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The New Private Health Insurance Reforms Explained

The New Private Health Insurance Reforms Explained

For nearly two years, the Australian Government has been working with the nation’s health funds and private health stakeholders to address public concerns about the affordability and value offered in the private health insurance sector.

The reforms aim to reduce the upward pressure on premiums and make private health cover easier to choose and use for consumers.

Changing inflated Prostheses List pricing arrangements

Health funds have been paying out benefits for medical devices at a rate 2-5 times higher than prices charged for the same device for public patients and in similar countries around the globe.

Health funds have pledged that all savings made by reducing these bloated benefits will be passed on to private health consumers when new premium levels are announced in April of 2018 and 2019.

Costs in this area have been spiralling out of control for some time: one health fund reported that inserting a cardiac defibrillator in a private hospital setting cost $55,000 for the prosthesis component, while an identical procedure in a public hospital environment, using the same prostheses, cost only $15,000.

According to Dr. Rachel David, Chief Executive of Private Health Australia, “Addressing market failures in the medical device supply chain has been a major priority for health funds on behalf of their members.

According to Dr. Rachel David, Chief Executive of Private Health Australia, “Addressing market failures in the medical device supply chain has been a major priority for health funds on behalf of their members.

The Federal Government should be commended for tackling the corruption, rorts and kickbacks that over time became a feature of this system, leading to poor outcomes for consumers in terms of both cost and safety.”

The ‘Costing an Arm and a Leg’ report commissioned in 2015 by health funds showed that patients are forking out $800 million too much each year for medical devices – and recent data from the Independent Hospitals Pricing Authority showed the financial waste was closer to $1 billion.

The new reforms to Prostheses List benefits take aim at the waste of money linked to the claiming of sales reps’ costs and create discounted benefits more in line with real market prices.[i] [ii]

Discount for Lifetime Health Cover (LHC)

The Government is also committed to encouraging younger Australians to join health funds. It will aim to reduce premiums by 2% per year, capped at 10% after five years.

This can help put private health insurance within reach of a young demographic that is already struggling with frightening rises in housing, education and energy costs. Young, healthy Aussies often end up cross-subsidising the sick and elderly, who make claims more often than younger members.

Improving the take-up rate of private health insurance for young Australians is a crucial goal, especially since many of the health concerns facing that age group – such as treatment of sports injuries, preventative dental care and cover for hospital-treated mental health problems – are hard to access without private health insurance.

Other reforms

Private Health Australia has also worked with the Government on simplifying choices and reducing complexity, so consumers know what they’re paying for and can ensure it meets the health needs of their life stage.

For example, with product classifications Gold/Silver/Bronze/Basic, the retention of the ‘Basic’ cover level recognises that certain people choose that level because a particular specialist treats them in a public hospital for a chronic condition – and it would be inappropriate and unfair to charge those folks at least 16% more for treatments and services they’ll never use.

There are also plenty of younger Aussies who take up the ‘Basic’ level of cover as an entry-level option that helps them avoid the Medicare Levy Surcharge as well as the LHC loading that affects them after age 30.

Rather than force these cash-strapped people to pay for more than they need, the ‘Basic’ level gives them a starting point which can then potentially lead to an upgrade of their cover down the track.

Health funds will also aim to introduce a mental health safety net to cater for those policy holders who choose low-cost products and are unexpectedly admitted to hospital for a serious mental health condition

Health funds will also aim to introduce a mental health safety net to cater for those policy holders who choose low-cost products and are unexpectedly admitted to hospital for a serious mental health condition.

This recognises the fact that it can be quite difficult for many people to effectively assess their own risk of developing mental health issues, and provides them with a one-off opportunity to upgrade their cover, enabling them to have their stay in hospital fully covered – with no waiting period – if they’re on lower benefits.

To reduce product confusion and make it easier for consumers to compare health funds, standardised clinical terminology will be introduced.

The Private Health Insurance Ombudsman website is also due for a proposed upgrade that will ensure consumers have an independent source of information and advice when they’re shopping around for an appropriate private health insurance policy.

In an effort to boost the value of private health cover for people living in remote and rural areas, another reform measure involves the introduction of a ‘rural health product’ which allows for the offer of travel and accommodation benefits under hospital cover.

Policy measures will also be put in place to recognise more mainstream natural therapies in ancillary (general treatment) policies and to lift the excess cap from $500/$1000 to $750/$1500.[iii]

Time will tell how all these changes actually come into effect and the precise impact they’ll have on members. The exact dates of the changes and what members might need to do (if anything) is still being worked through, and individual insurers will advise members as soon as they have more information at hand.

Key takeaways:

  • In collaboration with health funds, the Australian Government is introducing private health insurance reforms in an effort to address public concerns about value and affordability
  • One of the biggest changes is a major adjustment to the Prostheses Pricing list, which will curb waste, reduce costs and align pricing more with real market value
  • Basic cover will be retained in the Gold/Silver/Bronze/Basic product classifications, making private health cover more accessible to a wider range of consumers
  • Other significant reforms include a mental health safety net, standardised clinical terminology, a discount for Lifetime Health Cover and the introduction of a ‘rural health product’

[i] http://www.privatehealthcareaustralia.org.au/governments-prostheses-list-reforms-make-phi-affordable/
[ii] http://www.privatehealthcareaustralia.org.au/wp-content/uploads/PHI-reform-media-release-13-October-2017.pdf
[iii]  http://www.privatehealthcareaustralia.org.au/wp-content/uploads/PHI-reform-media-release-13-October-2017.pdf

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