Chapter 12 - Paying for mental health care
Mental health services are funded and delivered through
both public and private sectors. The types of services delivered, and cost to
the consumer in accessing these services, can vary greatly. Public sector
mental health services include stand-alone psychiatric hospitals, psychiatric
units in general hospitals, community residential units and community mental
health services. Other health
services, such as hospital emergency departments are also provided by the public
system and, as discussed in Chapter 8, now provide a large component of mental
health crisis care. Private sector services include private psychiatrists,
general practitioners, private psychiatric hospitals and private allied health
professionals such as psychologists.
The development of these two parts of the mental health
sector has been characterised by four features:
an 'illness divide' between the public and
private sectors, with gaps developing that neither effectively addresses;
growth in the private hospital system, raising
questions about how this accords with the NMHS;
a lack of coordination between the two sectors,
which is a common complaint in mental health generally; and
problems with the costs of access to care and
with private health insurance.
The National Mental Health
Strategy 2003-2008 sets out bold principles regarding access and equity:
universal health care system guarantees access to basic health care (including
mental health care) as a fundamental right. Individuals in need of care should
not only have timely access to such care, but the services they receive should be
of a quality that is at least consistent with other developed countries, if not
better. Access to and quality of care should be equitable, and people should
not be disadvantaged by, for example, being on a relatively low income, having particularly
complex needs or living in a rural area.
Submitters questioned the extent to which the current
mental health care system meets these access and equity principles. As one
witness put it: 'Evidence abounds of the financial and geographical barriers to
timely access to equitable health care'.
An illness divide?
Mental health professionals working in the public
sector are overburdened tending to consumers with low prevalence, acute
disorders. There is very limited capacity to provide services to those with
high prevalence disorders such as anxiety and depression, or to engage in early
intervention and prevention strategies. The committee repeatedly heard stories
of how seriously ill people are being turned away from public services. One
clinician memorably remarked they were at the point of triaging 'the more
suicidal from the less suicidal'.
Evidence suggests that a divide is developing in the
hospital system, with the public system stretched in catering for the most
acute cases, while the private sector is providing services for people with
high prevalence disorders. For example, in 2002-03, among patients receiving
specialised psychiatric care in public hospitals, schizophrenia was the most
common principal diagnosis, followed by depressive episodes and bipolar
affective disorders. By contrast, in private hospitals the most common
principal diagnoses were depressive episodes, recurrent depressive disorders
and reaction to severe stress and adjustment disorders. The
differences between the two systems were highlighted by a private provider:
It is becoming increasingly apparent that advanced trainees and
medical graduates who go on to become general practitioners are being exposed
to a very narrow spectrum of mental illnesses in the public sector. Given the
projected growth in conditions such as depression and anxiety, it would be
beneficial to rotate medical staff into the private sector so that they can
gain greater experience in the treatment and management of patients with high
It is possible to see the two sectors as complementing
each other in the provision of mental health services. However, there appears to be at
least one significant problem with this view. All consumers may be able to
obtain acute care in the public system (though there are serious issues in this
area, outlined in the chapter on inpatient and crisis care). Wealthy consumers
and consumers with private health insurance can gain assistance with serious
high prevalence disorders (depression, substance abuse, and anxiety). However
those consumers with high prevalence disorders, who are not in an acute enough
state to receive care in public hospitals and not fortunate enough to have the
financial resources to obtain private treatment, are at risk of falling through
the divide between the public and the private systems.
In addition, the divide between public and private
services in other areas of the health system impacts on people with mental
People with mental illness quickly acquire a backlog of health
complaints that remain largely undiagnosed and/or untreated. Dental care is
beyond the reach of most people with mental illness as well as their families
unless they are able to afford private health insurance.
...‘You don’t have to be
mentally ill for long, before you can’t afford basic health care. Add in
becoming homeless and you soon gather a number of health complaints.’
The growth of private hospitals
Under the NMHS there has been a targeted reduction in
public sector psychiatric beds. The NMHS continued a process of closing
stand-alone public psychiatric institutions that had begun in the 1960s. Acute
care psychiatric beds were brought into general hospitals and there was an
intention to expand community-based services. However, as public sector
psychiatric beds numbers have reduced, the number of private sector beds has
increased. Between 1993 and 2003, psychiatric beds in private hospitals
increased by 37 per cent. By 2003, psychiatric beds in private hospitals
provided 22 per cent of all psychiatric beds in Australia,
up from 14 per cent in 1993. However, unlike beds in public hospitals most beds
in private hospitals (72 per cent in 2003) are in stand-alone psychiatric
The funding arrangements between private health funds
and private hospitals effectively encourage inpatient services and are at odds
with the NMHS’s policy position on moving to community-based care. The
Committee is concerned about this trend. The mental health funding tensions for
the health funds and private providers is discussed later in the chapter.
Coordination between the sectors
There was a common call for the public and private
sectors to work together more effectively to produce better outcomes for people
experiencing mental illness. A lack of coordination was described at many
levels, including at the policy level,
and in private practitioner care of individual patients:
Integration and partnerships between public and private mental
health services and the ability of consumers to traverse seamlessly between
settings is required if optimal outcomes are to be achieved. For example, a
person may be admitted to the public sector setting during an acute
exacerbation of their illness under the care of a multidisciplinary team. When
discharged, they return to their treating psychiatrist in private sector office
based practice setting. Whilst this appears to be an ideal situation, the facts
are that once the consumer enters the public mental health sector, there is
very little, if any, consultation with their treating private psychiatrist.
Medication regimes are often changed, treatments altered, and discharges occur
without the private psychiatrist being aware of such changes. This represents
the norm rather than isolated incidences. In these cases, there is a
communication breakdown between sectors, and this needs to be addressed.
Submitters from both the public and private sectors
supported calls for increased collaboration. The Australian Private Hospitals
Association (APHA) said:
Available data on the ageing of the population, increasing
acuity of patients and increasing prevalence of mental illness all point to the
need for the public and private sectors to work much more closely together to
ensure appropriate and comprehensive care is provided throughout the episode of
The Australian Healthcare Association (AHA) said
The AHA supports more effective partnerships between the public
and private hospital sectors including improved mechanisms for collaboration.
Implementation of greater coordination and collaboration would require the
involvement of health funding bodies and the health insurance industry. A
revised system could incorporate mechanisms to fund private hospital mental
health service providers to become more involved in crisis response and initial
care and to facilitate greater consultation with primary care practitioners.
Additionally, it would be beneficial if private sector
patients had improved access to public services such as allied health
practitioners (eg. occupational therapy) and rehabilitation, for more inclusive
and comprehensive care.
Constraints on services and the cost of care
One carer, looking back over years of caring for her
daughter with treatment-resistant paranoid schizophrenia, recalled one of the
At the consultation the
Psychiatrist said that our daughter was mildly psychotic, that it was probably
a one-off incident and in all likelihood she would be better within six months.
We also received from this specialist the best and most practical advice, which
could have been given, which was to sign her up for private medical cover.
As this carer's experience suggests, affordability of
mental health services is a major issue. There are three reasons it is such a
problem: limited access to care in the public system; the high cost of private
mental health care; and, the often low incomes of people with mental illness.
Limited access to public health care
As already mentioned above, and in other chapters,
public mental health care services are generally hard to access for all other
than the most serious cases. These constraints are often felt most keenly by
those seeking to access the assistance of specialist mental health professionals,
particularly psychiatrists and psychologists.
While psychiatrists and psychologists are employed in
the public sector, the strain on resources in this sector means that services
are limited. Psychiatrists working in the public sector are so busy coping with
acute crises that they are often unable to provide prevention and early
intervention treatments or deal with the high prevalence disorders. While the
public sector is a major employer of psychologists, evidence suggests that the
sector increasingly employs psychologists in generic positions, such as case
managers, rather than in clinical positions to provide psychological assessment
and treatment. As with psychiatrists, psychologists in the public sector report
being overburdened with the most severe disorders, leaving those with
nevertheless complex and disabling high prevalence disorders unattended.
Given the pressure on the public sector, access to
mental health care in general, and psychiatrists and psychologists in
particular, is often only possible through the private sector.
The federal government subsidises the cost of private
sector services in a number of ways. For all patients, the PBS subsidises
access to many pharmaceuticals. Under the Medicare Benefits Schedule, rebates
are provided for GP and psychiatrist consultations. However, as noted in
Chapter 6 not many psychiatrists bulk bill, and although GP bulk billing rates
have largely been restored to 2002 levels following government incentives,
there are still many parts of Australia
where bulk billing rates are low or non-existent. Many submissions argued that the
Medicare schedule fee structure discourages the long GP appointments which are
often required for mental health care.
Public funding to assist with access to private psychologists
is even more restricted, with no direct rebates available. As discussed in
Chapter 6, under the Better Outcomes initiative, accredited GPs can refer
patients for psychological treatment, with minimal costs incurred to the
consumer. However, this requires that an accredited GP is available, and the
number of funded sessions is limited. GPs can also refer patients for
psychology services through the Chronic Diseases Management scheme. This does
not require the consumer to find an accredited GP, but the rebate is a set
price and the cost to consumers remains high. Also, consumers must have a
complex and chronic condition to qualify for the service. Therefore, while
public funds subsidise consultations with private mental health professionals
to some extent, accessibility is an issue and cost remains a major barrier for
Using private health insurance to access private mental
health service requires that consumers can both afford the insurance in the
first place and also afford any remaining gap payments. Many cannot:
The role of private mental health services is such that unless
mental health consumers have a private income, have employment which affords
them paying for private health care, then the private mental health services
are simply way out of the reach of mental health consumers.
Micah Projects Inc commented:
...the capacity to pay is beyond the means of many who present to
Micah with mental illness so private providers are not an option for the poor,
those living below the poverty-line.
The Australian Council of Social Services (ACOSS) said:
...a disproportionate number of people with mental illness live on
low incomes, cannot afford co-payments and do not hold private health
expressed concern that government funding to support the private sector
effectively reduces funding to the public sector, where it is most likely to
assist those on low incomes. Anglicare Tasmania
...access to private services largely remains the domain of those
able to afford private health insurance. The development of this sector should
not occur at the expense of the public system.
The federal government's 30 per cent rebate on private
health insurance provides some assistance. However those that cannot afford
private health insurance, including many people with mental illness, are not
able to benefit from this subsidy.
In the area of mental health, a divide is becoming
clearly evident between the public and private sectors:
The risk here is that some will continue to fall through the
cracks of each sector - with no where to go except onto the streets and into
Another concern is that a two-tiered mental health system is
emerging – one based on a user-pays regime and one based on resource-strapped
public provision. This has serious implications for access and equity.
In an environment of high costs and impaired ability to
earn an income, holding private health insurance can be critical to gaining
access to affordable and adequate care. The widespread lack of private health
insurance amongst people with mental illness means that private services are
commonly not an option, particularly amongst those for whom mental illness has
contributed to poverty and ongoing hardship. Complex issues regarding private
health insurance were raised with the committee during its inquiry, and it is
to this that the report now turns.
Private health insurance in Australia
As at 30 June
2005 there were approximately 8 699 000 Australians covered by
private health insurance. There
are currently 40 registered health funds in Australia.
Of these 40 funds, 26 are open to any Australian resident over 16 years of age,
and 14 are restricted to a specific group of people, generally employees of
organisations or members of some unions.
Private health insurance is different to most other
types of insurance offered in Australia in that it is community rated, not risk
rated, meaning that a person 'should not be discriminated against in obtaining
or retaining insurance coverage'.
That is, 'in setting premiums or paying benefits, funds cannot discriminate on
the basis of health status, age, race, gender, sexual orientation, religious
belief, use of hospital, medical or ancillary services or claiming history'. Funds must accept all applicants,
within certain membership categories. In principle, this means that 'private
health insurance policies (and premiums) are the same for people who need
mental health care as for people needing any other type of health care' and 'community rating institutionalises
cross subsidies from fund members who make relatively little use of health care
services to fund members who have relatively high use of those services'.
There has been much conjecture about whether the
community rating approach is working, including whether '[t]he community rated
'community' is now largely made up of older and sicker Australians' and what impact this may have on
insurance premiums. This has lead to some watering down of the strict
application of the community rating system, through the imposition of
'excesses' and 'exclusions' by health funds. In a submission to the Industry
Commission inquiry into Private Health Insurance in 1997, MBF had this to say
about the need for innovative arrangements:
Unless 'innovative' packages attract previously uninsured people
and the contribution paid contains a subsidy component for higher claiming
members, the main effect is to reduce the funding available from standard cover
participants. Over time, the prices of cover for those people most likely to
need hospital care will rise to levels such that an increasing number of people
cannot afford to maintain membership for the benefit entitlement they need— and
the problems for Medicare will grow larger.
The Australian government has addressed the reduced
take up of private health insurance by legislating on portability, providing
$2.5 billion in 30 per cent rebates on premiums in 2003–04 and a lifetime health coverage
regime, to attract and retain new entrants. The advantages of private health
insurance cover for in-patient mental health treatment, the fear that premiums
would become unaffordable and doubts that the public sector could provide such
services, were outlined:
I am one of the lucky ones in that I have private health cover
at the moment, a psychiatrist I am able to trust and one of the few that bulk
bills...To date I have been hospitalised on three occasions. I have been able to
receive this high quality of treatment at short notice purely on the basis of
my having private cover. Given our dwindling financial situation I am afraid
that I shall be unable to maintain my current private health cover and will
become another burden on the Public that seems unable to cope with people in my
Pension rates do not allow people with mental illnesses to
access private health insurance and decent quality services.
Health funds are becoming ‘innovative’ in the way they
interpret the 'complex' legislative
regime governing insurance and the way they construct the products that they
offer. Accordingly, the actions of private health insurance funds, in complying
with the community rating methodology, are continually under the microscope.
Mental health service entitlements within private health insurance
Regulation of health funds is administered by the
Private Health Insurance Branch of the Department of Health and Ageing, under the
National Health Act 1953.
Only funds registered under this act are able lawfully
to carry out the business of health insurance, with the 'conditions of registration
covering such matters as: categories of membership, waiting periods for
benefits, transfer arrangements between tables and funds, the types and levels
of benefits, and requirements about contracting with hospitals and doctors'.
The Minister for Health and Ageing can apply conditions
of registration requiring them to provide certain product offerings. Sanctions for non-compliance with
these conditions include deregistration.
Under regulation, each fund must offer:
at least a minimum specified level of benefit
(ie the basic or default benefit), for all public and private hospitals for all
conditions covered in the policy taken out by the fund member; and
cover in every (ABA) policy for in-hospital
psychiatric, rehabilitation and palliative care, at least at the default level.
The reason for mandatory coverage for psychiatric care was
best summed up in the Industry Commission report in 1997 by the National
Community Advisory Group on Mental Health:
The extent of mental illness is not well understood or accepted
by the community. Members and potential members of health funds are likely to
seriously underestimate their risk in requiring psychiatric treatment. Therefore,
psychiatric care is not an appropriate form of treatment to be excluded from
Community rating in private health insurance should
mean fund members with mental illness are not discriminated against but the
Committee heard evidence that this was not the case. The National Network of
Private Psychiatric Sector Consumers and Carers (NNPPSCC) said:
The National Network calls on the Senate Select Committee on Mental
Health to address the steady attempt by private health
insurers to restrict their coverage for services that are accessed by private
consumers who have a chronic mental illness.
Catholic Health Australia
The packaging by some private health funds of mental health as
an ‘optional’ extra, rather than an essential component of health, leads many
people without cover for mental health and psychiatric services. Even when
mental health is included in the insurance coverage, portability of private
health insurance can be problematic and is an area that could be markedly
improved with appropriate policy and legislative responses.
They also argued that:
Private health insurers have placed too many restrictions on the
types of services they will fund and by their rigid funding controls have
essentially defined how private mental health and psychiatric services are
delivered in Australia.
While blueVoices, the consumer and carer arm of
beyondblue, identified a key concern as:
Discrimination in insurance preventing people with common
disorders like depression and anxiety from taking out private insurance or
resulting in high premiums charged to persons who may have a history of these
conditions (even if not a current diagnosis).
This concern was also raised by ACOSS.
What benefit payments do health funds provide in general?
In general terms, private health insurance provides
three types of benefit:
a supplement to the Medicare rebate for doctors'
fees for in-hospital treatment, which can vary from an amount equivalent to 25
per cent of the Medicare Benefits Schedule (MBS) fee, to a higher amount under
a gap cover arrangement;
payments towards hospital accommodation costs;
Regarding the supplement to the Medicare rebate:
'[w]hen a doctor's charge exceeds the MBS fee, legislation allows health funds
to pay benefits to eliminate or reduce the out-of-pocket payment required from
the consumer, providing there is a formal agreement or gap cover scheme in
There is much variation to what hospital costs a fund
will provide from full to limited coverage, depending on the insurance cover
purchased, and whether the fund has a contract with the hospital: 'The National Health Act 1953 requires
health funds to pay at least the Commonwealth determined default benefits for
hospital services where a private consumer is treated in a public hospital, or
in a private hospital that does not have a contract with the consumer's health
Hospitals and health funds are able to enter into
contracts for payment of accommodation costs above the Commonwealth default
rates, however, these agreements may:
place conditions on the payment of psychiatric
vary between 100 per cent cover for hospital
related costs to partial cover with the consumer paying a known co-payment; and
cover the payments of benefits on a total or
episodic basis, that is, in a lump sum payment.
These arrangements allow flexibility for health funds
to 'determine benefit levels in light of the overall needs of their
contributors and the desire to keep contribution rates affordable for as many
people as possible'.
'Health funds may also pay benefits for non-admitted
services offered by allied health care professionals, such as clinical
psychologists from their ancillary tables', however, these ancillary benefits
are less regulated and cannot provide coverage from which a Medicare benefit is
These ancillary benefits are usually capped at a dollar figure
per service and/or a total annual dollar figure.
During the late 1980s funds were imposing significant
waiting periods for members who wished to change funds; costs were high and
funds were not competitive. The government viewed true 'portability' between
funds as the panacea to redress these concerns.
Portability of private health insurance from one fund
to another, without automatically resetting waiting periods, was effected
through the Community Services and Health
Legislation Amendment Act 1988 (No. 79 of 1988), adding sections (1a) to
(1f) to Schedule 1 of the National Health
The second reading speech by the Minister for Housing
and Aged Care said :
The bill also provides for increased freedom of choice for
members of health insurance funds currently locked into a single health
benefits organisation. This will be done by removing existing impediments to
transfer between organisations.
The Minister continued:
The National Health Act is also amended to allow contributors to
health insurance who wish to transfer from one health benefits organisation to
another, because of factors such as lower contribution rates and other
benefits, to do so without having to face difficulties through the imposition
of new waiting periods. These measures improve the freedom of choice for that
half of Australia's
population which currently has private health insurance. Members will be able
to transfer from one organisation to another without the imposition of waiting
periods, or with reduced waiting periods where part or whole of the waiting
period has been served in the previous organisation.
When this legislation passed each fund published the
benefits they would pay for each type of service covered. Benefit tables were also
Until October 1995, the Commonwealth Government defined a set of
benefits that all health organisations had to pay as a minimum when an insured
person was treated in any recognised (public) hospital, or licensed private hospital
(including day hospital facility). This set of benefits included basic table
hospital costs, as determined by the minister for Health and Family Services.
Health funds could also offer supplementary cover for the additional costs for
treatment in a private hospital (or a single room in a public hospital). The
level of supplementary benefits was not regulated.
Where a person transferred from one fund to another
they were covered up to the level of coverage they held in the previous fund. The
Australian Health Insurance Association explained:
...the original portability entitlement was based on the dollars
that a fund paid. So if fund A paid $300 per day and a member transferred to a
fund that paid $350 per day, the entitlement they took with them was not the
new fund's benefit, but the old fund's $300 for the first 12 months of
membership, after which they would get the increased amount. This was to make
sure that a member—or, for that matter, a provider talking to them – could not
strategically upgrade their cover by changing funds, whereas they would not be
able to upgrade their own cover within a fund without being subject to a
The changing environment—Purchaser/Provider Agreements (contracts)
Debate on the current portability arrangements
intensified when published benefits were replaced with a direct contracting
system between health funds and hospitals:
In 1995, the Keating government legislated to allow
purchaser/provider agreements (contracts) between funds (as the
"purchaser") and hospitals and doctors (as the
"providers"). These provisions were amended in late 2000 by the Howard
government to permit medical gap cover without contracts. Another very
important initiative in 2000 was the introduction of Lifetime Health Cover.
The Industry Commission advised:
From 29 May 1995...health
funds were able to negotiate different agreements with different hospitals.
Applicable Benefits Arrangements (ABAs) came into existence. This term
describes an arrangement between a health fund and its contributors under which
contributors are covered for fees and charges related to hospital treatment
(including medical charges). ABAs are more flexible then the basic and
supplementary table system.
expressed the view of insurers:
About 10 years ago, contracting of health funds and hospitals
moved in to replace the old system of published benefits. So the dollar amount
became invisible. The question then became one of whether the fund had a
contract with a hospital or not. Our problem is that contracts do not run all
the time and they can be broken by one party or the other. When they are
broken, it is often the hospital which will initiate the cessation of the
contract simply because it does not consider the benefits being paid by one
fund are adequate and at times the breaking of the contract may be a strategic
part of the whole negotiation process.
Under this system what a fund will pay a hospital or
doctor for a treatment remains confidential to the parties. Accordingly, whilst
a person may transfer from one fund to another for a number of reasons, for
example, to ensure they retain the same treating physician or to change the
type of cover, the negotiated payment between the fund and the hospital for a
particular treatment will be different for each fund. Also, and probably just
as importantly, negotiations can result in a fund and hospital not agreeing to
contract, or contracting to provide some services but not others, ultimately
meaning that a member has no, or in the case of treatment for psychiatric
illness, only the Minister's prescribed default coverage if they choose to be
treated at that hospital.
This has ramifications for fund members receiving
mental health treatment who wish to maintain a relationship with the treating
The APHA argued:
Services offered by private mental health facilities are also
influenced by private health insurance funds. For the most part, private mental
health facilities receive the bulk of their funding via private health
insurance funds under Hospital Purchaser Provider Agreements (HPPAs) which
operate within a regulatory framework of the National Health Act 1953. For many private mental health
facilities, this is a flawed framework that does not deliver a level playing
APHA, however, did not go into specific details as to
how the playing field is affected.
The Private Health Insurance Ombudsman
In 1995 the Australian Government, through the Health Legislation (Private Health
Insurance Reform) Amendment Act 1995, set up the office of the Private
Health Insurance Complaints Commissioner (PHICC) with five key roles:
deal with complaints and conduct investigations;
publish aggregate data about complaints;
make recommendations to the Minister and
Department of Family Services;
make available and publicise the existence of
the Private Patients Hospital Charter; and
promote an understanding of the Complaints
The office of the PHICC was replaced in 1998, through
amending legislation (Health Legislation
Amendment Act (No.2) 1998), by the office of the Private Health Insurance
Ombudsman (PHIO). The role and functions of the PHIO were essentially the same
as the PHICC, however, there was some minor strengthening.
Prompted by continuing concern with the way the
portability legislation had been interpreted by the various players in the
industry the PHIO determined to undertake a review during 2000. The PHIO
...the provisions fail because there is a dispute on what
constitutes a broadly comparable benefit and the effect of different components
within products to establish beyond doubt the relevant part of the relevant
In his 2001 Annual Report, the PHIO advised:
A second area where consumers have consistently faced difficulty
is in the area of product portability. The National Health Act as it relates to
portability is extremely complex and again it is an area where the
interpretation and subsequent application of the provisions by funds has been
On speaking about the results of the review the PHIO
went on to further say:
The Ombudsman's office, in liaison with officers of the
Department of Health and Aged Care, together with health funds industry
representatives combined to produce a set of twenty seven recommendations in a
comprehensive review of portability arrangements. The review was completed and
published in December 2000.
The basic principle underpinning all of the recommendations is
that any member transferring from one product to another, either within a fund
or between funds, will never be placed in a more adverse position than a new
member entering that product for the first time. Although outwardly this
principle seems so evident as to not need stating, it was not the position universally
adopted and as a consequence aberrant practices led to significant disputes.
The review appeared to arrive at an industry consensus
as to what behaviour was required to ensure that the industry would not come under
such focus as to require more vigorous regulation. In essence, a voluntary
adherence to the recommendations of the review appeared to be a preferable
option by the industry.
However, in his 2004 Annual Report, the PHIO advised,
once again, of the perennial issues arising through complaints to his office. These
issues were listed as:
the rights of consumers when changing health
the impact of hospital/health fund contract
the adequacy of information provided to
consumers about what costs their health insurance will and won't cover;
reasonable advance notice of the costs of hospital
services in hospitals (Medical Gaps); and
the application of the pre-exiting ailment
waiting period provision.
The current PHIO, Mr John Powlay, advised the committee
that of the 2 600 complaints received by his office annually approximately 25 have
related exclusively to psychiatric treatment, however, he suggested that
complaints are dealt with which may involved issues of psychiatric treatment
which are not recorded as such. In
any case the number directly attributed to psychiatric treatment was small.
The PHIO further advised:
The range of issues about which we have received complaints
includes restrictions on the level of benefit for psychiatric treatment,
hospital contracting where the hospitals were psychiatric hospitals or the
contracting issue involved payment for psychiatric treatment, the application
of co-payments where psychiatric programs occurred over a number of weeks and a
small number about billing practices of psychiatrists in private practice.
Chamley, an accredited health surveyor, in a
personal submission, suggested that private patients with mental illness were
being discriminated against by the:
Introduction of co-payments for persons
attending Day Program activities. The introduction of the co-payment has been
done without any recognition of the patient's prior membership of the fund and
it has placed a large cost-burden upon the person with chronic illness.
Inability of patients with mental illness to
exercise their full right of portability.
Dispute between an individual service provider
and an individual insurer can cause great distress to patients and in some
cases the patient has been forced to find a new treating psychiatrist.
Whilst the industry as a whole has attempted to resolve
a number of issues, it appears that in the eyes of some stakeholders this has
failed. The National Network of Private Psychiatric Sector Consumers and their
Carers (NNPPSCC) raised as ongoing problems 'portability between health funds,
exclusionary health insurance products, limitations on benefits paid for
hospital-based care, co-payments for day programs, and disputes between hospital
providers and health funds'.
Portability: issues of concern
Whilst the intent of the portability arrangements was
to enable people to transfer between funds without incurring additional waiting
periods, some processes and practices have developed which appear to impact
upon this principle.
Whilst most funds do
cover a significant range of hospitals and doctors under contract arrangements,
each contract has a definite life and will need to be reviewed at some stage
and can be broken by either party. During these contract negotiations and
disputes consumer protection is often at risk. The PHIO stated:
It is disappointing to record that on a number of occasions
during this year vulnerable consumers were placed in a position of heightened
anxiety when hospitals and health funds were in dispute concerning the outcome
of contract negotiations. My office was called upon to placate very frightened
elderly, pregnant and sick consumers who were informed by hospitals, that they
were no longer covered by their health funds.
Hospitals, which were unable to negotiate benefits they
considered appropriate, contacted past and prospective patients directly,
informing them that their health fund would not honour previous levels of
benefit and as a consequence the patient would be better off changing funds.
The PHIO was particularly
disturbed to see both the hospitals and health funds engaging patients in the
disputes and that these disputes were causing concern for consumers and their
Some families continue to pay private hospital insurance to
ensure that their relative can access private hospitals; however there can be
difficulties since one of the largest private health insurance funds in Victoria
no longer has a contract with one of the largest private psychiatric hospitals.
Dr Michael Coglin, Chief
Medical Officer, Healthcope Ltd said health funds are actively discouraging
people with psychiatric illnesses from obtaining memberships by selectively
contracting with hospitals:
Australia's largest health insurer, Medibank Private, is
currently engaged in a large-scale exercise the purpose of which is to
discriminately choose – as they would have
it—hospitals where the members can be treated, and therefore they do not have
contracts with hospitals where their members would be disadvantaged. A patient
choosing or preferring that hospital needs access to portability if they do not
agree with their health insurer's purchasing choices. That person is entitled
to say, 'I don't like the fact that Medibank Private doesn't contract with the
hospital I have been going to for 20 years, and therefore I would like to
transfer to some other fund that does'.
The most prominent
dispute was between BUPA health funds and the Healthscope hospital group. Both
parties were large providers and given the ease of transferability under the
portability regime there was great concern by other health funds of the risk of
large scale transfers of members from BUPA funds to their funds, seeking
immediate cover, putting their funds under enormous financial strain.
Mr Schneider discussed the effect of this dispute as follows and appears
to infer that the providers of health care, being the private hospitals and
doctors, may be manipulating the portability provisions through their direct
interaction with health fund members:
The problem with portability at the moment came about from a
dispute that took place between a health fund and a private hospital group in South
Australia and Victoria [BUPA and Healthscope Inc
dispute] in which the hospital group went out of contract with the fund and
then actively encouraged members of that fund to go to other health funds. This
was at the point of hospital entry. At the hospital gate people were told that
they could either produce their credit card or go to another health fund. My
understanding is that in some cases the people were presented with membership
forms of another health fund, and all they had to do was sign to move there.
In the current environment, hospitals know what each health fund
pays. Doctors know it too. They are in a position where, if the existing
arrangements as they are currently interpreted are applied, providers of health
care can effectively arbitrage the system.
Ms Susan Williams,
National Program Manager, Psychiatry, Healthscope Ltd, disagreed:
The doctors are not as sinister as the health funds make out. They
are not really interested in the commercial aspects of the hospital and the
health funds; they are interested in continuity of care for their patients.
But there are reasons why the doctors are encouraging patients
to move. They may have had a 10- or 15-year relationship with a patient, they
no longer have a contract with the hospital, and they have said, 'move to this
health fund and I can continue to treat you.' That is the reason why they are
encouraging their patients to move.
Regarding this dispute
the PHIO stated:
Both the hospital group and the health fund agreed to implement
the transitional arrangements previously recommended by the Ombudsman in the
"Review of Portability Arrangements for Private Health Insurance" as
well as other protections for affected members. These arrangements should have
provided sufficient assurances for BUPA members and reduced the incidence of
fund transfers. However, other actions and decisions by the hospital group and
the fund as well as extensive media coverage led to a high incidence of fund
transfers, including (apparently) by many people who would have been protected
by the agreed transitional arrangements.
The PHIO advised the committee:
During the dispute, Healthscope aggressively promoted the idea
that patients should transfer to other health funds. Medibank and Australian Unity
were most significantly affected by this mass transfer of BUPA members. The
estimate of the numbers transferring is around 50 000 health fund members.
These funds initially indicated that they had refused to guarantee full
portability for BUPA members transferring—that is, that they would not extend
the benefit of their contracts with Healthscope to transferring BUPA members. But,
following intervention from me and the department, both funds agreed to do so
before contract arrangements ceased.
The PHIO further advised:
Medibank and Australian Unity experienced substantial benefit payments from
transferring BUPA members. Most of those members were transferring at the point
at which they were having expensive hospital treatment. Most of these transfers
occurred in South Australia and were not related
to psychiatric or rehabilitation treatment. BUPA and Healthscope settled their
dispute and established full contracts with the key Adelaide acute hospitals. But
BUPA and Healthscope reached an agreement between them whereby BUPA would
provide only minimum benefits for some rehab hospitals and all Victorian psych
hospitals and there would be high out-of-pocket costs for BUPA members. I
stress this was not a situation where the fund and the hospital went out of
contract; the fund and the hospital agreed between themselves that the payment
the hospital would receive would be just above the minimum amount. So there was
an incentive for BUPA members to transfer. Australian Unity decided to protect
itself and its members against the additional cost of these transfers by
implementing these benefit limitation periods on psych and rehab for all its
products. The department decided not to recommend disallowance, in part because
it had previously approved similar rules for BUPA.
As a result of the
significant movement of members from BUPA to other funds, these funds
determined to put in place protection mechanisms to minimise the risk posed by
this large scale movement.
These risk minimisation
strategies appear to be counter to the intent of the original portability
legislation, however, have been allowed to continue under the self regulation
regime. The common practices, which had some application prior to the BUPA
dispute, include the use of benefit limitation periods, benefit exclusions and
APHA advised the committee through their submission
that the current contracting process between hospitals and private health funds
are circumventing the intent of the regulatory arrangements:
Feedback from private hospitals indicate that the following
restrictions are being imposed by health funds specifically for the treatment
of patients with mental illness:
Refusal to fund
Approved Outreach programs...;
Refusal to fund
the number of days of mental health treatment that a patient can receive in a
the number of same day programs that a patient may attend in a given period;
capping of the number of particular types of treatment that a patient may
receive in a given period; and
length of stay for treatment of particular conditions to levels which are
out-of-step with clinical practice.
These practices are effectively
the imposition of waiting periods (new member surcharges) under various guises.
Waiting periods and the pre-existing ailment rules are aimed at providing a
defence to 'hit and run' activity by fund members 'on an itinerant basis, to
snare benefits'. It also appears
that these practices impact more greatly upon psychiatric and rehabilitation
Benefit limitation periods
that 'funds have found creative ways around...legislative requirements by
introducing 'benefit limitation periods', 'restricted benefit periods' or
similar'. For example, BUPA (HBA and Mutual Community Health funds) 'have
restricted benefits for mental health services ranging from one year ("Top
Hospital cover") to the entire
life of the policy ("Hospital saver")'.
Benefit limitation periods are not specifically
identified in the relevant legislation. Sections (l) through to (lf) of
Schedule 1, National Health Act 1953
provide the portability provisions of the legislation and refer to terms such
as 'relevant person', 'relevant benefit', and 'broadly comparable benefit',
although these terms are also not defined.
Benefit limitation periods need to be differentiated
from waiting periods per se. In his
pamphlet titled The Right to Change—Portability
in Health Insurance the PHIO clarifies the difference of these two
concepts. In terms of waiting periods:
In some circumstances, it would be unfair to the wider
membership if a transferred member could immediately access the higher benefits
of a new product. Federal legislation therefore allows health funds to apply
waiting periods in a range of circumstances.
The 'Legislated Waiting Periods' provide for a 12 month wait for
pre-existing ailments and obstetric conditions and a two month waiting period
for all other conditions for new members and those upgrading their hospital
It therefore, stands to reason that 'where the previous
fund product has a benefit limitation, and the member is seeking to transfer to
a product without a benefit limitation, the fund has the right to apply the
legislated waiting periods before the member is entitled to the higher benefits
under the new fund product'.
During 2004 the PHIO had asserted:
Recently some funds have sought to limit transferring members'
access to their hospital benefits if their previous fund did not have an
agreement with a particular hospital; thereby exposing transferring members to
larger out-of-pocket costs, for a period. Some of those funds have also
introduced rules limiting benefits for certain treatments such as psychiatry
and rehabilitation for a period after transfer. While the actions of these
funds do protect their existing members from additional costs (which would need
to be passed on in premiums), they also threaten to seriously undermine an
important consumer right for all health insurance contributors.
The PHIO advised the committee:
Under the Health Act, funds do have to pay at least the minimum
benefit for psychiatric treatment on all their products. Most of the larger
open membership funds have what are called benefit limitation periods.
Benefit limitations periods pay benefits for some specified
treatments but the benefit is limited to the minimum for an initial period of
membership— generally between one and three years. Benefit limitation periods
are more common in Victoria, South
Australia and Western Australia
because originally they were designed by AXA, now BUPA health funds, which have
a significant share of those markets. The treatments that are most commonly
subject to benefit limitation periods are psychiatric treatment,
rehabilitation, heart surgery, joint replacement, eye surgery, IVF and
The PHIO also stated:
Until April 2004 all funds, except the BUPA health funds, waived
benefit limitation periods on transfer if the person already had the requisite
period of membership with their previous fund. BUPA apply benefit limitation
periods on all transfers, including people who transfer between products within
their fund. In April 2004 Australian Unity introduced benefit limitation
periods covering just psychiatric and rehabilitation on all its products. They
applied these benefit limitation periods to all new joiners, including
transfers from other funds. As I said, no other fund, other than BUPA and
Australian Unity, applies these limitations on transfer. The distinguishing
features of the Australian Unity arrangements are that they apply across the
full product range for Australian Unity; most funds have at least one product
that is not subject to these limitations. The Australian Unity arrangements
relate to psych and rehab only across all their products.
It would appear that funds impose benefit limitation
periods for a number of reasons, including limiting benefits for all new
members to the fund where the member had no previous private health insurance,
or where there has been a significant time lapse. The rationale for this
application of benefit limitation appears to be to prevent 'hit and run'
practices whereby a person would be able to join a fund on full cover, receive
immediate benefits and then once treated opt out of the fund. Also, the
practice is seen as a risk protection measure to mitigate wholesale transfers
of members from one fund to another.
Ms Gee, Vice-President of APHA, also in reference to
Australian Unity advised: 'one particular health insurer has been given the
right to discriminate against consumers with mental illness' and, '[t]his
follows the decision of the Department of Health and Ageing [DoHA] to permit
that insurer to impose a 12-month limit on benefits for people, transferring to
it from other insurers, who need private treatment for mental illness,
regardless of whether these consumers have already served their waiting periods
with another insurer'.
The NNPPSCC supports the view of APHA implicating DoHA
in allowing the funds to impose limitations on benefits:
[DoHA] approved an application from the Health Fund, Australian
Unity, to impose a twelve-month limitation for benefits only for psychiatric and rehabilitation services. This meant that consumers of private
psychiatric services transferring to Australian Unity would have their benefits
paid at the default level, which would leave the consumer with significant out-of-pocket
expenses, regardless of the level of their private health insurance cover.
The NNPPSCC have approached DoHA
about this issue and were advised that 'portability
is under review and that they are not currently in a position to make a
decision'. The NNPPSCC expressed disappointment that 'the review has been on-going
for over a year'.
In summary, up until April 2004 all funds except BUPA
waived benefit limitation periods on transfer if the new member had served the
period with the previous fund. BUPA apply benefit limitation periods on all
transfers (internal and external) and in April 2004 Australian Unity introduced
benefit limitation periods on all its products for psychiatric and
rehabilitation services to all new members, including those transferring from
other funds. No other funds, at this time, have moved to apply benefit
limitation periods to transferring members where the member has already served
the appropriate waiting period. However,
many funds will be keenly watching the actions of Australian Unity.
In evidence to the committee, Ms
Addison, Assistant Secretary, Private Health
Insurance Branch, DOHA,
acknowledged that Australian Unity had imposed a benefit limitation period of
12 months upon new members transferring to its fund. Ms Addison
advised that the fund did so as it felt it was financially 'at risk' given the
number of transferring members due to the BUPA dispute:
Since that time there have been ongoing discussions at an
industry level to resolve the concerns related to portability. Portability, as
provided under the National Health Act, is about people being able to transfer
to a comparable product without having to re-serve waiting periods. There is a
school of thought that says that benefit limitation periods are waiting periods.
Certainly the Private Health Insurance Ombudsman believes they are. The
imposition of a benefit limitation period was seen as the imposition of a
further waiting period, which people were concerned about.
indicated that the imposition of benefit limitation periods was the only area
of discrimination against people with mental illness that has been brought to DoHA's
As a result of the initial consultation process,
requested by the Minister for Health and Ageing, the Minister circulated a
'Condition of Registration Pursuant to Subsection 73B(1) of the National Health Act 1953' to private health
industry representatives. This proposed legislative instrument was designed to
'prevent a health fund from imposing (in any form) a benefit limitation period
on any hospital cover for contributors or dependants transferring to the fund
from another fund'.
Section (a) of this condition states:
In relation to contributors or dependants transferring from one
organisation to another organisation, the receiving organisation must not
impose (in any form) a benefit limitation period on any of its applicable
Section (b) of the condition directs funds to cease to
impose the benefit limitation period currently being served by a person who has
transferred and provides a time limit for this to take effect.
Importantly, the proposed condition provides the following
definition of a benefit limitation period:
the purposes of paragraphs (a) ...of this condition of registration a benefit
limitation period is a period of time set by the organisation during which a
contributor or dependant is eligible to receive, in relation to one or more
episodes of hospital treatment covered by the applicable benefit arrangement:
(i) for hospital treatment,
minimum benefits only [Ministerial default];
(ii) some other form of lesser benefit,
including but not limited to, a period of time during which a contributor
receives no benefit for an episode or episodes of hospital treatment (that is,
a time limited exclusion outside the waiting period times permitted by the National Health Act 1953), or, a period
of time during which a contributor receives a lesser benefit due to co-payment,
excess or front end deductible.
Accordingly, the intention of the Minister appears to
be to outlaw the imposition of benefit limitation periods not considered to be
legitimate waiting periods. Although the instrument has not been signed off by
the Minister at this time it is expected that this condition of registration
will be formalised. The PHIO was also of the view that this 'condition would go
ahead fairly shortly'.
Benefit exclusions/restricted benefits
Health funds offer a range of products with benefit
exclusions or restrictions, targeting specific audiences with more limited
products and applicable levels of treatment. Furthermore, funds were not
properly advising funds members and prospective fund members of the limitations
of the products they were purchasing.
The PHIO advised the committee:
I have been very critical of the health funds in terms of the
quality of information that they provide when people join, particularly around
these areas where there are restricted benefits. I have put the view that I
think the funds need to specifically acknowledge when people are joining those
areas that are subject to restricted benefits. Pretty well all of the
complaints that I get from consumers when they have had a hospital episode and
only been paid these restricted benefits, is that they did not understand that
that was the limit of their coverage when they signed up.
The PHIO confirmed that 'all health funds have one or
more products that restrict benefits on psychiatry and psychiatric treatment—that
is, they pay the minimum benefit amount' only.
In terms of benefit exclusions and restrictions 'some
members may choose, for lifestyle reasons or to reduce the cost of premiums, a
product where the benefit on some or all hospital procedures are limited to a
level significantly below the hospital charge, or the cost of admission as a
private patient in a public hospital'.
APHA, however, criticised the range of products
targeted at young people which have restrictions on mental health services for
the entire life of the policy. APHA warned 'the inability of any person to
foresee the future onset of illness render such health insurance products as
not fit for purpose...quite simply, such products should be prohibited by law'.
of Healthscope private hospitals stated:
There are a number of other techniques which I believe are being
employed by some health funds to discourage people with psychiatric illnesses
from joining and remaining as members or, if all else fails, from accessing
The first of them involves the provision of exclusion products
under which people are invited to take out membership of a particular table and
then unexpectedly suffer from a disorder. It could be heart disease, a
pregnancy requiring obstetrics admission or, in the case we are talking about here,
a mental health disorder. The product they have chosen on the trade-off of
price says, 'we don't cover you for certain diseases.' Our view is that products
containing a mental health exclusion are not fit for purpose and should not be
allowed to be offered by health insurers, because of the unpredictability and
prevalence of mental illness in the community.
The PHIO agreed, advising the committee:
I have particular concerns with psychiatric treatment being
limited in this way and I am particularly concerned that many of the products
that are developed by funds and that target young people restrict psychiatric
treatment. My concern is that it is very difficult for anyone to assess the
risk of becoming mentally ill. A further concern is that in many cases the
publicly provided options are not adequate. In some kinds of emergency
treatment and so forth—or even, say, heart surgery—at least you know that there
is the public system to fall back on. But in many cases with mental illness—particularly
involving drug dependency—there is not the availability of treatment in the
public system that people would like to see. That is part of the reason why
people take out private insurance. As I said, I am concerned about those
products that target young people because the indications are that most of the
complaints that I receive are about young people. Indeed, the complaints are
made on their behalf by parents. In many cases the parents will be funding the
private health insurance for the young person.
When asked to clarify how funds target young people,
the PHIO advised:
The theory of private health insurance companies targeting young
people particularly in their advertising is that young people are less of a
risk in terms of expenditure.
With many of these products that target young people, the funds
feel they have to be made cheaper and more affordable for young people and, in
that way, more attractive. Younger people tend to be more interested in some of
the ancillary and alternative therapy benefits, so the sorts of products that
you see coming onto the market will offer reasonable benefits in relation to
alternative therapies but only offer basic benefits in relation to most
hospital treatments, including psych. One fund has recently started marketing a
product exactly like that. It only provides hospital cover in the case of
accidents or sporting injuries. For most things it provides only the minimum,
restricted benefit, including for psych.
The argument put by APHA that these types of products
limiting benefits to young people are 'not fit for purpose' certainly has merit
when considering the legislation as it stands. Under private health fund
registration requirements 'each applicable benefits arrangement...must provide
for benefits to be payable in respect of all kinds of hospital treatment that
are one or more of the following; palliative care; rehabilitation; psychiatric
care'. The legislation also
provides that the waiting period for such benefits 'will not exceed 2 months'.
In terms of products where there are exclusions the
Some members may choose products that exclude certain
procedures, to reduce the costs of premiums or for lifestyle reasons.
Where the previous fund product has an exclusion attached, and
the member is seeking to transfer to a product without an exclusion, the fund
has the right to apply the legislated waiting periods before the member is
entitled to the higher benefits under the new fund.
You would be aware that health insurers are prohibited by law
from excluding benefits for mental health services in their products. However,
some insurers have found creative ways around this by, for example, imposing a
limitation on how many occasions a patient may receive benefits for a
particular type of service in a calendar year or refusing outright to fund
particular types of programs. Another way around this ban is for health
insurers to pay benefits for private mental health services at only the default
safety net rate, which is set well below the cost of providing patients with
the care they need. The result is patients either facing large out-of-pocket
costs, seeking care in the overburdened public health system or forgoing
treatment altogether and risking deterioration of their illness.
The NNPPSC advise that the 'default rate can be $150 to
$200 per day below the actual service cost'.
Dr Coglin, suggests that the out-of-pocket expenses are even greater than this:
They would get what is called the ministerial default benefit,
which is the minimum statutory benefit, which typically is about half the
contracted price that would exist were a contract exists between Australian Unity
or any other fund and the hospital. In a mental health hospital, the fund would
have as its contracted price—in round figures—$500 a day. The minimum default
benefit would be $250 a day. The
patient would have to find the other $250 a day above that.
Dr Coglin also advised 'that the average length of stay
at the Melbourne Clinic is around 18 days' and 'people with chronic mental
illness typically are occasional participants in the work force and do not have
high levels of income and savings, so the imposition of a $250 a day
out-of-pocket cost for a protracted hospital stay, with the possibility of
recurring admissions going forward, is not an option'.
Accordingly, it is not difficult to see how
out-of-pocket expenses for privately covered mental health patients could soon
become overwhelming, particularly as patients require longer-term
also went on to say:
Allied to this issue is the inconsistency that privately insured
patients with mental illness face when they use their insurance in a private
hospital. For example, there are inconsistencies between health insurers in
their funding of in-patient programs, differing limitations on the funding of
day treatments, blanket bans on funding half-day programs and inconsistencies
in funding approved outreach for hospital in-the-home services.
Ms Susan Williams, National Manager Psychiatry,
Healthscope hospitals, said private hospitals strive very hard to develop
alternatives to inpatient care and that Healthscope have 'something like 70 per
cent growth in... day programs' and 'about 80 per cent growth in outreach'
programs where they visit people in their homes. She also raised concerns that
every time they attempt to 'substitute in-patient care through either day
patient care or home based care', they have a fight with the health funds.
They see it as an add-on; they do not see it as a substitute. We
have been able to demonstrate that the readmission rate and the length of stay
for chronic patients who are cared for in outreach are significantly reduced as
a result of that. There are a number of hospitals across Australia that have
approval federally to provide hospital care in the home, but the health funds
will not provide a viable rate for them to provide the service in the
and Dr Coglin
referred the committee to a Commonwealth funded and sponsored pilot which
evaluated the cost of in-patient care to intensive home based care of a cohort
of so called 'frequent flyers'. The result of treating these patents in
intensive home based care reduced the cost from $80 000 the previous year as
in-patients to $20 000 under the pilot scheme. The committee was also advised
the 'clinical outcomes, the satisfaction of carers—that is, psychiatrist and
mental health nurses— and the satisfaction of families was at least comparable
in the intensive home based model for the same patients as the outcomes in the
previous year for hospital based care'.
Dr Coglin, advised the committee, however, that one
insurer did not participate in the project simply because the payments were not
subject to the reinsurance pool, 'they are borne only by the fund that the
patient belongs to and are not shared collectively by all health funds',
regardless of the actual savings identified.
and Dr Coglin
were also concerned that some health funds were capping Healthscope outreach
services, saying 'we're going to limit it to 20 visits a year' with the
resultant effect of these persons returning to in-patient care if they relapse.
There was particular concern that this figure of 20 seemed arbitrary and was
not based upon any clinical assessment of the fund member.
Schneider, on behalf of the private health
Some of the most innovative funding arrangements in the private
health area have occurred in the area of mental health, despite a number of
legislative barriers. Arrangements are currently based on principles of
ensuring that there is a range of suitable alternative services, if possible,
to substitute for hospitalisation, an emphasis on delivering the appropriate
treatment in the appropriate setting and ensuring the appropriateness of
Insurers believe that there should be more emphasis, whenever
appropriate, on community programs in lieu of hospitalisation, particularly if
those hospitalisations are repeated but avoidable.
I think we have to realise that health insurers are always in an
exquisite dilemma of trying to combine two conflicting situations. One is the
provision of benefits to the level which providers would like; the other is
ensuring that premiums are kept sufficiently affordable for the consumer to be
able to be insured. As a result of that there are at times some restrictions on
benefits, particularly those that are lower priced, because the only way you
can provide people with access to a low-priced product is obviously to do one
of two things; firstly, restrict people who take out that product to people who
are unlikely to claim or, secondly, reduce the benefits that you are going to
Whilst this approach appears to equate to commercially
sound practice, it is questionable as to whether it conforms to the principles
of the community-rating model. On its face the practice appears to discriminate
against people suffering from mental illness on the basis that the costs cannot
be shared across the fund. The approach appears to be more risk-rated.
The removal of the rigidities in relying upon
in-patient care for persons suffering from poor mental health has been
recognised by some health funds.
The PHIO advised the committee that 'some programs
offered by private hospitals involve an element of out-patient care and
sometimes there can be disputes with funds or different attitudes taken by
different funds as to how much of that program they will be prepared to fund'.
The PHIO further advised:
In general, in designing their policies the funds do not
distinguish between what particular psychiatric services there are. However,
sometimes in a contracting arrangement a hospital may propose that the fund pay
for certain programs that may include both in-hospital and an out-hospital
element. In some cases, funds will agree to do this. Some funds will not.
The PHIO highlighted an innovative model currently
being offered though the BUPA private health insurance fund and Ramsay's
hospital in South Australia.
Under this model the fund provides, in essence, a capital grant to the hospital
for each member with psychiatric illness as opposed to funding on an episodic
basis. The hospital then designs the most appropriate program to treat the
patient, including the provision of in-patient care, out-patient care,
community or even home-based care. The PHIO saw this as a very flexible model, but
emphasised that specific legislative authorisation was needed to allow the
piloting of the program.
The AHIA provided further information about the funding
model, referred to as 'Prospective Payment Model':
As part of the model, RHC [Ramsay Health Care] are paid an
agreed annual figure spread over 12 monthly payments of equal value within each
year. Therefore, for the first time, hospitals are assured of a known and
regular income and able to plan for financial investment in alternative
This model therefore overcomes some of the financial
disincentives for development of private out-of-hospital services, such as
establishment costs and loss of revenue from in-patient benefits.
AHIA reported the positive outcomes of the Prospective
Payment funding model, stating: 'Since inception the Model has seen more
members cared for with a greater range of services'. Some of the outcomes included: a
reduction in bed occupancy; expansion of day programs; significant increases in
psychiatric home visits; use of out-patient assessments and pre-admission assessments;
introduction of family counselling and telephone counselling services; and a
reduction in hospital administration time.
Whilst there have been a number of issues of concern
raised by stakeholders the PHIO advised the committee:
Despite all of the rhetoric and arguments around portability,
there is an effective portability regime operating in health insurance at the
moment. I have seen no instances of hospitals denying people portability rights
on transfer, even when there has been contract dispute.
The PHIO further advised:
No fund has broken ranks on portability, and no other fund has
sought to adopt the AU [Australian Unity] approach of benefit limitation
periods on psych people transferring. My assessment is that there has been no
real impact on consumers as a result of the AU changes – other than the fact
that the opportunity for them to join Australian Unity is not there. But, in
most cases, consumers have between 12 and 15 other funds that they can transfer
to without detriment, and most have taken that opportunity.
The Commonwealth government's circulated condition of
registration relating to benefit limitations periods and evidence provided by
the PHIO indicates that the practice of imposing benefit limitation periods
will soon be outlawed, therefore the main criticism of the portability regime
will no longer be applicable. However, issues pertaining to the nature of
health insurance products, including the use of product restrictions and
exclusions, particularly those targeted at and marketed to young people, will
continue to remain an issue even though there is a minimum default level of
cover for psychiatric patients.
The committee heard evidence from the private hospital
sector that they have capacity to provide innovative services relating to
in-patient care and intensive home based care, however were being frustrated by
health funds not providing sufficient coverage for their members. They also argued,
as did the PHIO, that the public system does not have the capacity to
effectively deal with patients who drop out of the private system.
The amber light ought to be flashing for state governments here
also. I predict that if contributors to private health insurance come to a view
that, in respects of coverage for mental health, the private insurers can
sidestep some of their prudential obligations, then over time consumers will
terminate their private health cover and this is going to put even more
pressure upon the public mental health services. Maybe this is the real game of
plan of the insurance providers.
The committee notes however that evidence in other
chapters suggests that the many inadequacies of public mental health services
and the fact that only the most seriously ill receive attention means that the
‘pressure’ of people exiting the private system would scarcely make a
difference to the already great level of unmet demand.
The private health insurance sector, nonetheless, advised
the committee that they were very much interested in identifying innovative
community program approaches to mental health service delivery and the committee
is aware that this would likely require legislative change but is not in a
position to endorse or otherwise such change.
The committee received evidence about a successful
collaboration between BUPA and the Ramsay's hospital group in South
Australia. By moving away from an episodic fee for
service model, the program enables individually tailored treatment programs to
be developed, including in-patient, out-patient, community and home-based care.
The positive results of the program are clear:
...since the introduction of the new funding model the focus of
care has become more tuned to the individual, with staff taking more time to
determine what is the best treatment option for each person. With a variety of
services now available, staff are able to recommend the treatment approach that
is most suitable.
This program indicates that there can be innovative
service delivery amid collaboration between private hospitals and the health
insurance sector. However, the Committee remains concerned that the private
hospital sector, by focussing predominantly on in-patient services, provides a
largely institutionalised approach to mental health services. This focus runs against
the continuing public policy of deinstitutionalisation and increased provision
of community-based services.
The committee agrees that health insurance products
that do not provide adequate care for psychiatric illnesses, regardless of the
ministerial default payments, are 'not fit for purpose' and the Commonwealth
government should take action to outlaw such products.
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