17 October 2016

Top six haters of private health insurance (and why)

Health Funds KnowCents


Everyone hates private health insurers, but not always for the right reasons

1. Customers

A key finding in a government-conducted survey of over 40,000 private health insurance consumers last year was that most customers felt insurers did not offer value for money. When any of my family end up in public hospital and we get asked “Are we in a private health fund?” (which we are), we are very careful to answer with a steadfast no, so we don’t get gap costs for zero extra service. Health cost inflation is running at about 6% to 7% per year while household incomes are steady or going backwards. That is an equation that has to give, and analysts predict it will. In five years or so, more than 20% of current private health customers are tipped to exit. But private health insurance doesn’t actually have much control over costs. The government does, as does the private hospital sector.

2. Investors

Once a darling of the investment community, there are too many storm clouds on the horizon for most investment houses now to be recommending any of the publicly held private health insurers. And they aren’t happy with the capital structure of most of the sector, mainly small providers, which they are say are very capital inefficient. The sector’s efficiency can be vastly improved by rationalisation. But this isn’t happening because the current way  providers are paid makes it still attractive to be a small provider.

3. Sussan Ley

Everyone knows the sector is heading for an economic train crash, but the various parties competing for the healthcare income pie are powerful, and they are mostly aligned to the Liberal party. Minister Ley  has to navigate this dilemma. She has set up a committee to advise her and given most of the key interests a seat at the table: the AMA, private hospitals, the health insurers themselves, even consumers. The problem is she is never going to get consensus. Getting premiums under control means someone at the table is going to lose.

4. Private hospitals

Private hospital providers are key stakeholders and an adept lobby group. They don’t want to change the government’s fixed-pricing system nor the cost of medical devices because that would affect their margins.

5. Medical device industry

Australia pays up to five times the price for the same medical devices in our private hospitals than Europeans or Americans. The health funds have exposed this anomaly and want it to stop.

6. AMA and others

Health is an inefficient market in that there is heavy “information asymmetry”. This means consumers have almost no access to who is good or bad on the doctor side. The health funds have started a Trip Advisor-type directory called Whitecoat, which aims to make a lot of health professional “efficiency” information more transparent. That’s a complex thing to do, but you can see why the private health sector would try it on and why the AMA wouldn’t like it.