Private health insurance reform call really aimed at politicians

Hard decisions are needed, says APRA board member Geoff Summerhayes. Picture: Aaron Francis

APRA board member Geoff Summerhayes on Tuesday directed a strong warning to the health insurance sector.

But the intended target is really the politicians, from federal Health Minister Greg Hunt down, who he is urging to finally do something about the industry.

For too long politicians have fiddled around the edges, making grandiose claims about reforms which do little when fundamental policy change is needed.

Summerhayes probably didn’t think it was polite to tell Hunt and co so directly, so instead is preaching reform to his clientele - the industry.

The message being, the industry is not sustainable in its present form and needs to help itself by rapidly consolidating and working out ways to cut costs and grow revenue.

One of the more efficient members, NIB, last week issued a profit warning, in a major sector wake-up call.

NIB has a cheaper, younger demographic and has done a lot to grow membership which means it is “rewarded” under the risk equalisation scheme by being forced to pay an extra $20 million into the pool, bringing its payment to $250 million.

The pool is part of the community rating scheme, which is designed to ensure everyone is treated equally, so coverage is guaranteed.

In theory young people subsidise older people with more claims, but the trouble is younger people are dropping out because health insurance costs too much and wages are going nowhere.

Summerhayes wants a major independent review of the system, looking at the community rating model, out-of-hospital treatment - which isn’t covered even though service from the same doctor in hospital is - and management of chronic care.

Minister Hunt was proud as punch when he delivered cuts in prosthetics a couple of years ago, promising $800 million in savings over three years.

In year one the saving was $13 million because the price of the prosthetic might have been on hold but the doctors simply ramped up the use of them to increase volume.

The solutions include more home care, which can be claimed, fewer non-urgent operations, more remedial care and less inpatient care.

The list goes on and is not new, but no-one is making decisions on it and the politicians are not controlling the doctors and hospitals.

Private health has its benefits because it wants to run the system more efficiently and is motivated to do so.

The industry is running at inflation rates of six per cent plus when prices elsewhere are flatlining.

Summerhayes’ warning is timely and the industry does need a plan B which doesn’t simply rely on government, which means consolidation.

But it’s hard to escape the view that the intended audience for Tuesday’s speech was really the politicians.