Health Minister Sussan Ley is considering applications from private health insurers to increase premiums by 6-7% in 2016, four times higher than the rate of inflation. Rising premiums and better value for consumers are on the agenda at Ley’s private health insurance reform consultations this month.
But while health-care costs are growing – due to an ageing population with higher rates of chronic diseases and greater use of health technologies – rising premiums are also the consequence of structural system design flaws.
To make the system sustainable in the long term, our report, released this week by Victoria University’s Australian Health Policy Collaboration, proposes a model that integrates public and private health expenditure into a universal, mandatory health insurance scheme.
Consumers would have the choice between private health insurers and at least one government-run provider (which could be a version of Medicare or an insurer as was Medibank). All insurers would have to provide a comprehensive set of health services to their customers, covering all essential aspects of their health care.
Everybody would pay a (regulated) premium and also receive a government subsidy, based on their health status and ability to pay. This would ensure all residents would access the scheme.
What’s wrong with the current system?
Private health insurance premiums are increasing rapidly. This is related to a number of structural system design inconsistencies and inefficiencies. These include:
Duplication of coverage. This arises because private health insurance-holders continue to retain full coverage under Medicare. So, if they are treated in a private hospital, the costs of treatment in a public hospital cannot be transferred to offset the costs of treatment in a private hospital.
Community rating combined with open enrolment. Insurers must insure anyone who wants coverage and must adopt one price per product. Although these regulations were introduced to mitigate the effects of risk-selection by insurers (keeping or attracting healthy people and getting rid of or discouraging high-risk, unhealthy people), they are ineffective and inefficient in doing so.
Government subsidies for private health insurance that are premium-related (such as the rebate) and tax penalties for being uninsured make consumers less price-sensitive. This can lead to premium inflation.
Consumers can’t obtain private health insurance to cover all their health-care costs. They still face out-of-pocket expenses and exemptions. General practice care, for example, is funded by Medicare and can’t be covered by private health insurers. This also means insurers aren’t generally involved in coordinating primary care interventions or preventive programs that keep patients healthy and out of hospital.
This results in a public-private mix of fragmented inefficient, costly and two-tiered access to care.
How would mandatory health insurance work?
The scheme would require all Australians to buy health coverage from competing insurers. All insurers would be required to accept any applicant, without discrimination, for a nationally defined set of health-care services.
Rather than just covering Medicare services or pharmaceutical, insurers would be required to cover all the basic services a person would need throughout their life – from GP services and drugs to hospital care and, potentially, long-term and aged care.
On top of the basic services all insurers must provide, they may offer additional coverage for services not included in the nationally defined package of cost-effective services.
Individuals would pay premiums via a mix of out-of-pocket contributions and income- and risk-related government subsidies, based on the person’s health status and risk of needing care.
High-risk people with multiple chronic conditions, for instance, would pay virtually no out-of-pocket contribution because their high risk-profile would attract a high government subsidy.
How would it fix the problem?
The new universal scheme would remove the duplication and fragmentation in our current public-private mix in health-care insurance and financing. Instead, it would cover all consumers for a comprehensive and integrated package of services.
With the introduction of risk-based subsidies for insurers, competition would push insurers to invest in quality care that keeps people healthy and out of hospital. Importantly, it would remove the incentive for insurers to push unhealthy or high-risk customers away.
This model provides the flexibility required to care for the increasing proportion of the population needing chronic and long-term care services, rather than just providing acute care when someone is sick or injured.
In time, a system that combines choice with risk-based subsidies will enhance efficiency while maintaining affordable access to care.
Transition to this system would require a period of incremental and gradual implementation, as there are several pre-conditions to be fulfilled. Strong political and regulatory support will also be essential.
This is not the only alternative we can think of to make the Australian public-private mix more sustainable. But this option would solve the main problems of fragmentation of care and duplication of insurance. It also has the least transition costs as it builds on the existing pillars of the system (including the private sector).
As such, this scheme is our recommended framework to achieve a durable, efficient, sustainable and affordable health-care system for Australia.