How To Get A Higher Premium For Health Insurance

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1 Inc. Submission to the Private Health Insurance Administration Council Competition in the Australian Private Health Insurance Market Discussion Paper 18 January 2013 Authorised by Dr Karin Alexander Federal President Australian Dental Association Inc Chandos Street St Leonards NSW 2065 PO Box 520 St Leonards NSW 1590 Tel: (02) Fax: (02) Website:

2 1. About the Australian Dental Association. The Australian Dental Association Inc. (ADA) is the peak national professional body representing over 13,000 registered dentists engaged in clinical practice as well as dentist students. ADA members work in both the public and private sectors. The ADA represents the vast majority of dental care providers. The primary objectives of the ADA are to: Encourage the improvement of the oral and general health of the public and to advance and promote the ethics, art and science of dentistry; and To support members of the Association in enhancing their ability to provide safe, high quality professional oral healthcare. There are ADA Branches in all States and Territories other than in the ACT, with individual dentists belonging to both their home Branch and the national body. Further information on the activities of the ADA and its Branches can be found at 2. Introduction. The ADA thanks the Private Health Insurance Administration Council (PHIAC) for its invitation to provide comment on its Discussion Paper, Competition in the Private Health Insurance Market (DP). The DP outlines a history and overview of the private health insurance (PHI) industry and market in general, and its consultation questions concern competition between private health insurers (PHIs). Please note that the ADA s submission will outline the effect that the behaviour of and competition between PHIs have on: Healthcare providers, namely the dental profession; and Consumers. The ADA will provide comment on the points raised under the DP s particular subject headings (as they are numbered in the DP), as well as to the consultation questions that are relevant to the two groups referred to above. 3. ADA Comments The level of competition (or lack thereof) within the Australian PHI industry has an impact on consumers. While the ADA is concerned about the trend of for-profit based PHIs (as distinct from mutuals and not-for-profit funds) gaining greater market share, its primary concern is about PHIs operational practices. Where the ADA sees PHIs practices having a detrimental impact on competition, healthcare providers and consumers are: 1

3 Instituting preferred provider contracts (PPC): o PHIs apply different rebate rates to consumers depending on whether they attend a dental provider that has a PPC with the PHI (and is a preferred provider [PP]) or not. This deliberate and punitive rebate differential has the effect of diverting consumers to particular healthcare providers that consequently substantially lessens competition in the dental provider market. o PPCs interfere in the contributor s choice of provider. This interference occurs by providing monetary incentives (through different rebate amounts) that are not uniformly or appropriately applied. Members of the same PHI policy receive different rebate amounts if they attend a non-preferred provider as opposed to a PP even though they purchase the same policy. o PHIs appoint a dental provider as being a "Preferred" Provider merely because the provider has agreed to be contracted to the PHI. The term preferred provider instils some concept of superiority compared to nonpreferred providers. PHIs deliberately refer contributors to their preferred providers as being the provider of choice for dental care covered by their policy. This severely restricts open competition as PHIs do not refer patients to non-preferred providers. o PPCs risk damaging existing patient-client relationships. Continuity of treatment is essential in the proper dental care of patients. Invaluable bonds and confidences are developed over time between patient and practitioner. Instituting discriminatory and skewed price incentives based on PPs does not encourage the continuation of relationships that are intended to provide better dental treatment. PHI policy regarding PPCs adversely impacts on achieving this goal. o No other form of insurance provides a punitive lower rebate because the contributor elects to seek care from their provider of choice. After all, the fundamental reason for having PHI is to have the ability to choose one s provider and receive assistance for that healthcare choice. This philosophically is the key difference between seeking private health insurance funded care and publicly funded care. PHI Policies: o o The level of restrictions such as annual limits or lifetime limits lack adequate transparency and are not properly communicated or made accessible to contributors. Consumers are denied the information they need to make informed decisions. The levels of rebates for dental services are not provided to consumers for them to make an informed choice of PHI. In fact PHIs refuse to circulate or make public schedules of rebates for dental services. Furthermore, PHIs structure several "layers" of cover wherein annual limits and individual rebates vary between the different layers of cover. This is not well explained prior to policy being taken out or at renewal. 2

4 o o o Contributors dental treatment decisions can be inappropriately influenced. Where health funds apply limits on those services that will be rebated as a business rule, contributors often are left with significant out-of-pocket expenses because they were not informed by the PHI of the restrictions in their policy. Another issue of significance is that many PHIs have business rules that exclude rebates for some legitimate dental services. However, consumers are not informed of these exclusions before taking out their policy. Some PHIs have lifetime restrictions and often contributors are unaware of the restrictions. Some have made a claim and have subsequently been denied a rebate on the basis of the lifetime restriction; however, they were not informed that no further claim was permitted for that procedure. The PHIs nonetheless have continued to receive premiums from the contributor for that same policy. PHIs apply significant premium increases well in excess of CPI yet consumers do not receive increases in individual rebates or increased annual limits. Some major funds have not made across the board dental rebate increases since This practice cannot be allowed to continue. The ADA has uncovered that not only are premium increases higher than rebates provided to consumers, but also that PHI premium increases are higher than CPI, as well as average dental fee increases over recent years. See Charts 1 and 2: Chart 1: Average PHI increase vs. average dental fee increase ( ) 3

5 Chart 2: Average PHI increase vs. CPI ( ) Sources: Previous ADA Dental Fee Surveys; previous media releases from Health Ministers, for example the Hon. Min Plibersek, Private health insurance premium increases at four year low, 28 February 2012; and ABS CPI reports such as Consumer Price Index, Australia Sept 2012 The ADA is extremely concerned about the massive profit in ancillary services accrued by PHIs. As indicated in Table 1, PHIs have made almost $6.3 billion surplus in the last decade yet have not increased dental rebates across the board nor increased annual limits. In fact, over the same period PHIs have used PPCs that effectively restrict consumers access to providers of choice. Furthermore, evidence is surfacing that PHIs are adopting "preferred" preferred providers i.e. preferred on the basis of their fee level as the PHI rebate is percentage based and devised in a manner that maximises PHIs profitability. The ADA has further concerns about PHIs that have their own clinics and are in fact insuring the service for which they are collecting a premium to insure. There is an undeniable conflict of interest. The recent BUPA acquisition of Dental Corporation, which owns 50+ dental practices in Australia raises more concerns about the increased prevalence of managed care and is addressed further in this submission. 4

6 Table 1: PHI Ancillary/General Treatment income compared to those paid out as rebates 2001/ /11 Year Ancillary Income Ancillary payout [General Treatment] Surplus 2001/02 $2,121,529, $1,900,328, $221,201, /03 $2,371,360, $2,043,440, $327,920, /04 $2,556,786, $2,117,299, $439,487, /05 $2,724,385, $2,239,925, $484,460, /06 $2,857,096, $2,276,743, $580,353, /07 $3,049,798, $2,454,356, $595,442, /08 $3,433,908, $2,656,255, $777,653, /09 $3,696,018, $2,869,540, $826,478, /10 $3,996,818, $3,052,757, $944,061, /11 $4,309,168, $3,209,104, $1,100,064, Total $31,116,866, $24,819,747, $6,297,119, Source: Private Health Insurance Administration Council (PHIAC) s Reports on the Operations of Health Funds 4. Constraints in PHI competition in Australia The DP states: Many consumers take a set and forget approach to private health insurance, reinforced by product complexity, which makes comparing like-for-like policies challenging and may have a dampening effect on a consumer s capacity to compare and, if they wish, to change products. The ADA endorses these comments in the DP. While there are mechanisms such as the government s private health insurance comparison website it is not easy for most consumers to perform the comparison on a like-for-like basis as no two PHI ancillary policies offer identical cover. The ADA laments the removal of the policy that required uniformity by PHIs to outline identical tables and provide identical benefits. A reintroduction of the policy of uniformity would return the situation where there would be increased transparency as well as create more real competition as consumers would be better able to compare insurance products and PHIs rebate amounts. The rebate rates can be compared for like products. It is virtually impossible to compare PHI policies. The ridiculous situation where one PHI offers "free" gym shoes or "free" gym membership (even though their products offer low rebates for some dental procedures) shows more about PHIs attitude towards how to attract more consumers than the extent to which they seek to assist with the costs of healthcare. PHIAC currently allows PHIs to change their product policies with inadequate, if any, notice to contributors and collects renewal premiums without informing contributors of the amended policy. The ability that PHIs have to unilaterally alter contractual provisions is not seen elsewhere in contract law. The ADA sees this ability as blatantly unfair to consumers. Greater openness and transparency have to be legislated into this area. 5

7 The DP also states that: Returns on capital in the private health insurance industry are high by comparison to other financial services industries; yet new market entry is rare. While PHIs that are for-profit are expected to operate to generate a return for their shareholders, the ADA remains gravely concerned at the consistent pattern demonstrated by the industry of returning high profits. The ADA is concerned by the bigger PHIs becoming bigger by acquiring smaller funds. It is the smaller funds that provide the "open" market competition. The ADA s own analysis confirms the following finding made by PHIAC (see Table 1 above) that: The profitability of the private health insurance industry in recent years has been generally high by historical standards This led to significant improvement in net margins in that period because premiums increased by more than benefit inflation. Consumers and patients have the right to expect that while the PHI industry operates to generate appropriate returns on investment, such success should also generate commensurate increased benefits for those consumers to whom they provide services. Allowing a $6.3 billion surplus in ancillaries over the last decade without a significant increase in individual dental rebates or annual limits is appalling. Considering PHIs current behaviour, the ADA is concerned about the further impact the consumer will experience from the lessening of competition that has been occurring with the increased concentration of for-profit PHIs in the market. The detrimental behaviour of PHIs is expected to continue, particularly driven by insurers that operate on a for-profit basis. It is the role of government and PHIAC to delineate policy and regulatory parameters that not only ensure the efficient competitive operation of the PHI market, but also ensure this operation occurs for the continual and increased benefit of consumers. What the ADA struggles to understand is how Health Ministers repeatedly allow PHIs to increase their premiums well in excess of CPI (Chart 2 above) and with swelling profit margins (Table 1 above). The success that PHIs have had over recent years in achieving increased premiums has been remarkable. While increases in premiums have been permitted there has been no evidence that these increased premiums have resulted in commensurate increases in rebates paid for services. If the Australian Government is going to permit increases in premiums there must be a requirement imposed that will require PHIs to match those increases with increases in benefits paid to members. Better fiscal management of the PHIs has to be imposed. Operations based on the profit motive remain too high in the PHI market. What concerns the ADA is that the increased premiums paid by consumers and approved by the Australian Government over the years are very often spent on promotion (sponsoring tennis tournaments) and advertising. Too many high profile sports have PHI "Corporate" boxes and it leaves the ADA wondering how much higher dental rebates might be if such unnecessary 6

8 advertising was prohibited. It is the ADA s view that these activities have to be tempered to ensure that the health and wellness of PHI consumers be given a higher priority by improved provision of rebates and other benefits. 5. The contemporary Australian private health insurance market a. Market structure and composition 1. To what extent has the development of different markets in the various states had an impact on competition? In the smaller states market dominance by large PHIs stymies competition. What does not help is the complicated policies, which lack transparency, offered by PHIs making it difficult for consumers to compare policies. This lack of transparency explains the low churn or transfer rate in the PHI industry. What the DP does not discuss is the impact PPCs often used by the larger PHIs have on healthcare providers and consumers. These PPCs often erode consumers choice of provider and limit competition by imposing deliberately different rebate rates if a PHI consumer chose to have their health service offered by a non-preferred provider. Not only do PPCs substantially lessen competition, this practice can at times also impact on the consumer s quality of healthcare experience by imposing a financial incentive that could mean the consumer no longer attends the practitioner with whom they have an established relationship of trust. It can also direct a consumer to adopt a treatment plan that may not be optimal from the health and well-being perspective but may attract a greater return by way of the rebate offered. Such conduct that reduces the quality of health outcomes has to be reformed. PPCs interfere in the independence of the patient-client relationship. 2. Are levels of profitability consistent with the existence of effective competition? No additional comment - see comments made earlier. 3. Does the variability in management expense ratios and net margins reflect competitive tensions in the market? No additional comment - see comments made earlier. 4. To what extent does the regulatory system provide incentives to manage and contain margins and to what extent is this driven by competition for members and the need to provide member services? The regulatory system currently allows PHIs to control the services provided and with PPCs the fees charged by providers. The ADA, however, observes that this flexibility has been used to restrict competition between providers of services with the aim of maximising PHI profit. The ADA is uncomfortable that an entity that insures a service has some control over fees and indeed in some cases has its own clinics providing the services for which it offers insurance. The fees should be open to market pressure through competition. A case in point has been the use of PPCs and PP schemes. So called members services offered by PHIs (such as 7

9 chronic diseases management) have the sole aim of being driven to contracted providers in order to maximise profits. As outlined in the response to Question 1, this practice inappropriately interferes with existing patient-client relationships. This type of arrangement where an insurer provides the service for which it offers insurance was a scenario that was prohibited by legislation in the car smash repair industry. Why is this scenario allowed for dental care? The ADA fears that Australia is on the precipice of managed care for dental care with the PHI being the controlling body. BUPA's move to buy Dental Corporation, which owns 50+ dental practices, brings managed care to being a possible reality. The results of managed care have been disastrous for consumers overseas and this is well documented, especially in the United States. 5. What effect does the regulatory system have on either consolidating the national market or encouraging the development of state, territory and regional sub-markets? The overall trend of market consolidation of the larger PHIs at the expense of smaller funds is of concern considering that the advertising campaigns waged by insurers are geared towards attracting contributors into policy tables that maximise profits to the PHI. For instance, advertising is geared towards younger people, emphasising the General Treatment options or extras, which, as outlined in Section 4 above, generate considerable profitable returns compared to the amount of actual assistance provided through rebates. b. Markets and submarkets for private health insurance products and services The ADA notes the DP s observation that: At the same time, where insurers face regulated premiums, but not completely regulated benefits, the response by insurers is to manage returns through reductions in benefit offerings. Overall, these exclusionary products in particular can be the source of significant customer dissatisfaction and provider frustration. This is demonstrated by the fact that 33 per cent of all complaints to the Private Health Insurance Ombudsman (PHIO) in related to benefits and levels of cover. The ADA has outlined in Section 4 above how PHIs inadequate increase of benefit offerings has been a deliberate and consistent practice for over a decade. The ADA believes that there should be greater enforceable action taken by the Australian Government to ensure that benefit offerings to consumers are, at the very least, kept in line with the health CPI and/or the premium increase rate for the year. Annual limits should also be reviewed annually along the same lines. Many PHIs offer nil rebate for many legitimate dental services and this must not be allowed to continue. It should be the consumer and dental provider who should decide what dental service is required, and this should not be influenced by the nil rebate. Sadly, consumers choose not to undergo many services on the basis of the nil rebate provided by PHIs. Some PHIs use the creation of "new tables" or "new products" targeting specific consumer groups, for e.g. "young singles", that have ridiculously low annual limits and very restricted services with consumers being very ill informed of the restrictions and limits. These "new products" are often the subject of clever marketing to entice membership. Where the annual process of premium reviews conducted 8

10 by the Minister for Health allows for PHIs to make submissions about their anticipated administrative and management costs in operating their businesses, these submissions should also be required to outline how consumers rebates and annual limits will also be increased in line with any proposed premium increase. The ADA would recommend that PHIAC urgently carry out a review of annual limits imposed by PHIs for dental rebates, investigating when and on what basis they were last reviewed by PHIs. 6. What is the impact of increased exclusionary and restricted products on competition? The ADA is concerned that: Changes to private health insurance regulation in 1995 removed links between family structure and product types and opened up scope for exclusionary products. Over the intervening 10 years, there was seen to be limited growth in the uptake of exclusionary policies and it has only been in the five years to 2012 that exclusions and restrictions have become much more prevalent. This trend is widely considered to be driven by price sensitive consumers despite the policies being largely considered to be in the interest of insurers, not consumers. As mentioned in the response to Question 4 above the ADA is concerned that not only are consumers inadequately informed about the nature of the exclusions and restrictions, but that consumers behaviour ultimately reflects the fact they do not fully understand the benefits provided by PHI and therefore fail to recognise PHI cover is not delivering value for money. These purchasing decisions are influenced by other government policies currently in place that provide monetary incentives and tax-based disincentives to retain PHI cover (namely the private health insurance rebate and Medicare Levy Surcharge respectively). The resultant consumer behaviour effectively represents a silent race to the bottom which should be addressed by imposing upon PHIs the obligation that, with increased premiums being imposed in a backdrop of government incentives, PHIs must provide a greater contribution to the health cost outlays of their members. PHIs also engage marketing strategies based upon "gift" incentives - e.g. "free" joggers, "free" gym membership and "free" exam and scale and clean. The cost of course is covered by the surplus in premium revenue. The money spent on such incentives would be better spent on increased rebates for general treatments. 7. Is the growth in general-treatment-only products a signal that the market is increasingly competing in areas that are contributing the least to the objectives of private health insurance? Putting aside concerns suggested by this question (that the ADA shares), the activity in this submarket is the clearest example of how consumers are not benefiting from existing PHI practice. PHIs have taken in excess of $6.3 billion surplus since 2000/2001 from general treatment policies (Table 2 above). While increased advertising by PHIs suggests that there is activity 9

11 within the market, whether or not this represents competition belies the fact that consumers have not been receiving a reasonable level of increases to their benefits to fund health services within the general treatment category (Table 1 above). The surpluses accrued have instead been distributed as profits to PHIs shareholders. The ADA has not received information that suggests PHIs have reviewed the quantum of individual general treatment rebates. PHIs have developed annual limits and restricted services in order to maximise profit where in fact certain procedures may require treatment over a number of sessions and time beyond the assistance provided by annual limits. Contributors usually are made aware of how PHIs restrict the number of services or where in some instances lifetime restrictions and limits apply only after the event i.e. after they make a claim for rebate. The competition for this segment of the market is being driven by increased profitability and advertising; and is very much angled at attracting young contributors to take general treatment cover - this is the maximum profitability age cohort for general treatment. Table 2 above shows that even if PHI were to have increased all general treatment rebates by 25% in 2010/2011 there would still have been an annual surplus of over $300,000,000 for that year. 6. Regulatory design and the impact on competition among insurers a. Key elements of private health insurance regulatory framework The PHI Act (2007) (PHI Act) requires PHIAC to take all reasonable steps to strike an appropriate balance between three objectives: a) Fostering an efficient and competitive health insurance industry; b) Protecting the interests of consumers; and c) Ensuring the prudential safety of individual private health insurers. The ADA, however, is concerned that the balance struck by PHIAC does not adequately protect the interests of consumers. Not only do PHIs operations and advertising fail to disclose the actual level of cover on offer to consumers for general treatments, the fact that the rebates provided for contributors healthcare are lower by a substantial amount than the premiums paid suggests that consumers are not benefiting adequately under the existing PHI market. Consumers are being impacted in this way regardless of whether or not the competition in this market can be characterised as operating efficiently or not. Portability requirements under the PHI Act are helpful, but are not communicated to the public adequately and the difficulty in comparing PHIs policies creates barriers to consumers voting with their feet. 8. Does community rating create a barrier to pricing innovation and reduce incentives to keep the sick well? If so, in what way? Community rating is necessary to maintain equality in subscription rates. However, if community rating is to be revised then risk equalisation needs to be reviewed as well. The biggest benefactor of risk equalisation by a significant margin is Bupa; yet Bupa is able to 10

12 spend over $280 million to purchase Dental Corporation, which is a corporate owner of dental surgeries. The effect on competition of allowing an insurer to insure the services it provides must be investigated given that dental services are the largest health service that receives general treatment payouts (52%) and that PHIs have over $6.3 billion surplus income for their general treatment policies for over a decade. Bupa have widespread dental PPCs and so this recent acquisition of Dental Corporation will likely impact on competition by lessening competition amongst dentists. Bupa s acquisition of Dental Corporation enables it to occupy both roles that interface with the consumer, the PHI and the healthcare provider. As Bupa is a for-profit enterprise whose objective must be to maximise shareholder return, the market power wielded by the acquisition of Dental Corporation exposes consumers to considerable risk. Bupa will seek to maximise profit now as both a PHI and health service provider, leaving the consumer the only party in this tri-partite arrangement to actually bear any costs [i.e. both the contribution rate and dental fees] and thus contribute to Bupa s profits. The range of dental services on offer, their fee rate and their rebate rate will likely be tailored to maximise Bupa s profitability. The opportunity for such market exploitation with the aim of maximising profit is considerable. A similar scenario could also eventuate with Medibank Health Services (MHS) now seeking to contract with healthcare providers for the provision of health services to Australian Defence Force personnel (ADF). MHS will seek to maximise its profit in this arrangement. It will receive an administrative fee from government to deliver this service. There will be lessened competition for dental services to ADF personnel as the operational Procedures state that the ADF Medical Officer is to make referrals to only Medibank contracted dental providers. The dental provider is contracted at a fixed fee to provide the dental services to the ADF personnel. Open competition should be allowed so that ADF personnel can see the provider of their choice. In fact true competition should allow the ADF personnel to choose the PHI of their choice. Again the opportunity for exploitation and profit maximisation is considerable. The ADA feels the opportunities given in these two scenarios provide the PHIs with tempting prospects for maximising profit. It gives unprecedented control to the PHI to direct who provides the dental care and may even have the potential to control which dental services are provided within the PHI scheme. 9. Are the prescribed requirements on product content and pricing oversight a material barrier to competition? The ADA is concerned that PHIs product disclosure statements (PDS) do not include restrictions, limits or even amounts of rebate per service. To the ADA s knowledge, no insurers in other industries have the practice where the latest PDS and policy documents do not accompany the policy renewal and premium increase notice. PHIs often do not issue a policy document at all and some rely on web page access to fulfil their duty to disclose. The online viewing option of what are very complex documents represents a massive disadvantage to the consumer, particularly the elderly and for remote and very remote residents, who may not necessarily have access to or the ability to use the appropriate technology. All PHIs should be mandated to provide full disclosure of all restrictions, limits, excesses and altered rebates to contributors prior to their policies being renewed. Because renewal dates vary considerably, the option for the consumer to withdraw from the policy 11

13 should also be clearly provided as an option, particularly if the terms of the policy have been materially altered against the consumer s interests. 10. Does risk equalisation penalise insurers in ways that adversely affects competition between insurers? If so, then in what way? The ADA supports risk equalisation, which shares the economies of scale of larger insurers with smaller insurers by providing a safety net against large claims in any given year, thus reducing the necessity to increase the membership base to manage claims risk in response to community rating. This provides for a more level competitive field for instance by not disadvantaging PHIs that have a high number of elderly contributors, who are more likely to make claims. However, PHIs have nonetheless sought to instead embark on aggressive and at times predatory advertising to attract younger contributors to policies and offers that provide maximum profits to the PHI, such as offering "free" exam scale and clean, "free" second pair of spectacles, etc. However, this claim of providing such free services is misleading and deceptive as the provider is paid for their service and the patient pays via their contributions. There is lessening of competition as the non-preferred provider s patients are not offered these free services. PHIs offer of these free services may at times be unnecessary and risks over servicing. 11. Can the current model of risk equalisation be changed to improve efficiency and competition? If so, in what way? No further comment. 12. How could the regulatory system be strengthened or improved to promote further competition as the industry faces future challenges associated with population ageing, deteriorating population health, and rising healthcare costs? The fundamental elements of a competitive market that facilitates not only operational efficiency but effectiveness and quality of healthcare for consumers need to exist before consideration is given to these broader demographic challenges. Government action needs to be taken to ensure that PHIs provide clear advice to contributors to enable proper comparison of PHI levels of cover, regulations, business rules, exclusions, and rebates per item of service. Detail of rebates, especially for general treatment, should be made clear and provided in equal amounts to consumers whether they choose to undergo treatment or service with a preferred provider or not. There ought to be standardised contracts of insurance so that consumers can compare policies. There need to be national rebates for the same PHI policy i.e. because a contributor makes a claim for a service provided in say NSW the rebate ought to be the same if the service was provided in WA. Currently it is impossible for contributors to make accurate comparison of PHI policies and hence competition is limited. PHIs with deliberate intent play upon the "fear factor" to consumers to encourage them not to change PHI in case they may not be covered by a new insurer or not to the same extent. There is no simple way for consumers to compare policies; they are not even given a policy document or PDS to enable comparison of services. If PHIs are obliged to provide detail about their policies in a more transparent manner, consumers 12

14 will have adequate information to make informed choices about their PHI, the mark of a truly competitive market. b. Market conditions for incumbent insurers, new insurers, and potential market entrants 13. Is the number of new entrants into the private health insurance market a signal that market entry barriers are prohibitive? The ADA s previous comments in this submission show its concern with the consolidation of the PHI market amongst those operating on a for-profit business model. This is because with this market consolidation and the increased drive for profit, it is likely that the practices outlined in this submission will continue to consumers and healthcare providers detriment. 14. Is there any market based factor, including the behaviour of incumbent insurers, that acts as a barrier to entry? No comment. 15. What are the main advantages from long tenure in the market? No comment. 16. What does the expansion of insurers outside of their core business, and/or more deeply and more broadly into improving member health, mean for market competition? With respect to PHIs expanding into prevention, chronic disease and complex condition management, as well as care delivery, the ADA questions the appropriateness of the role of an insurer to be allowed to provide services it insures. c. Economies of scale and scope in the products and services mix 17. With most insurers able to effectively access economies of scale, either as a single large fund or through cooperative arrangements, do scale economies have a material impact on market structure and competition? If so, in what way? There has been no evidence to suggest increased competition and, more materially for consumers, no discernible reduction in contribution rates. What can only be inferred then is that economies of scale have been used to increase profit. d. Portability, competition and the consumer The ADA is concerned about the use of retention teams seeking to understand why consumers are dissatisfied and wishing to transfer; particularly where this has lead to a delay and a lack of urgency as outlined by the DP. While there is a place for PHIs to address the concerns of dissatisfied consumers, to engage in delay and to not respect the ultimate wishes of the transferee is inappropriate. The ADA seeks urgent action on the following: 13

15 There is no central repository of transfer requests, making it difficult to fully understand the extent to which portability requirements fail to act as it is intended by the legislation. There is also no discernible history of enforcement of breaches of the 14-day requirement for completion of transfers. 7. Consumer behaviour: a positive or negative for competition? 18. In what way does the price responsiveness of consumers in the private health insurance market affect competition? Do different insurer types (such as open vs. restricted) have differing levels of price responsiveness? There does not appear to be significant variance based upon cost between open and closed PHIs. 19. What is the role, importance and extent of use of member retention bonuses? How is this seen to affect consumer satisfaction and affect competition or the ability of consumers to switch? There ought to be some incentive for long term memberships and low claim history. Consumers are very dissatisfied in cases where they have made no dental claims of significance for many years and then have the misfortune of having a major claim e.g. trauma involving the loss of a tooth and an implant replacement. Costs are high for such dental care yet the loyal and low claimant member receives no reward for loyalty. Motor vehicle insurance rewards low claim history and loyalty by no claims bonuses. The Australian Government should consider legislatively mandating such arrangements. 20. What role have intermediaries had on the level of competition between insurers for both new members and switching members? The ADA is unsure what is meant by intermediaries. Assuming intermediaries refers to entities such as iselect the ADA has no comment to make except to raise its general concerns about the extent to which contributors are adequately informed about the terms and conditions of their PHI. 21. What role do intermediaries have in increasing the contestability of the market for new entrants? See response to Question How well are intermediaries able to overcome the underlying stickiness and complexity of private health insurance to promote efficient consumer switching? See response to Question To what extent does market size matter to pricing outcomes achieved along the supply chain? No comment. 24. Is market power spread efficiently across the supply chain in the private health insurance industry? 14

16 Larger funds misuse their market power by developing contracts with providers and hospitals that are targeted purely at profitability of the PHI and not the efficient operation of the market or healthcare delivery. There is evidence of "bully" tactics by larger PHIs trying to force dental providers to become PPCs. This is evidenced especially in suburbs and rural locations where PHIs comments to patients are aimed at forcing the dental provider to become a PPC. PHIs often make derogatory comments to patients of non-ppc dentists stating "Your dentist is too expensive. You should see one of our preferred provider dentists." The ADA has evidence where PHI counter staff have deflected a direct referral to a specialist made by the patient s GP dentist to another specialist who is a PPC. The continued use of PPC and direct ownership of dental practices by PHIs can only limit competition amongst dental providers and allow the introduction of managed dental care which ultimately affects both quality of care and range of dental services provided. The underlying principles of PHI in Australia should be that: The consumer is able to make informed choice of PHI, where the PHI provides full disclosure of level of cover, restrictions and rebates; The consumer must be able to make a choice of PHI policy with no punitive rebate disincentive to see the provider of their choice. This is to give effect to the original underlying principle of why PHI came into existence: to enable consumers to use healthcare services within the private sector if they so wished. This exercise of choice would play a significant role in alleviating the burden on the public health system; and The consumer sees their healthcare provider of choice. PHIAC and other Government bodies have allowed these fundamental principles to be eroded and allowed PHIs to make enormous profits in general treatments policies at the expense of the consumer. These fundamental principles need to be reinstated through legislative and administrative action. If you seek any further information, please contact ceo@ada.org.au or Yours sincerely, Dr Karin Alexander President Australian Dental Association Inc. 18 January