Senate Report Backs Clear Prices but Ignores two Important Factors

The Senate has released the report on its Inquiry “Value and affordability of private health insurance and out-of-pocket medical costs”. Action Economics made submission number 87 to the inquiry.  The Committee made some valuable recommendations but it ignored underlying issues that will continue to create very predictable results.

Of the 19 recommendations, the 2 most effective are: that private health insurers publish all rebates (recommendation 2), and that private health insurers be prohibited from paying differential rebates for the same treatment under the same product (recommendation 12). This was 1 of the 4 recommendations made in the Action Economics submission but made for different reasons.  (On the issue of differential rebating and preferred provider schemes, the committee was influenced by a substantial case study of the dental industry, documenting anti-competitive practices of private health insurers. [pp. 52-59])

These recommendations should work well alongside another two recommendations: that state governments ensure that all patients can provide informed financial consent (recommendation 6) and that arrangements in contracts between private health insurers and hospitals or health practitioners that impact on members’ access to services and out-of-pocket costs be disclosed (recommendation 19).

The committee has generally taken the approach of higher disclosure of price information. This will indeed have a degree of effectiveness. However, major government interventions in the healthcare marketplace that affect value and affordability have been ignored in this Senate Report. Those issues are community rating and the free Medicare alternative.

Community Rating

The report recognises problems with community rating. “To keep private health insurance premiums low, insurers need to attract younger and healthier members to balance out the risk profile of older, more costly, members of the existing pool. Attracting younger healthier members places downward pressure on premiums by balancing the risk profile of the pool with lower-risk claimants.” [p.4] The report also notes the comments of the Department of Health in its submission. “Although community rating means that people who are older or sicker do not have to pay higher premiums commensurate with their risk, it also means that younger and healthier people pay more than they otherwise would.” [p.31] The report also notes that “submitters to this inquiry were almost unanimous in their agreement that community rating and risk equalisation are important to the effective operation of the existing private health insurance regime” [p.32] and references two submissions that mentioned the lightest of tweaks to community rating. Action Economics clearly outlined the problems with community rating and proposed workable solutions. However, “the committee considers that the existing principles of community rating and risk equalisation are key to ensuring equity in Australia’s private health insurance market and supports their continuation.” [p.40] Action Economics will continue to be the strong voice of economic reality.

The Free Medicare Alternative

The report provides no explicit acknowledgement of how a free Medicare alternative affects the market for private health insurance. The report even printed the Medicare principles that require States to provide public patients with hospital services free of charge. [p.46-47] But no explicit acknowledgement of how this affects the value and affordability of private health insurance. The report also outlines the various incentives that have been enacted to encourage people to take out private health insurance. [p.2] But why are these incentives required? Medicare is seen as something outside any dedicated rational analysis. Action Economics has the courage to acknowledge the issues that others will not.