Private health insurance is complicated and the committee acknowledges
that it is difficult to achieve a balance between offering more comprehensive
products and maintaining affordable premiums for consumers.
In this inquiry, the committee received evidence from consumers who are
finding private health insurance increasingly unaffordable. Meanwhile, private
health insurers told the committee that they had little ability to control the
costs in their supply chains.
Submitters—consumers, private health insurers, device manufacturers and
dental practitioners—called on the committee to increase transparency, both in
private health insurance and across the health industry more generally. As
discussed in greater detail below, transparency may assist consumers to be
better informed about purchasing and using their private health insurance.
Government's 2017 reforms
On 13 October 2017 the Minister for Health, the Hon. Greg Hunt MP
(Minister), announced a series of reforms to private health insurance including:
a new 'gold', 'silver', 'bronze' and 'basic' system of
improving access to mental health services;
permitting travel and accommodation benefits for Australians
living in rural and regional areas to be offered under a hospital policy;
increasing the powers of the Private Health Insurance Ombudsman (PHIO)
to allow for inspections and audits;
establishing a committee to consider out-of-pocket costs;
allowing private health insurers to offer a 'reverse' lifetime
health cover discount;
further Prostheses List benefit reductions;
an agreement with the Medical Technology Association of Australia
(MTAA) to reduce the costs of prostheses;
increasing maximum excess levels;
removing coverage for some natural therapies;
streamlining second tier administrative reforms; and
discussing options relating to private patients in public
hospitals as part of the next National Health Agreement.
The committee commends some of the proposed changes. For example, as
discussed in Chapter 2, the committee received evidence that it was very
difficult for consumers in rural and regional areas to access private
healthcare services. The committee notes, in particular, evidence from the
National Rural Health Alliance who called for reform in this area. The
committee considers that including travel and accommodation benefits in
hospital policies, and thereby allowing the costs to be shared through the risk
equalisation pool, is beneficial for consumers.
The committee approaches some of the other announced changes with
caution. In Chapter 2, the committee noted the difficulty faced by consumers in
understanding what their private health insurance policy covers them for and
the challenges faced by consumers when their coverage is different than what
they thought it was. Increasing the maximum excess that consumers must pay
before receiving coverage may compound this problem. The committee notes the
Government's stated commitment to consult on implementation in the first half
In Chapter 2 the committee noted that many submitters were broadly
supportive of a categorisation system that would assist consumers. The
committee considers that the classification of 'gold', 'silver', 'bronze' and
'basic' may assist consumers depending upon what is included in each category
and how well the categories are able to be understood.
The committee also noted that hirmaa, Private Healthcare Australia and private
health insurers outlined that lower cost policies were used by many Australians
who valued the more limited coverage where they met members' personal
circumstances and that lower cost products played a role in rural and regional
However, the committee notes the concerns raised by submitters, such as the
Australian Nursing and Midwifery Federation, the Royal Australian and New
Zealand College of Obstetricians and Gynaecologists and the National
Association of Specialist Obstetricians and Gynaecologists about 'junk' or 'basic'
policies, which they considered should be discontinued because they provide low
value to consumers. The committee also notes that this was the Government's
view before the last election, when the then Minister for Health, the Hon. Sussan
Ley MP, committed to 'weed out junk policies by ensuring consumers have access
to a product with a mandated minimum level of cover'.
In Chapter 3, the committee considered evidence from the Department of
Health (Department), and others, that 'junk' or 'basic' policies make a substantial
contribution to risk equalisation and decrease pressure on premiums.
The committee recommends that the Commonwealth Government undertake an
evaluation of the value provided by 'basic' policies as a fourth product
category (Gold/Silver/Bronze/Basic). Following that evaluation, the
Commonwealth should determine whether consumers are best served by a three-tier
or a four-tier product categorisation system.
In Chapter 2, the committee noted that submitters raised concerns about
access to mental health services and whether comprehensive psychiatric services
should be made a mandatory inclusion in private health insurance policies. However,
the committee also noted the Department's advice that making comprehensive
psychiatric services a requirement for a complying health insurance product
would have the effect of increasing premiums by 15 per cent.
The Minister has announced that patients with limited mental health
cover will be able to upgrade once without serving a waiting period. The
committee considers that the Minister's announcement is a good first step, though
the committee notes that significant further detail is required from the
The committee received evidence that private health insurance is
becoming increasingly unaffordable for many Australians. The committee notes
Private Healthcare Australia's evidence that private health insurance may
become unaffordable for one in five Australians in the next six years and the
evidence of the Australian Healthcare and Hospitals Association that
Australians pay 20 per cent of their healthcare costs out-of-pocket, more than
any comparable Organisation for Economic Co-operation and Development (OECD)
The committee notes that the Minister has announced that he will convene
a committee to consider how to achieve transparency in out-of-pocket costs.
However, this committee has already heard some evidence regarding transparency
measures that can be taken immediately to assist consumers.
Evidence received by this committee suggests that dentistry is one area
that requires attention. Dentists and practice managers informed the committee
that they were unable to advise clients what their out-of-pocket costs would be
because they did not know what rebate the private health insurer would provide.
Instead, consumers are required to phone private health insurers to attempt to
seek advice on what they might be covered for.
Dentists advised the committee that private health insurers have
previously published guides to their rebates. The committee considers that
requiring private health insurers to publish comprehensible guides to their
rebates would be of assistance to consumers and other health practitioners.
The committee recommends that the Minister for Health require private
health insurers to publish all rebates by policy and item number.
Another area that the committee considers warrants examination is the
fees charged by medical specialists. The committee received evidence that some
surgeons, and other specialists, charge excessive fees. The committee also
heard evidence that the Royal Australasian College of Surgeons would accept the
public disclosure of surgeons' fees, and that it would be a relatively simple
task to publish fees in order to enable consumers to better understand their
out-of-pocket costs and make an informed decision.
Public disclosure of fees would introduce more discipline to the market,
and would empower consumers to request a referral from their general
practitioner to a preferred specialist that they can afford.
Ideally, fees would be published in a searchable database which would
also include the type and volume of procedures performed, and risk-adjusted
complication and error rates, to enable consumers to also weigh the relative
skill of their surgeon/medical practitioner.
Some submitters recommended the implementation of an online searchable
tool that patients and private health insurers could use to obtain an estimate
of professional fees. The committee believes that such a scheme is worthy of
The committee recommends that the Minister for Health instruct the Department
of Health to publish the fees of individual medical practitioners in a
The committee notes the Prostheses List reforms announced by the
Minister and the agreement with the MTAA to constrain the cost of implantable
devices. As discussed in Chapter 3, Prostheses List costs have been
contributing to rising premiums and the committee commends efforts to reduce
the benefits paid in this area.
The committee notes the MTAA's recommendation that the accounts of each
private health insurer be audited by the Australian National Audit Office to
ensure that savings from the Prostheses List reforms are passed on to consumers.
Private health insurers did not oppose the recommendation for an audit. The
committee considers that it is important to ensure that savings from these
reforms are applied to making premiums more affordable for consumers.
The committee recommends that the Commonwealth Government ask the
appropriate body (such as the Australian National Audit Office, Department of
Health, Australian Prudential Regulation Authority, Australian Competition and
Consumer Commission or the Private Health Insurance Ombudsman) to report in 12
months on whether the benefits from the Prostheses List reforms are being
passed on to consumers.
As part of the private health insurance reforms announced on 13 October,
the Government announced that the PHIO's website would be upgraded to make it
easier for consumers to compare insurance products.
The independent website privatehealth.gov.au provides consumers with
objective comparator information on private health insurance policies. However,
the PHIO has currently has no budget to promote the website with the result
that awareness appears limited, with only about one in eight consumers using
the service in 2016.
The committee recommends that the Commonwealth Government provide
additional funding to the Private Health Insurance Ombudsman to enable it to
widely promote its upgraded website and comparison service to consumers.
Submitters raised concerns with the committee about privately funded
patients being treated in public hospitals. The committee notes the increase in
the number of patients electing to be treated privately in public hospitals,
though also notes that this has always been a feature of Australia's mixed
public-private system. The committee was also concerned that some state
governments appear to have adopted policies with the intention of attracting
private patients, though notes that states feel this is necessary in the context
of Commonwealth hospital cuts.
The committee received anecdotal evidence that some consumers were being
asked to make an election about whether to use their private health insurance
under some stress. The committee considers that all consumers should be able to
make an election with full knowledge of the financial and other consequences
and free of pressure or duress.
The committee notes the Department's perspective that public hospitals
may treat private patients ahead of public patients, provided public patients
are treated within a clinically appropriate period.
The latest Australian Institute of Health and Welfare report concludes
that patients with private health insurance were more likely to be assigned a
higher clinical urgency rating for a similar procedure than a public patient.
The committee is concerned by this practice and notes that the Minister intends
to raise the matter as part of the next National Health Agreement. The
committee agrees that this matter ought to be given high priority by the
Minister, the Department and by state and territory governments.
The committee recommends that all state and territory governments review
policies and practices regarding private patient election to ensure that all
patients can provide informed financial consent.
The committee recommends that the Commonwealth Government and state
governments ensure that public hospitals provide equality of access for public
and private patients based only on clinical need and not on insurance status.
In Chapter 4, the committee considered whether state and territory
activity based funding models sufficiently adjust to account for privately
funded hospital separations. The committee received evidence indicating that
some state and territory policies do have such an incentive, particularly where
states and territories retain revenue resulting from exceeding private patient
targets. The committee was concerned that such financial incentives appear to
be leading to an increase in privately funded public hospital separations.
The committee recommends that the issue of private patient adjustments be
considered in the context of negotiations on the next National Health
Agreement, consistent with the Minister's broader approach.
Other concerns raised with the committee
The committee received evidence that private health insurers may be able
to make a greater contribution to out-of-hospital care. The committee notes
that private health insurers are already able to contribute under the Broader
Health Cover provisions of the Private Health Insurance Act 2007, but
recognises that private health insurers would like to cover a wider range of
The committee understands that unnecessary hospitalisation should be
avoided where possible and that there is limited clinical evidence that
hospital based rehabilitation is superior to rehabilitation provided in a
patient's home. Equally, the committee understands that introducing another
payer into out-of-hospital care risks undermining the universality of Medicare
and inflating costs for both consumers and the Commonwealth.
The committee is concerned that private health insurers will place
limitations on benefits in an attempt to keep costs down. As noted in Chapter
4, private health insurers have placed restrictions on benefits that may be
claimed and that this delivers poor outcomes for patients who either incur
greater out-of-pocket costs or are forced to delay treatment.
The committee recommends that the Commonwealth Government consider
extending the Broader Health Cover provisions of the Private Health
Insurance Act 2007 on the basis that such services, if offered, do not
undermine the universality of Medicare by creating a two-tiered primary health
care system, do not inflate costs for the Commonwealth by introducing another
payer, are provided on a comprehensive basis and do not delay treatment or lead
to greater out-of-pocket costs.
The committee recommends that the Commonwealth Government review current
regulations to allow private health insurers to rebate out-of-hospital medical
treatment where it is delivered, on referral, in an out-patient, community or
The committee was very concerned to learn that many children are unable
to have serious dental issues addressed because private health insurers will
not provide adequate rebates to private hospitals and day surgeries. The
committee received evidence that private hospitals are revoking the admitting
rights of paediatric dentists and adding children requiring serious dental work
to public waiting lists. The committee urges all parties to work together to
resolve these issues in the interests of paediatric dental patients.
The committee recommends that private health insurers engage in
negotiations with private hospitals and paediatric dentists to urgently resolve
the issues surrounding paediatric dentistry.
The committee also received significant evidence from dental
practitioners about the effect 'preferred provider' schemes were having on
independent dentistry. In particular, dental practitioners raised concerns that
consumers are disadvantaged and received lower rebates because they visited a
non-preferred dental practitioner.
The committee is concerned by evidence received from dental
practitioners regarding the impact of 'preferred provider' schemes. Dental
practitioners raised concerns that they believed that some practices of the
private health insurers were anti-competitive. The committee considers that
reforms should be implemented that specify that, where two consumers in the
same jurisdiction pay the same private health insurance premium, they should be
entitled to the same rebate for the same clinical service.
The committee recommends that the Commonwealth Government amend relevant
legislation to prohibit the current practice of differential rebates for the
same treatments provided under the same product in the same jurisdiction.
The committee received evidence from the Australian Competition and
Consumer Commission (ACCC) that it had previously considered 'preferred
provider' schemes and found that they were not anti-competitive. However, the
committee understands that those findings were made on the basis that dentists
were able to join those schemes. The committee has questions as to whether private
health insurers' use of data obtained from Health Industry Claims and Payments
Service (HICAPS) terminals could be used inappropriately when offering
competing dental services. The committee asks the ACCC to consider the issue,
especially in light of the Productivity Commission report on Data
Availability and Use, where it was noted that the use and sharing of
membership data exemplify 'the advantage that access to vast quantities of data
could offer by way of market power'.
The committee recommends that the Australian Competition and Consumer
Commission reconsider whether private health insurers' use of data obtained
from the Health Industry Claims and Processing Service is anti-competitive.
The committee also recommends the Commonwealth Government amend relevant
legislation to ensure there is a clear delineation between data obtained from
the Health Industry Claims and Processing Service and data used by health
insurers competing for services against other non-preferred providers. This
should extend to a requirement that such data be maintained strictly and
separately and that private health insurers should be prohibited from using
data gained through claims processes for commercial gain.
In Chapter 3, the committee considered the role of intermediaries in
policy selection and switching between private health insurers. The committee
received evidence that consumers are unaware of the commissions paid to
intermediaries. The committee considers that consumers should be made aware of
commissions paid to intermediaries by private health insurers.
The committee recommends that the Commonwealth Government require intermediaries
to disclose any commissions received from private health insurers for the
The committee recommends that the Commonwealth Government amend relevant
legislation to require all private health insurers disclose executive
remuneration and other administrative costs.
Many private health insurance products have waiting eligibility periods
of up to 12 months. Ideally, notice to consumers about changes to their
insurance product should align with relevant waiting periods for any treatment
affected by the change, so that consumers are not disadvantaged should they
choose to change their cover as a result.
The committee recommends that the Minister for Health amend the
legislation to require private health insurers to provide adequate written
notice of changes to policies and eligibility to allow consumers to consider
alternatives, and that this notice clearly communicates changes to the policy
that may affect the insured person's coverage, especially where such changes
may be detrimental. Where relevant, the notice period should correspond to the
eligibility period for any service or treatment affected by the changes.
The Private Health Insurance Code of Conduct (Code) is designed to
promote 'informed relationships between private health insurers, consumers and
It covers four main areas of conduct in private health insurance, including
that consumers receive the correct information from appropriately trained
staff, ensuring that consumers are aware of dispute resolution procedures, and
ensuring policy documentation contains all the information consumers require to
make a fully informed decision.
It is important to note the Code is voluntary and, as such, does not
have the force of legislation. A breach of the Code does not give rise to any
legal right or liability. Further, the quality of information that is provided
in the Code is not necessarily user-friendly or helpful to consumers.
As highlighted by the Australian Dental Association (ADA), whilst it is
a legislative requirement that new policy holders are given a Standard
Information Statement and details about what their policy covers and how
benefits provided under it are worked out, this does not always occur in
practice. The end result is a lack of informed financial consent for consumers
and little scope for redress.
Evidence provided to the committee also highlighted that there is very
little regulation and oversight of the interactions between private health insurers
and providers. In its submission, the ADA recommended that the ACCC, in
consultation with the PHIO, encourage private health insurers to work with
healthcare providers to develop a code of conduct to promote ethical
co-operative relationships between funds and health providers.
The committee recommends that the Private Health Insurance Ombudsman
advise the Minister for Health in 2019 on additional measures that could be
introduced to make private health insurance easier to understand that are in
addition to significant reforms being introduced in 2018 and 2019.
The committee recommends that the Australian Competition and Consumer
Commission, in consultation with the Private Health Insurance Ombudsman,
commence work to establish a new code of conduct that will provide the
framework for engagement between private health insurers and healthcare
The committee recommends that the Minister for Health write to the
Private Health Insurance Ombudsman to request advice on the disclosure of
limitations to treatment type or frequency which may arise from contract
arrangements with individual hospitals or providers that impact on members'
access to services and out-of-pocket costs.
Senator Rachel Siewert
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