Grattan Institute questions value of health insurer subsidies

The Grattan Institute has called on the Morrison government to clarify what it expects of private health insurance.

Health Minister Greg Hunt has vowed to work with insurers to reduce costs.

The Grattan Institute has called on the Morrison government to clarify what it expects of private health insurance before embarking on another round of reforms to support the ailing sector.

After the federal election, and with Labor not in a position to introduce its proposed cap on premium increases and Prod­uctivity Commission inquiry into the sector, returning Health Minister Greg Hunt vowed to work with insurers to reduce costs.

Mr Hunt said the higher premiums they passed on to members — which averaged 3.25 per cent this year — “must go lower”. Labor’s cap, he argued, would have led to higher out-of-pocket costs while the inquiry was “just an excuse (for) two years of inaction”.

But with some in healthcare believing a broader inquiry would still be useful, the institute last night released a working paper that questioned the purpose of government-subsidised insurance.

Coverage has already fallen below government benchmarks.

“If PHI coverage continues to decline, placing health insurers under increasing pressure to constrain premium costs, then sooner or later the government will be faced with the question of whether more subsidies and greater industry support is the solution,” the paper states.

“The industry must confront a number of long-term challenges. But it is not clear that more subsidies are the answer.”

While the $6.1 billion taxpayer-funded rebate gives the government a significant stake in the sector, insurers have long argued that it leverages greater private investment in health, taking pressure off public hospitals.

However, the institute has its doubts, with the paper suggesting potential downsides such as increased costs overall, a reduction in the quality of public hospital services, or universal healthcare being undermined. If government support was to continue, a better option might be to subsidise private hospitals instead.

The Coalition, having long accused Labor of wanting to abolish the rebate, has vowed to restore its base rate to 30 per cent once the budget allows. It has already rolled out new policy categories to provide greater transparency, as well as higher excess levels, and youth discounts, to reduce the upfront cost to members.

A spokesman for Mr Hunt last night said the government wanted to make insurance more affordable.

“Work has already commenced with the healthcare sector to identify and implement the next wave of positive reforms for private healthcare to continue to improve the affordability and value for consumers and ensure the system remains sustainable,” the spokesman said.

Consumers Health Forum CEO Leanne Wells, one of those calling for an inquiry, said the paper emphasised her concerns that Australia was developing a two-tiered system that could no longer “ensure equitable access to quality healthcare for all”.

But Rachel David, head of insurance lobby Private Healthcare Australia, called on everyone in the health system to work collaboratively on reform, saying “rising healthcare costs is not an issue isolated to the private sector”.

“There is only one way to bring down costs and that is by addressing waste in the system,” Dr David said.