Public Health Association of Australia submission to the Commonwealth on Private Health Insurance

Transcription

1 Public Health Association of Australia submission to the Commonwealth on Private Health Insurance Commonwealth Department of Health Private Health Insurance Consultation Contact for PHAA Michael Moore CEO December Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

2 Contents Introduction... 3 The Public Health Association of Australia... 3 Preamble... 3 Overview Public Funding of Private Health Insurance A major public expense Inefficiency Fragmentation and inequity PHI for GP services Removal of Community Rating Healthy public policy for funding health care A future for Independent Private health insurance Recommendations... 8 References Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

3 Introduction PHAA submission on Private Health Insurance The Public Health Association of Australia The Public Health Association of Australia Incorporated (PHAA) is recognised as the principal nongovernment organisation for public health in Australia and works to promote the health and well-being of all Australians. The Association seeks better population health outcomes based on prevention, the social determinants of health and equity principles. PHAA is a national organisation comprising around 1900 individual members and representing over 40 professional groups. The PHAA has Branches in every State and Territory and a wide range of Special Interest Groups. The Branches work with the National Office in providing policy advice, in organising seminars and public events and in mentoring public health professionals. This work is based on the agreed policies of the PHAA. Our Special Interest Groups provide specific expertise, peer review and professionalism in assisting the National Organisation to respond to issues and challenges as well as a close involvement in the development of policies. In addition to these groups the Australian and New Zealand Journal of Public Health (ANZJPH) draws on individuals from within PHAA who provide editorial advice, and review and edit the Journal. In recent years PHAA has further developed its role in advocacy to achieve the best possible health outcomes for the community, both through working with all levels of Government and agencies, and promoting key policies and advocacy goals through the media, public events and other means. Preamble PHAA welcomes the opportunity to provide input to Commonwealth Department of Health Private Health Insurance Consultation The reduction of social and health inequities should be an over-arching goal of national policy and recognised as a key measure of our progress as a society. The Australian Government, in collaboration with the States/Territories, should outline a comprehensive national cross-government framework on reducing health inequities. All public health activities and related government policy should be directed towards reducing social and health inequity nationally and, where possible, internationally. Overview The PHAA believes that the present arrangements for private health insurance in Australia provide ample scope for reform to deliver more equitable and efficient health care. Our key concerns are that these arrangements and some of the possible changes foreshadowed in the current consultations may adversely affect access to care on the basis of need, while doing little to address adequate funding of public hospitals and a chronic weakness in the primary care sector. In this submission we focus on problems with public subsidisation of private health insurance, fragmentation of services and unfair access, the implications of extending PHI to primary medical care (GP Services) and of the erosion of community rating. We conclude with recommendations to address these issues. 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

4 1.0 Public Funding of Private Health Insurance There are three key arguments underpinning the case against continuing government subsidies for private health insurance (PHI): PHI is an inefficient mechanism for funding health care services compared to universal public health insurance. PHI is an inequitable mechanism for the distribution of scarce health care resources and it contributes to health inequity. Government funding for PHI via the premium rebate is a poor use of substantial public monies which could produce better and more equitable health outcomes by directly funding health care and implementing healthy public policy. There is an additional concern that the tendency for PHI funded private providers to be promoted as the health care pathway of choice for those who can afford it implicitly casts the universal public services as second class, eroding social capital and contributing adversely to the social determinants of health. 1.1 A major public expense Around 45% of the Australian population has some form of PHI. They gain by reimbursement of out-ofpocket costs for some specialist medical, private hospital care and various other health services such as dental, optometric etc. However, unlike most other forms of private insurance, PHI is heavily subsidised by public funds via a rebate on premiums. The rebate is now tiered based on wage thresholds as well as being indexed based on a complex weighted average ratio meaning the rebate paid is currently averaging 27.82%. (Australian Government 2015). However, as premiums rise, the total cost of the rebate has been growing and reached $6.148 billion in and was expected to be $7.3 billion by 2018 (Parliament of Australia, 2015). If tax foregone on the rebate is included the figure comes to $8 billion (Menadue 2105). For comparison, this is greater than the $5.247 billion annual Commonwealth contribution to government schools and is of a magnitude sufficient to cover a national dental scheme or around a third of the cost of a fully implemented NDIS. 1.2 Inefficiency PHI is provided in Australia by 34 entities. The economies of scale experienced by Medicare are not available for the multiple, smaller PHI entities. In addition, unlike Medicare, they incur costs in competing with each other (through advertising and promotion). While 22 of the 34 are not-for-profit organisations, a number of large PHI for-profit entities controls 70% of the market. Of these, just 3, BUPA, Medibank Private and NIB have 64% of the total. All the for-profit entities must take a margin as profit and pay taxes (Australian Government, Private Health Insurance Administration Council 2013). The additional administrative burden of PHI (borne by policy holders via premiums) through profit taking, taxes and inefficiencies of small scale operation, above that of Medicare is around 10% or about $1.6 billion pa (Menadue and McAuley, 2013, p6). The argument that PHI saves public budget outlays is spurious. PHI operates very much as a tax does, collecting funds from policy holders to redistribute via claims. Funding is still taken from the public- it just needs to take a bit more to cover the additional administrative costs and profit returned. 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

5 However, it is the inability of private insurers to effectively control the costs imposed by providers that represents the greatest risk to the efficient use of funds. Essentially, the PHI funds must compete with each other in the market place for health care services. This gives providers a market advantage compared to a monopsony setting where a single public insurer is the sole purchaser (and price-setter). This was clearly demonstrated in the recent dispute between the Calvary Private Hospital Group and Medibank Private (Menadue 2015). Medibank is competing with other private insurers to purchase the services of the Calvary Group. While the insurers have recently won some concessions on safety and quality, the private hospitals largely retain the upper hand Competition between providers lowers costs- but competition between purchasers increases costs across the health care sector Competition between PHI entities purchasing health care services not only puts upward pressure on costs in the private health care sector. This pressure flows on to the public health care sector as well. For example, medical salaries in public hospitals need to compete with those paid in the private sector if they are to retain staff. Gap insurance in Australia enabled the largest increase in specialist fees in 25 years. (Menadue and McAuley 2013 p10). It should be acknowledged that private health insurers are attempting to counter the disadvantage of being competitive price-takers by group purchasing arrangements and increasingly by entering into agreements with preferred providers that mean consumers receive higher rebates for using these providers. However, this is not without its own risks. The closer the commercial relationship between the preferred provider and the insurer, the stronger is the incentive on the provider to under service. The logical extension of this trend is towards managed care or health maintenance organisations where patients must use a specified provider and, as the US experience indicates, underservicing is a major issue. At a national level, OECD statistics comparing similar countries reveal a strong relationship between economy wide costs of health care and the extent to which PHI is used to pay for it (Menadue and McAuley, 2013, p70). Reinhardt et al (2004), concluded that a key explanatory factor for the very high level of health care spending in the USA was fragmentation and weakening of the demand side, as embodied in the dominance and proliferation of PHI. The evidence at both the Australian and international level is that PHI is a very expensive and fundamentally inefficient way to fund health care. Nor does PHI offer meaningful choice or effective competition between PHI providers. While approaches to advertising and promotion may vary, insurers are highly regulated and there is little real product differentiation (McAuley, 2013). It is difficult for consumers to make meaningful comparisons as evidenced by low rates of switching between funds Any reduction in public hospital demand is effectively offset Supporters of PHI frequently argue its value in reducing demand for over-stretched public hospital services. However, any reduction in demand for public hospitals is offset by diminished capacity through the transfer of skilled medical personnel to better paid positions in PHI funded private hospitals. An OECD report has noted that median waiting times in Australian public hospitals actually increased slightly in the decade to 2010 (Johar, Meliyanni et al, 2013). The crucial efficiency question is whether the savings from reduced public hospital use exceed the cost of the rebate itself. However, econometric modelling by the Melbourne Institute indicate the reverse: that savings from reductions in the rebate would exceed the predicted increase in public hospital costs by a factor of roughly 2.5 (Cheng,2013). 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

6 1.3 Fragmentation and inequity PHI has exacerbated the fragmentation of health care. Public hospitals (especially larger ones) provide a broad range of (variably) integrated services including emergency, medical, surgical, rehabilitation and other services including vital professional education. While they may offer a range of health care services, the core role of private hospitals is to provide a nursing and accommodation infrastructure for procedural medical specialists. PHI policy holders make up the vast majority of private hospital patients. Private hospitals tend to deal with (profitable) acute procedural matters rather than costly chronic conditions which largely remain within the public sector. Commercial considerations play an important part in driving this pattern. Given the focus in private hospitals on elective surgery and the limited number of medical specialists, PHI provides a queue jumping facility for those who can afford it. Instead of a lengthy wait for an operation in a public hospital, one can be seen in weeks with PHI. Access is enabled via having PHI (which is strongly correlated with wealth) rather than according to patient need. Equity of access is thus compromised. Equity is further eroded by the PHI rebate. PHI is held disproportionately more by wealthy Australians. Indeed, the Medicare Levy Surcharge makes it more expensive for high income earners not to have PHI than to have it. There is evidence that, compared to the rest of the population, those with PHI are richer, better educated, more health conscious, in better health and more likely to use certain discretionary health services. Hence, PHI use is generally highest among those with the least need for health care. (Banks et al, 2009, Dennis 2005). Dental treatment is excluded from Medicare, so those without ancillary PHI dental cover (which is subsidised by the rebate) generally pay the entire cost themselves. There are heavily subsidised dental services offered by state health authorities and a Child Dental Benefits scheme for some low income groups. However disadvantaged people have serious access problems and there are extensive waiting times for most of these services (Schwarz, 2006). Wealthier Australians with PHI are subsidised via the rebate and receive good access with little waiting. It is difficult to justify this arrangement on equity grounds. Since 2007 a variety of chronic disease management plans are now covered by PHI, and benefits paid are rising exponentially (Biggs, 2013). These interventions, publicly subsidised by the PHI rebate are only available to the privately insured. In addition, there has been Federal Government support for trials which provide faster access without co-payments for the privately insured to see their GP, a very obviously inequitable situation Private medical care in private hospitals is largely publicly funded It might be possible to justify treating private health insurance like car insurance if all it did was to provide choice - of doctor, hospital, and timing of treatment as was largely the case 20 years ago and if it was genuinely private and was used to deliver private care. However it isn t private and the hospital care, although provided in privately owned and run hospitals, is not private. All care provided by doctors is heavily reimbursed through Medicare rebates, drugs and devices are heavily subsidised by taxes, and 30% of PHI benefits are taxes. As 80% of admissions are no gap admissions, one should really view private hospitals as public hospitals accessible only by those with a capacity to pay co-payments in the form of PHI premiums. 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

7 1.3.4 Increasing health inequity There is evidence that health inequities may be increasing in Australia and that PHI may have some role in this (Katterl, 2011, Whitehead, 2012). Menadue and McAuley (2012) have referred to an: implicit message of social division: PHI and therefore private hospitals are for those who have the means; public hospitals are for the poor. This is a reversion to the charity ward system, which, in time, will morph into something akin to the US Medicaid program for the indigent. (p15) 2.0 PHI for GP services The public survey being conducted as part of this Consultation includes floating the provision of PHI cover for GP and primary health care services. Allowing private health insurers to cover the gap between the Medicare rebate and general practice fees is likely to lead to higher costs and reduced access to care for the uninsured. With patients facing no out-of-pocket costs, GPs have no market incentive to contain fees. These could be expected to increase, initially for insured patients, with a likely flow-on to others. The net effects are to increase overall system costs, increase red tape for GP practices and reduce access for the uninsured. (Duckett, 2015). 3.0 Removal of Community Rating Removal of community rating means that higher premiums could be charged for those at greater risk, be it due to factors over which they may have some influence such as smoking, or those over which they have no influence, like age. There are at least two major concerns with this. The first is that the resultant higher premiums for higher risk patients would inevitably lead to some of them giving up PHI and further burdening the inadequately resourced public sector. This would be fine if there was a parallel increase in funding of the public sector but the approach to date has been the opposite. The second relates to the inherent unfairness of such an approach to health insurance, whether private or public. As indicated above, private hospital care disproportionately deals with procedural admissions which have high turnover and are more profitable, essentially discriminating against those with chronic disease. Removal of community rating would exacerbate this discrimination. 4.0 Healthy public policy for funding health care Public funding of health care should be managed to optimise both allocative and technical efficiency so as to deliver the maximum population health benefit per dollar spent. Subsidising PHI is an inefficient use of public funds. PHI heightens rather than reduces inequities in health. Those inequities in access to heath care contribute to a wider social inequity. Wilson and Pickett have demonstrated that lower life expectancy, higher infant mortality and more mental illness and wider health and social problems are more common in more unequal countries. (Wilkinson & Pickett, 2009). Health care services should be organised so as to contribute to building social capital and cohesion rather than to eroding them. Good quality health care health care should be available to all, promptly provided on the basis of need, regardless of ability to pay, free at the point of delivery, and funded by progressive general taxation. 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

8 4.1 A future for Independent Private health insurance Truly private health insurance without public subsidy may have a role in the Australian health care system similar to that of the PHI in the UK where private insurers provide top-up services to those available through the National Health Service. This is an option available to those who can afford it and prefer it. It does not detract from access to quality health care for the bulk of the population nor does it divert public resources away from population health. 5 Recommendations 1. Freeze the PHI rebate. Public funding of the rebate is government subsidisation of private industry that is inefficient, inequitable and increase health system costs without delivering population health benefits. 2. Rescind the Broader Health Cover 2007 legislation allowing PHI to cover primary health care. This would prevent the growth of PHI for GP services and avoid the likely increased system costs, red tape and barriers to access to primary health care for the uninsured. 3. Increase Federal funding of public hospitals towards the historical 50/50 Federal/State division of the first decade of Medicare. State governments are struggling to maintain hospital services at a safe and effective level. Some have retreated from provision of primary care and preventive services, exacerbating a recognised imbalance in Australia with a relative lack of comprehensive, well integrated primary care services. 4. Progressively decrease the PHI rebate as public hospital resourcing improves. A gradual reduction of the PHI rebate matched with a transfer of savings from the insurance industry into health care would enable a progressive increase to the health budget of say $1B pa over 8 years. 5. Restructure and expand primary health care to decrease the demand on hospital care. International comparisons demonstrate that an essential ingredient for reduced demand on hospitals and a healthy population is a strong comprehensive primary health care sector, currently lacking in Australia. 6. Resist any calls for removal of community rating of any health insurance. The removal of community rating is inherently unfair. It will force some higher risk patients out of insurance and on to the public system without any concomitant transfer of resources. Professor Heather Yeatman President Public Health Association of Australia Michael Moore BA, Dip Ed, MPH Chief Executive Officer Public Health Association of Australia 4 December Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

9 References PHAA submission on Private Health Insurance Australian Government Australian Government, Private Health Insurance Administration Council 2013, The Operations of Private Health Insurers ANNUAL REPORT , p3 Banks E, Jorm L, Lujic S, Rogers K. Health, ageing and private health insurance: baseline results from the 45 and Up Study Cohort, Australia and New Zealand Health Policy 2009, 6:16 doi: / Biggs, A. Chronic disease management: the role of private health insurance f;filetype=application/pdf Cheng, T. Why it s time to remove private heath insurance rebates, The Conversation, July 31, 2013 Dennis, Richard. Who benefits from private health insurance in Australia? The Australia Institute, March 2005, p1-2 Duckett, S. Sydney Morning Herald, November 9, Johar, Meliyanni et al, (2013), Australia in Luigi Sicilliani, Michael Borowitz and Valerie Moran (eds), Waiting Time Policies in the Health Sector: What Works? OECD Publishing. Katterl R, Socioeconomic status and accessibility to health care services in Australia. PHCRIS Research Roundup ISSN Issue 22, Dec Medibank Private Submission to Senate Inquiry into Private Health Insurance Amendment (GP Services) Bill ces/submissions 20 Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia

10 Menadue J, The unfairness and waste in health. Private health insurance is the real culprit. November 4, 2015 Menadue. J, Facts on the $11b per annum private health insurance industry subsidy, Menadue J, McAuley I. Private health Insurance: High in cost, low in equity. Centre for Policy Development Discussion Paper, January Parliament of Australia 2015, Budget Paper 1: Budget Strategy and Outlook Table 3.1 Top 20 programs by expenses in Reinhardt UE, Hussey PF, Anderson GE, U.S. Health Care Spending In An International Context. Why is U.S. spending so high, and can we afford it? Costs and Competition, May/June 2004, p International%20Context%20HS6000R3.pdf Whitehead, M. (1990) The Concepts and Principles of Equity and Health. Copenhagen: WHO Regional Office for Europe. Wilkinson R, Pickett K, The Spirit Level: Why more equal societies almost always do better, Allan Lane, 2009 p81, p Napier Close Deakin ACT Australia, 2600 PO Box 319 Curtin ACT Australia