Presentation to the National Press Club, Wednesday 4 December
Statistics issued by the health insurance regulator a fortnight ago showed:
- private health insurance cover was down to 44.1% of the population, the lowest it’s been this century;
- the youth exodus hasn’t stopped;
- costs are still growing way faster than inflation, about 3.98% in real terms over the last year, which does not augur well for the next round of premium increases; and
- the promised $200 million of prosthesis savings, factored into last year’s premium increases, did not eventuate.
Investment advisers have the listed private health insurers on Sell.
Apart from that, all is good with the industry.
Last week, Grattan Institute released the first of its two reports on private health.
We showed that on patients in private hospitals stay 9% longer on average than similar patients in public hospitals. There is more unnecessary care in private hospitals. And so the average admission is inefficient, some are unnecessary, and some are both.
We also showed that there are a handful of greedy doctors that are driving the complaints that are turning people away from private health insurance. A mere 7% of all in-hospital items are billed at twice the schedule fee. For these items the average bill is three times the schedule fee. This statement created Twitter deluge. The complaint was the MBS fee was irrelevant. Importantly I didn’t say doctors should charge the schedule fee, what we said was that billing at twice the schedule fee was greedy. If double the schedule fee is the wrong greed threshold, I challenge the AMA to say what their greed threshold is. Is it three times the schedule fee? Four times, or what?
Their response may be that the MBS fee is irrelevant and that the AMA recommended fee is what is fair. I don’t have access to the AMA recommended fee, but I suspect using the AMA’s measure, there are more doctors engaged in unfair billing – that is billing over what the AMA regards as the fair fee – than I labelled as greedy.
Anyway, the reaction to our report was finger-pointing at everybody else. Each of the provider branches of Rent Seekers R Us blamed the other branches. Rent Seekers R Us (Medical Branch) blamed Rent Seekers R Us (Private Hospital Branch). Rent Seekers R Us (Prostheses Branch) used a hired gun to point the finger at the other two branches. Rent Seekers R Us (Private Hospital Branch) blamed the messenger.
The fact is they all contribute to the cost increases, and they should all contribute to the cost savings. We showed how health insurance premiums could be reduced by 7-10%, something to write home about.
In our second report issued today, we propose strategies to address the youth exodus directly. Our criteria for evaluating strategies included cost neutrality to government, and ensuring that older people would still find health insurance affordable.
When we looked at the private health insurance industry, we found an industry strangled by red tape, riddled with perverse incentives, suffering learned helplessness so turning to government to fix all its problems, and labelled by the regulator as complacent.
The industry is forced to pay for all hospital admissions – other than cosmetic surgery – whether they are necessary or not, and whether care in the home would be better or not. They are forced to pay regulated prices for prostheses, regardless of what the international market price is. We have a prosthesis price regulation system which would have been the envy of Soviet era central planners, where the Minister – or his delegate – sets the prices for 10,000 separate items, with no differentiation for quality of performance.
Red tape strangles innovation and reduces the industry’s ability to respond to its pressures. There is a handout mentality, which suggests that no problem is too big that an additional $1 billion dollars from taxpayers can’t fix. The AMA’s response to billing by greedy doctors is of a similar vein.
There are three potential responses:
- The Ostrich option: put your head in the sand and hope the whole issue will disappear.
- The Oliver option: Please sir can I have some more. Oliver Twist may have deserved the extra, but this is certainly not the case with this industry. The overwhelming academic evidence is that the private health insurance rebate is not good value for taxpayers’ money. We have been conservative in our assessment because much of the evidence about consumers’ responses to health insurance price changes is old, and in the context of price decreases not price increases. We have therefore suggested slow changes to the rebate and the other carrots and sticks to allow the industry time to adjust. We suggest the rebate should continue to be capped and mostly means tested.
- Align incentives. This is the third option and what we recommend. We recommend that prices for people under 55 be deregulated, allowing insurers to develop products closer in value for younger people to the price they are expected to pay. We recommend that the rebate be directed to older people, so premiums don’t increase too much.
Our approach is basically that the government should get out of the way of the industry, and let it fix its own problems. What we showed is that if we continue along the same path premiums would escalate mightily, probably 5% each year, young people will drop out, and overall industry prevalence will continue to fall.
Our message is the industry has to own the problem, government should help the industry fix the problem, but the industry should hear loud and clear that the age of entitlement is over. The age of dependency is over. The industry, if it wants to be attractive to consumers, should be allowed to offer products that consumers want. This is how a market works. The doctors, private hospitals, prosthesis importers, and the health insurance companies themselves, need to wake up and get with the program. Government has to get out of the way and let them get on with it.