Private insurance can contribute to a healthier system

Opinion editorial penned by our CEO & Managing Director, Mark Fitzgibbon, originally published in The Australian

Given what many describe as a crisis in primary care, it’s well past time revisiting the nonsensical legal restriction on private health insurers (PHI) covering out of pocket costs (OOP) or gaps for medical treatment outside hospitals for which there is a Medicare benefit (MBS). This includes GPs, out of hospital specialist treatment and diagnostic services.  

Restricting PHI coverage to just treatment within hospitals has consequences for consumers, doctors and health outcomes.  

Consumers are confused and see less value in PHI, particularly when they’re younger and more likely to see a doctor outside a hospital. It’s also a factor in Australia’s very high level of OOP costs compared to other OECD countries. They account for about 18% of our total healthcare spend of circa $220 billion - about double the OECD average, including the often maligned US healthcare system. 

Doctors, especially GPs, are denied an additional funding source and, absent a deeper relationship with PHI, ready access to a range of new products and services which have the potential to better integrate and support patient treatment. nib for example, today has a service which free for members, has reduced the rate of unplanned hospital readmissions by 20% and offers various other programs for members with chronic conditions.   

So why the restriction?  

At its origins lies a messy ideological and political compromise with little regard for what’s best for consumers. Ideologically, the original architects of Medicare (nee Medibank) saw PHI as an abomination in their worldview of a monopoly public system akin the British National Health Service (NHS). With naked socialist bent, they saw evil in free market forces within healthcare. 

Any prospect of a NHS replica in Australia was, however, totally skuttled in 1946. That year, by constitutional referendum, Australians gave the Commonwealth the power to make laws and fund healthcare but with a very specific carve out to prevent the ‘civil conscription’ of doctors. Way back then, there was a fear Government involvement in healthcare represented creeping socialism and doctors fiercely guarded their independence and pricing. 

In the ensuing three decades, around 85% of Australians enjoyed comprehensive PHI cover. To be sure, it meant too many were left behind, yet policy measures could have redressed that inequity (e.g. fully subsiding PHI for people of lower means). Instead - and undeterred by the limitation of civil conscription - in 1975 the Whitlam Government launched Medibank. Although it couldn’t conscript doctors, to the ideologues, Medibank would at least kill off the PHI middleman and control all funding.  

In the face of this existential threat, and not without political power of their own, PHI managed to at least preserve cover for people treated in hospital. Private hospitals and doctors were naturally, more than happy to support PHI’s position and protect their incomes. 

In 1984, the Hawke government toed the same line when it restored Medicare after it had been dismantlement by the earlier Fraser Government. It was a popular move and Medicare continues to serve the community well even if it’s becoming unaffordable and inequitable for many. However, you must look hard to find any decent policy and economic theory behind sticking with the restriction on PHI. It seems they simply took up where Gough left off. Some argued, without evidence, that PHI coverage would be inflationary. Well, we’ve certainly since seen that, except people have had to fund this themselves without the support of PHI.  

A better, albeit defeatist argument, was if there were to be gaps, they should be incurred equally by all Australians, not just the uninsured, as a matter of equity. But more likely, doctors and other primary providers would, if they received more funding for their PHI patients, be able to reduce the fees and bulk bill those without PHI. Removing the restriction would most likely lift the rate of bulk billing, which is currently at record lows.  

PHI should be able to cover members wherever they meet the healthcare system. Apart from the obvious consumer sovereignty, that would encourage more market-based doctors’ fees, mitigate the perverse incentive to hospitalise patients, encourage more private investment in integrated care and reduce so much reliance on public financing. Financing that is already under acute stress because of a growing dependency ratio of retired Australians to working taxpayers. 

There is no evidence to support the scaremongering around a two-tiered healthcare system or the bogeyman of US-style “managed care”. Neither get mention in New Zealand where nib is the second largest health insurer and can offer cover for many out of hospital medical costs. In New Zealand, out of hospital claims account for just 5% of claims exposure. So, while the expansion would be slightly inflationary on premiums, the pay back is enormous in terms of consumer attraction and the capacity of PHI to work more collaboratively with doctors.    

And no one would dare propose any reform that compromised the independence of doctors to make clinical decisions or created exclusive doctor networks. For doctors and their patients, bringing PHI deeper into the process is about more funding mechanisms for both as well as discovering how PHI has a more meaningful role to play: a role in delivering modern data science, technology and predictive analytics to assist with disease prevention, diagnosis, management and precision medicine.   

In some ways it’s the current approach that penalises doctors and risks a two-tiered system evinced by the disparity in GP access and bulk billing rates across the country. Often the highest OOP expenses are incurred in lower socio-economic or remote communities. Importantly, equity issues associated with OOP expenses can be better addressed by government through targeting incentives more sophisticated than those currently in place for bulk billing.