report due for release in early 2013.

Private health insurance helps with the cost of privately provided health services, such as surgery in a private hospital, ambulance services and a range of ancillary services such as dentistry and optometry, and can provide for choice of doctor. Private health cover can help meet the ‘gap’—the difference between the Medicare benefit and the doctor’s fee—but only where gap cover arrangements exist and the doctor agrees to participate. Those with a pre-existing condition may have to wait 12 months before they can make a claim, or if their condition is excluded, may be ineligible from making a claim altogether. Even with private health insurance a patient may end up paying an ‘excess’ if they opt for a ‘front-end deductible’ policy (which are often cheaper), or if their provider charges above the scheduled fee.

On the other hand, under Medicare Australia's national, universal health insurance scheme, all Australians are eligible for free public hospital treatment as a public patient (although they may face a waiting period). They can also access free or subsidised primary and specialist out-of-hospital care; some 80.5 per cent of general practitioner services are bulk billed, so the patient pays nothing.

Since 1984, when Medicare came into being, the private health insurance sector in Australia has occupied an unusual place, and at times struggled to survive. This was most apparent following the introduction of Medicare, when private health insurance membership began to fall, in the face of competition from the ‘free’ system. By late 1998, just 30.2 per cent of Australians held private health insurance. But a suite of changes enacted under the Howard government—primarily Lifetime Health Cover, the Medicare Levy Surcharge and then the Private Health Insurance Rebate—helped arrest and then reverse this membership decline. Membership has since climbed to 47 per cent of the population (for hospital cover) and 54.5 per cent (for general cover), according to PHIAC. Some 12.4 million people now have either hospital or general (ancillary) cover.

Some might suggest that with 34 health insurers now offering some 25 700 individual health insurance products, competition in the private health insurance sector is healthy. But as the discussion paper explains, a number of factors constrain competitive forces.

Competitive constraints identified in the paper include the regulatory regime, which means:

  • Specific provisions around the type of policies offered and the price setting for these
  • Prudential and solvency requirements on insurers
  • Community rating which prevents discrimination based on health risk factors
  • Risk equalisation arrangements which pools risk across funds and
  • Take-up incentives and penalties such as Lifetime Health Cover and the Medicare Levy Surcharge.
Other factors that may affect competition include:
  • Market size and characteristics, including the limited number of new entrants 
  • Product design and diversity
  • Consumer behaviour/preferences
  • The role of intermediaries/brokers like iSelect which compare policies at low or no cost to consumers, and
  • The role of private hospitals
The paper goes on to pose a number of pertinent questions around these factors in order to prompt feedback on how best to reduce the negative impacts on competition.

One striking trend in private health insurance membership over the last few years, noted in the paper, is the rise in popularity of policies with exclusion clauses (for example, cheaper policies which exclude conditions such as hip replacement) or with excess and co-payment provisions. Just 7 per cent of policies had exclusion clauses in March 2007, but this had risen to 25 per cent in September 2012, according to just released PHIAC data. The percentage of policies requiring payment of an excess or co-payment has risen from 57 per cent to 78 per cent over the same period. The paper postulates this trend has been driven by price sensitive consumers, even though such policies are seen to benefit the insurer more than the consumer.

Another notable issue is that despite an extensive range of health insurance products being on offer, few consumers switch funds to take up new offers. This puzzle was also highlighted in a previous Flagpost, which noted that despite a guarantee of portability, a number of factors may be hindering consumers from switching health insurers. The complexity of products often limit consumer’s ability to make comparisons, loyalty schemes and bonuses often promote retention of existing membership, and limits on portability arrangements such as pre-existing conditions, also constrict consumer behaviour.

A key question raised in the paper is how private health insurance should address the future impact of an ageing population, deteriorating population health (ie the rise of chronic diseases) and increasing health costs. This challenge points to a broader issue—not addressed in this paper as it is not its focus—concerning the longer term sustainability of financing arrangements for health care.

The role of private health insurance in future health financing arrangements remains a key question, as this previous Flagpost asserts. For example, should private health insurance be restricted to providing top-up cover for services not funded under Medicare? Or, should its role be expanded so that it becomes a true competitor to Medicare? Or should other funding proposals, like Medicare Select be revisited? There are other financing proposals that also merit consideration and discussion among policy makers. While the current focus of public debate remains firmly fixed on membership trends and premium increases, it may be at the expense of a more fundamental discussion we need to have about the future sustainability of health financing.

Thank you for your comment. If it does not require moderation, it will appear shortly.

Add your comment

[Click to expand]

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




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

Show all
Show less
Back to top