Health costs are on track to swallow the budget

Health costs are on track to swallow the budget, and the market is sadly failing consumers.

Medibank CEO Craig Drummond has called for health sector reform. Picture: Aaron Francis/The Australian.

Medibank’s Craig Drummond is 100 per cent correct in his call for fundamental reform in the health services sector after he pocketed the 4.6 per cent premium increase the Government has given him.

On average health insurance will cost an extra 4.5 per cent, which is about the increase the health sector is grabbing from Government taxes at both the federal and state levels.

The bottom line is health costs are on track to swallow the budget and something must be done to reform the system.

Healthscope’s Robert Cooke points to two big factors affecting costs, the first being wages which accounts for 60 per cent of costs. And notably the state governments have just agreed to big pay rises for nurses which means the cost goes up for everyone.

Then there is increased utilisation. As we get older we use health services more and at the same time the health fund’s membership is changing, losing more young people while the older more costly ones are hanging on.

The first reform needed is increased transparency.

The ACCC has declared the industry is a failed market because consumers have no idea what they are paying for and hence can’t compare funds or hospitals.

The Government’s colour coding of funds is a step in the right direction, but just as in banking health funds would help themselves by making it easier for people to know what they are buying.

All sorts of people want increased competition but the trouble is Government negates the benefits.

The classic example is the prostheses lists, in which mandated prices are written by Canberra when the states are getting the same artificial limbs for less.

Reform of this area has only just started but an open market would be a better start.

The stock market clearly thinks Medibank and NIB have done okay because their stock prices are up 1.6 and 1.9 per cent respectively, against the market increase of 0.7 per cent at lunch.

Both companies noted the fee increase is the lowest either have had for some time, as if that is supposed to make us feel better about paying out more money for private health insurance.

The annual price fix is just one area which can be reformed but new Health Minister Greg Hunt can do us all a favour by grabbing all the committees his predecessor set up and making decisions on future action.

Failure to do so will send us bankrupt at a personal and Government level.

Healthscope chief executive Robert Cooke has pointed out the major factors contributing to high costs.