Private health insurance
The private health insurance industry in Australia comprises 34 private
health insurers. At the end of 2012–13, 47 per cent of the Australian
population was covered for hospital treatment by a health insurance policy and
54.9 per cent was covered by a general treatment policy. 85.5 per cent of
insured persons are insured for both hospital and general treatment policies.
This chapter discusses the following term of reference:
(f) the role of private health
The majority of the evidence received by the committee with respect to
the role of private health insurance related to individuals' out-of-pocket
costs associated with private health insurance premiums as well as costs
incurred when accessing private health services. The committee also received
evidence related to the notion of private health insurers making a contribution
to primary healthcare services.
This chapter will first present the evidence received on the role of private
health insurers in primary healthcare and then the evidence received about out-of-pocket
costs associated with the private health system.
Private health insurance in primary healthcare
Private health insurance in Australia covers treatment in private
hospitals, treatment in public hospitals as a private patient and treatment by
allied health professionals who do not receive a Medicare rebate. Under the Private
Health Insurance Act 2007, it is prohibited for private insurers to cover
services for which a Medicare benefit is payable.
Although the 2014–15 Budget did not include specific initiatives
relating to the expansion of private health insurance services, the Budget
papers did include the following information:
In line with its commitment to reducing red tape, the Australian
Government will review the private health insurance regulatory framework to
ensure it does not place an unnecessary regulatory burden on providers, while
ensuring consumer and health system needs are protected.
The committee notes that since the National Commission of Audit released
its report, there has been speculation and media commentary about whether the
current situation will be amended in such a way to allow private health
insurers to expand to cover primary healthcare.
Submitters were concerned that the entrance of private insurers into
primary healthcare would serve to both increase out-of-pocket costs for
individuals and facilitate the creation of a 'two-tiered' healthcare system
that would significantly disadvantage those without private health insurance.
The Australia Institute noted that allowing private health insurers to
cover out-of-pocket expenses in primary care may assist those who can afford
private health insurance to offset costs but that such a change ' would
increase the cost of primary health services and inequality of access to these
services as more and more Australians would be likely to delay seeing the
Professor Stephen Jan told the committee:
Our concern about that is that that potentially leads to cost
escalation and in a sense undermines the whole idea of trying to contain costs.
When you allow insurers to cover the full cost of the gap then potentially that
gap gets bigger and bigger. We know from the US that, when private health
insurers are allowed to enter into that area, inevitably there are cost
escalations that potentially undermine the whole initiative we are talking
Submitters cautioned that extending private health insurance into
general practice may impact on a doctor's ability to provide services.
The National Aboriginal Community Controlled Health Organisation
submitted that studies have indicated that Aboriginal and Torres Strait
Islander people have a much lower uptake of private health insurance. Any moves
to expand the role of private health insurers into the delivery of primary
health care services risks further alienation of Aboriginal and Torres Strait
Islander people from health care services.
The New South Wales Nurses and Midwives' Association submitted:
In terms of the role of private health insurance, local and
global evidence shows that the more private health insurance is used to fund
health care, the more expensive that health system becomes, without any
improvement in the quality of care.
The Australian Council of Social Service (ACOSS) also expressed concern
about proposals to allow private health insurance into primary healthcare:
While consumers should be able to access particular models of
care, and have choice of provider and practitioner, there are concerns about a
model that promotes private health insurance as a way ‘to jump the queue’ and
to access timely health care. All Australians should be able to access the care
they need, at the time they need it.
Further, ACOSS is particularly concerned about proposals to
allow private health insurance into primary healthcare. We are concerned that
this will further encourage the emergence of a two tier health system, where
those with financial means are able to access the care they need, when they
need it, while those without private health insurance will be less able to
access appropriate care.
The Queensland Aboriginal and Islander Health Council (QAIHC) noted that
if private health insurers entered the primary healthcare setting, this would
create competition between services and community controlled health
organisations such as QAIHC will be unable to compete.
...QAIHC may potentially lose its core functions including our
ability to collect, analyse, interpret and report of data and across AICCHS.
The amalgamation of community controlled health organisations will result in
poorer health outcomes for Aboriginal and Torres Strait Islander people, a loss
of employment, a gap in primary health service delivery and more burden on the
health care system.
The committee received some limited evidence indicating that there may
be merit in expanding the role of private health insurance.
5.17 The Royal Australian College of General Practitioners (RACGP) suggested
that discussion about the role of private health insurance should be a much
broader and separate discussion from out-of-pocket costs. However, the RACGP
The RACGP believes that, under strictly agreed conditions,
there is a possible role for private health insurers to support the delivery of
general practice services that are not currently funded by Medicare. The RACGP
does not support amendment of the Private Health Insurer Act 2007.
5.18 On 17 June 2014, the Senate referred the Private
Health Insurance Amendment (GP services) Bill 2014 to the Community Affairs
Legislation Committee for inquiry and report. This private Senator's Bill
seeks to amend the Private Health Insurance Act 2007 to clarify that
private health insurers may not enter into arrangements with primary care
providers that provide preferential treatment to their members.
Role of private health insurers to reduce out-of-pocket costs
5.19 Submissions received from Medibank Private and Bupa Australia
highlighted the important role that private health insurance plays in the
Australian healthcare system. Bupa advised that in the 12 month period to March
2014, private health insurers paid more than $16.5 billion in healthcare
benefits. In addition:
Further indicative of the significant contribution that PHI
makes to the system as a whole, in 2012/13, $7.4 billion in benefits paid were
paid by health insurers for treatment in private hospitals and $899 million in
benefits were paid for treatment in public hospitals. In 2012/13, private
hospitals treated 4 out of every 10 hospital admitted patients, representing 41
per cent of all hospital separations.
5.20 Other evidence provided to the committee questioned whether private
health insurers do play a role in reducing out-of-pocket costs in healthcare
5.21 Services for Australian Rural and Remote Allied Health submitted:
The limited availability of private health services in rural
and remote Australia directly affects the capacity of private health insurance
to assist consumers residing in those settings with their out-of-pocket health
5.22 The Australian Dental Association (ADA) argued that private health
insurance holds a special place in health service delivery that, in the ADA's
view, is not warranted.
5.23 Evidence from ACOSS acknowledged the role of private health insurers in
Australia's health system, but emphasised the need to acknowledge that 'private
health insurance is increasingly a luxury that cannot be afforded by many
households on low incomes'.
ACOSS also questioned the efficacy of maintaining the private health insurance
rebate. This was a view shared by other witnesses to the inquiry.
Out of pocket costs associated with the private health system
5.24 Submitters and witnesses provided examples of the high out-of-pocket
costs incurred when receiving treatment in the private health system and cited
occasions when patients reported lack of disclosure about the total
out-of-pocket costs that would be incurred.
5.25 Particular reference was made to costs associated with breast cancer
and circumstances when surgical medical technology is not included on the
federal government's mandatory reimbursement list known as the Prostheses List.
5.26 The Breast Cancer Network Australia submitted that women with breast
cancer who have treatment in the private health system often incur high
out-of-pocket costs. Many women report that they were unaware that their
private health insurance would not cover all of the costs associated with their
5.27 Cancer Voices Australia submitted that privately insured individuals
often report lack of up-front disclosure for the total out-of-pocket costs
associated with cancer surgery, drugs and radiotherapy.
5.28 The committee notes evidence from the Macular Disease Foundation Australia (the Foundation) that many elderly people struggle to maintain their private health insurance but feel compelled to do so to maintain choice and access to treatment. Maintaining access to treatment is becoming increasingly important due to the limited availability of public outpatient treatment for wet macular degeneration. The Foundation explained the frustration experienced when individuals incur out-of-pocket costs for wet macular degeneration treatment provided by an ophthalmologist in the doctor's rooms as they are unable to access their private health insurance to cover this gap. In contrast, if the same treatment was received in a private hospital or day clinic, individual cost is reduced as they are able to access assistance through private health insurance.
The committee also received evidence indicating that individuals are
experiencing difficulties to meet the out of pocket costs of private health
insurance. National Seniors Australia submitted:
Older Australians are committed to maintaining their private
health insurance for as long as possible. The main reasons given by the over
50s for purchasing private health insurance are security, protection or peace
of mind followed by choice of doctor, private treatment and shorter waiting
times for treatment. People on pensions and allowances and lower income earners
are more likely to report that they are unable to afford private health
However, their ability to contribute to the cost of their own
health care and decrease the burden on the public health system is under attack
due to rising out-of-pocket health costs, capping of Medicare rebates, the
phasing out of the Net Medical Expenses Tax Offset, higher proposed thresholds
for the Extended Medicare Safety Net and the recently announced changes to the
private health insurance rebate.
With the exception of a small number of public dental programs and
services, dental services are provided almost exclusively by private providers.
Individuals accessing these services frequently incur high out-of-pocket costs
and many Australians take out private health insurance as a mechanism to reduce
The Australian Dental Association (ADA) explained that individuals with
private health insurance are often required to pay the difference between the service
fee charged and the rebate paid by the private health insurer. According to the
ADA, the discrepancy between the fees charged and the level of rebate has
increased since 2001.
The ADA noted that the increasing gap being paid by way of increasing out-of-pocket
costs has an adverse impact on private health insurance members' attendance
levels for care.
The committee was advised that approximately 50 per cent of general
practice dentists participate in the preferred provider system.
The ADA submitted that the 'preferred provider' system entered into
between private health insurers and providers has a negative impact on
The ADA can advise that there are cases where the
non-preferred provider's entire fee is less than the rebate offered to the
preferred provider patient. Yet, because the out-of-pocket expense is less,
staff of the fund promote the preferred provider as being cheaper.
Further to this, the ADA argued that the preferred provider system is inequitable
because often dentists are refused entry to the system because of the number of
dentists in the area that are already preferred providers.
Ensuring a high level of information disclosure
Evidence provided to the committee noted the importance of individuals being
adequately informed of the costs associated with treatment before it has taken
The committee notes that it may be challenging to ensure that
individuals are fully informed of costs associated with their treatment at
every stage of the process. However, it is very important that comprehensive
information is provided before treatment occurs and that patients are
encouraged to seek clarification.
Professor Peter Brooks explained some of the challenges associated with informed
consent because of the perceived power imbalance in the relationship between the
patient and the doctor. Even when patients are informed about the out-of-pocket
costs, they are often reluctant to ask questions or seek clarification as they
fear it may jeopardise or delay their treatment. Professor Brooks emphasised
the importance of improving health literacy so that individuals feel more
empowered to initiate conversations about treatments and the associated costs.
The Department of Health reiterated that it is important for patients to
be informed about the costs associated with their treatment but acknowledged
that there are challenges.
When you are talking about a single piece of surgery, that
can and does happen. But if you are talking about somebody receiving treatment
over a period of time for cancer, for example, then you get a whole range of
treatments. That is the situation I am talking about where a decision made
quite early on about which way to go has significant downstream impacts, many
of which no-one can know at the time the decision is made. It is very hard to
predict what they will be.
The Australian Society of Anaesthetists (ASA) told that committee that
health insurers have a responsibility to make patients aware of the details of
their health insurance policy, particularly if they do not have a known gap
policy. The ASA emphasised that this information should be provided by private
health insurers at the outset. Although anaesthetists try to make sure that the
information is available to patients, they 'should not be relied upon to be the
Medibank Private and Bupa Australia reiterated the importance that
individual policy holders are fully aware of the services covered under their
Drawing on research undertaken by IPSOS Australia (market research
organisation who conduct the IPSOS health care and insurance indicator survey),
Medibank private concluded that there are three conditions that contribute to
consumers acceptance of out-of-pocket expenses:
communication: that the out-of-pocket cost is communicated;
certainty: limited variation in the out-of-pocket amount
originally advised; and
manageability: consumers need to feel that they can manage the
cost otherwise it will act as a deterrent to accessing healthcare.
Catholic Health Australia submitted that more needs to be done to ensure
that consumers are informed about the appropriateness of their private health
insurance policy for their life circumstances. Information about the potential
out-of-pocket costs should be readily available on an ongoing basis:
Bupa Australia argued that increased transparency about hospital and
specialist charges is fundamental to consumers having greater access to
From our point of view, getting a degree of transparency
about how specialists and hospitals charge for things—and making that available
to consumers—would be a significant step in the right direction. Given the
amount of taxpayer and private health fund money that is tied up in this, we
believe that is a completely reasonable ask. Many other organisations are
required to divulge these things to the consumer. It would also allow us as an
industry to do some of the things that we rightfully have responsibility to do.
If transparency were available, we could develop software technology for our
members, telling them in advance what the particular products, and the
particular doctors they are wanting to see, might mean for them.
The committee notes the concerns raised by some witnesses about private
health insurers making a contribution to primary healthcare services. The
committee notes that the Private Health Insurance Amendment (GP services) Bill
2014 has been referred to the Community Affairs Legislation Committee for
inquiry and report by 26 August 2014.
The committee notes the evidence received which cautioned against
extending the scope of private health insurance into primary health care.
The committee accepts that private health insurers already play a
significant role in the delivery of health services and contribute to improving
health outcomes for the Australian community.
The committee was concerned to hear personal accounts throughout the
inquiry in relation to individuals incurring very high out-of-pocket costs for
treatment in the private health system. The committee notes that often payment
was required with very little notice given of the costs involved or a limited
understanding of the full terms and conditions of their private health
Given that individuals with private health insurance often face large
out of pocket costs and informed financial consent is often inadequate, better
mechanisms are required to ensure patients are fully informed about treatment costs,
before initial treatment as well as throughout any follow up treatment.
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