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Profit-hungry insurers put health system at risk

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Aggressive cost-cutting by health insurers is leaving patients stranded without adequate cover and putting the private health system at risk, the AMA has warned.

The peak medical group has told the Federal Government’s Private Health Insurance Review 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.”

Health Minister Sussan Ley launched the Review amid growing outrage about the remorseless rise of private health insurance premiums, which far outstrip inflation.

Ms Ley said people were increasingly calling into question the value for money in private health insurance, and late last year sought consumer views on changes including allowing insurers to charge different premiums according to age, gender and smoking status – effectively ending the system of community rating.

But whereas the Health Minister has put the focus on industry regulation as much of the cause of the problem, AMA President Professor Brian Owler said it was being driven largely by the hunger for profit.

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.

The AMA is also concerned by growth in policies that only cover admission as a private patient in a public hospital, or which contain significant exclusions, such as for cardiac treatment or joint replacement.

“A high rate of ‘insured’ people with exclusion policies is effectively creating a risk rating system, as insurers reduce their exposure by offering products that are less likely to require them to pay benefits,” it said, adding that many were inadvertently buying “junk” policies that are designed solely to avoid incurring the Medicare surcharge and provide no practical health cover.

“People think they have purchased a product that will allow them [a] choice of doctor and to jump the public waiting list, but this is unlikely in reality,” the AMA said.

Another development in the peak medical group’s sights is the decision of some insurers not to cover the costs of patients readmitted to private hospital because of complications arising from their treatment.

The AMA said the new approach, pioneered by Medibank Private, the nation’s largest insurer, has serious implications for patient care, and interfere with established safety and quality arrangements.

It warned this could lead private hospitals to refuse to admit patients at high risk of complications, directly compromising the ability of doctors to care for their patients and likely forcing more patients with chronic and complex conditions into the public system.

This risk would be compounded by the possibility, aired by Ms Ley in her consumer survey, that insurers could charge different premiums according perceived health risk.

The AMA warned that such a change would fatally undermine the central tenet of community rating, which requires that all holders of a particular policy pay the same premium – a requirement that helps ensure private cover is available to all.

Professor Owler said that, taken together, these developments in private health insurance did not bode well for the nation’s health system.

“The nature of the current policy offerings, coupled with the behaviour of some insurers to minimise the benefits they pay, is undermining the quality of the product,” he warned. “If consumers withdraw from private health insurance because it is a low value product, or quality products are unaffordable, or risk-rating means some people are uninsurable, there will be additional pressure on the public hospital sector, which is already struggling to meet demand.”

Professor Owler said the Private Health Insurance Review needed to take account of how developments in private health insurance would affect the balance between the public and private health systems.

But he said the Government appeared to have little interest in this, and was instead “more focused on removing itself from financial and regulatory responsibility for the private health sector”.

The Government has flagged interest in dumping the private health insurance rebate and substituting it with a Medicare-style rebate system for hospital treatment that could be used in both the private and public sectors.

Adrian Rollins

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