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Minister takes on health funds as election looms

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Health Minister Sussan Ley has stepped up her pressure on the private health insurance industry, demanding all 35 funds reduce planned premium increases or justify higher charges.

Positioning herself as a strong advocate for consumers ahead of the federal election due later this year, Ms Ley has written to all insurers asking them to re-submit their applications for premiums increases due to come into effect from 1 April.

“Consumers have strong concerns about the affordability of their premiums; hardly surprising given premiums have increased at a rate of around 6 per cent per year for the past five years,” the Health Minister said. “It is important I am armed with the full picture before approving any premium increase, particularly as consumers are telling me they are finding it increasingly difficult to simply shop around for a better deal.”

Under current arrangements, health insurers receive around $6 billion a year from the Federal Government each year and, in return, have to get proposed premium increases approved by the Health Minister.

For the last two years, premiums have increased by an average 6.2 per cent, even as a proliferation of policies with multiple exclusions and large excess has undermined the value of cover on offer.

Ms Ley said health funds would need to lower their planned premium increases or provide evidence as to why they cannot do it.

But there are suggestions that the Minister is grandstanding on the issue for short-term political gain rather than trying to achieve sustained reform.

The funds lodged their proposed premium increases with the Health Department late last year, but Ms Ley made her announcement just a week before the Government traditionally notifies insurers of its decision.

Peak industry body Private Healthcare Australia told The Australian health funds undertook months of research and taking actuarial advice in coming up with their premium proposals, and for the Minister to make her request so late in the process was “quite challenging for the funds to comply with”.

Leading industry figures including PHA Chief Executive Dr Rachel David and NIB Managing Director Mark Fitzgibbon said premiums were being driven up systemic pressures including the rising cost of prostheses and hospital care.

Dr David told The Australian a “one-off discount on pricing is unlikely to address the fundamental problems”.

Jumping the gun

But the nation’s largest insurer, Medibank Private, pre-empted Ms Ley’s move by a week when it announced it was re-submitting its proposed premium increases for 2016.

While Medibank has not disclosed what size of premium increase it is proposing, a financial update from the fund suggests it is likely to be below the industry-wide average rise of 6.2 per cent approved last year.

In the financial update, which coincided with the premium announcement, Medibank reported that it had revised its premium revenue growth projections down from “above 5.5 per cent” to between 4.5 and 5 per cent.

Managing Director George Savvides said the recently-privatised fund was passing the benefits of cost-cutting measures on to its customers through lower premiums.

“Medibank has been working hard to address private health insurance affordability issues at their source by working in partnership with hospitals and other providers to reduce waste and inefficiency in the healthcare system,” Mr Savvides said. “Medibank members will directly benefit from the savings achieved as we invest in delivering more value to our members through more competitive pricing and enhanced product benefits.”

Medibank announced its move after releasing preliminary figures showing an operating profit in the first half of the financial year of $270 million and a $100 million boost to its full-year profit outlook from above $370 million to in excess of $470 million.

The improved financial performance has been underpinned by a crackdown on benefit payouts and a series of tough deals struck with private hospitals involving shifting the financial burden of medical complications away from the insurer onto providers.

Medibank’s decision to resubmit its proposed premiums for 2016 was hailed by Ms Ley, who said any move to cut costs was welcome.

The price of war

But AMA President Professor Brian Owler warned patients could be the losers in any price war that breaks out between the major health funds.

Professor Owler told Channel Seven he was concerned that people lured into taking out a health insurance policy by cut-price premiums might later find it does not provide the cover they expected, leaving them out-of-pocket for important medical care.

Without accompanying regulatory measures to buttress the quality of health insurance cover, the AMA is concerned any premium price war could result in even more policies riddled with multiple exclusions and hefty excess charges.

In its submission to the Federal Government’s Private Health Insurance Review, the peak medical group warned that industry practices including downgrading existing policies, habitually rejecting claims, lumbering patients with bigger out-of-pocket costs, pressuring policyholders into reducing their cover and selling people cover they don’t need, were badly compromising the value of private health cover and could eventually upset the delicate balance between the public and private health systems.

“On their own, these activities reduce the value of the private health insurance product,” the AMA said in its submission to the Review. “Collectively, they are having a destabilising effect on privately insured in-hospital patient care and treatment.”

Professor Owler said there were several emerging trends in private health insurance that were alarming, most notably a steady downgrading in the quality of cover on offer.

He said that in the last six years the proportion of people with policies that had exclusions had jumped from 10 to 35 per cent, often with serious consequences.

The AMA President said it had become virtually a daily occurrence for patients booked in for common treatments to discover upon arrival that they were not covered by their insurance.

He said all too often insurers made changes to a policy after it had been bought without informing policyholders, leaving many unexpectedly stranded.

“People are shocked to make this discovery only when they need a particular treatment, and doctors are seeing this happen on a daily basis,” Professor Owler said.

Adrian Rollins