Coalition Senators' Dissenting Report
Summary
It is clear from the evidence that the Lifetime Health Cover
initiative has been successful in encouraging people to purchase hospital cover
earlier in life and in driving membership growth and future sustainability of
private health insurance.
This success is recognised by the Government. Evidence from
the Department of Health and Ageing stated:
Statistics from the Private
Health Insurance Administrative Council indicate that LHC has had a positive
effect in supporting private hospital membership, with an 18.7% increase in the
number of 30 to 34 year olds taking out private hospital cover since its
commencement in July 2007.[1]
Coalition Senators are concerned the Governments changes
could undermine the success of this initiative especially when the Government
has failed to take any steps to model the impact of the proposed change and
that these changes may force people who are already paying private health
insurance to drop out of private health cover altogether.
Coalition Senators oppose the primary measure of the Private
Health Insurance Amendment (Lifetime Health Cover Loading and Other Measures)
Bill 2012 because it will unwind the successful take up of private health
insurance especially among younger Australians, will lead to increased cost of
premiums and risks the transferring of more Australians from the private to
public health system.
These changes are the third that the Government is proposing
in relation to private health insurance. Coalition Senators are concerned that
the cumulative effect of the changes will cause many people to either reduce
their level of cover or drop out of private health insurance altogether.
Coalition Senators are concerned that these latest measures
are being put forward before the full impact of the previous changes to private
health insurance are fully known.
Coalition Senators cautiously welcome the secondary measure
of the Bill, the removal of the Incentives Payment Scheme (IPS), if it does in
fact remove the administrative burden on insurers.
Unstable policy settings
The Governments numerous changes to private health insurance
arrangements and the reversal of its election commitments has created an
unstable policy environment for private health insurers and consumers.
On numerous occasions the Government committed to retaining
the existing private health insurance rebates.
In February 2009, the Health Minister, the Hon Nicola Roxon
MP said:
The Government is firmly
committed to retaining the existing private health insurance rebates.[2]
The decisions of the Government on private health insurance
have confirmed the Government can’t be trusted to keep its election
commitments.
The Government has introduced two changes to private health
insurance (PHI) rebate arrangements in Australia.
Coalition Senators are concerned these changes have
undermined the attractiveness and financial incentives for Australians to take
out private health insurance cover for them and their families.
Further, these changes have left private health insurers
with more complex health insurance products and steep, unforseen increases in
the cost of their policies, have undermined the attractiveness of private
health insurance and will put additional pressures on Australia’s public health
system.
The Government has embarked on the following changes:
- In 2011/2012 the Government enacted three new private health
insurance incentive tiers reducing the amount of PHI rebate for an eligible
person with a complying PHI policy. This change was announced in the 2009/2010
Budget despite the Government giving an election commitment to the contrary.
The change came into effect on 1 July 2012
- In the 2012/2013 Mid Year Economic and Fiscal Outlook (MYEFO) the
Government announced it would introduce a new measure to calculate an
individuals PHI rebate using the commercial premium and then index the premium
using the lesser of the CPI or actual commercial increase in premiums. The
measure will take effect from 1 April 2014.
The measures in the Private Health Insurance Amendment
(Lifetime Health Cover Loading and Other Measures) Bill 2012, also announced in
the 2012/2013 MYEFO, are the third and most recent changes to private health
insurance.
Coalition Senators agree with concerns raised by private and
not-for-profit private health insurers that this latest change to private
health insurance arrangements 'further complicates and erodes the value of PHI'[3]
and that the legislation will make private health insurance 'less affordable',
'further restricting peoples' access to health care services, while increasing
public hospital waiting lists'.[4]
In the words of Australia’s largest representative of
private health funds this latest measure 'disadvantages those Australians who
take responsibility for their own health care needs by holding private health
insurance'.[5]
Summary of concerns
Coalition Senators believe the primary measure of the
Private Health Insurance Amendment (Lifetime Health Cover Loading and Other
Measures) Bill 2012 is further evidence of the Governments disregard for the
value of private health insurance in Australia’s health system.
Coalition Senators believe the measure will have adverse
consequences for:
(a) Low
income families
(b)
Affordability of private health insurance
(c)
Operations of private health insurers
(d)
Increased pressure on the public health system
Impact on low income families
Coalition Senators are particularly surprised that the
Government would propose such a highly regressive health measure where the
greatest percentage impact will be on the lowest income families.
Submissions to the inquiry pointed to evidence to suggest
that 3.4million people with private health insurance live in households with
incomes less than $35,000 and that 5.6 million people with private health
insurance live in households with gross annual incomes below $50,000.
It was noted in the evidence that all members with a
Lifetime Health Cover loading are equally impacted by the change irrespective
of their income levels. It was suggested by GMBHA that:
taking the rebate away from those
with a Lifetime Health Cover loading is in fact highly discriminatory to lower
income earners who have taken responsibility for their own health by insuring
themselves privately.[6]
This point was echoed by the private health insurer Hirmaa
that suggested that of the three changes to private health insurance since 2010
this latest measure was:
far more damaging to consumers in
general, and to low income earners in particular.[7]
In its evidence, HBF stated the expected increase in
premiums would hit the elderly and those least able to afford increased costs
the most. It said:
Many of these are older
Australians on fixed incomes who will be subject to considerable financial
stress by the proposed changes. In the current economic climate, this will mean
that for many members private health insurance will become unaffordable...[8]
Affordability of private health
insurance
There was broad consensus the measure will lead to an
increase in premiums. Coalition Senators are agreed the removal of the rebate
on Lifetime Health Cover loading will reduce the affordability of private
health insurance and drive premium increases for those affected.
Coalition Senators do not believe that Australians and their
families blindly accept premium increases and instead actively consider the
value of private health insurance against other house-hold expenditure. For
this reason, increased premiums can be expected to lead to a transfer from
private health insurance to the public health system despite the risks of
waiting lists and reduced choice.
This point was ably demonstrated in various submissions. GMHBA,
a not-for-profit private health insurer with a regional Victorian focus stated
the measure 'will result in 1% to 18% (average 10.6%) price increase from 1
July 2013' and impact 40,000 private health insurers in their fund alone.[9]
The peak industry body for thirteen restricted access and
five regional private health insurers, Hirmaa, expects the change 'will amount
to an average 8.4% premium increase in the first year of implementation'.[10]
Private Healthcare Australia representing 24 private health
funds and approximately 12.4 million Australians or 95% of all Australians with
private health insurance believes some consumers will be 'confronted by an
increase in their premium of up to 27.5% on 1 July 2013' and may be paying
'around $500 a year more' for their private health insurance.[11]
HBF, a Western Australian domiciled fund representing
900,000 members said 'tens of thousands of WA members will see their premiums
rise by hundreds of dollars per year'.[12]
Coalition Senators agree with the evidence provided that the
measure will increase premiums and reduce the affordability of private health
insurance to many Australians.
The evidence from the Department of Health and Ageing confirmed
that there would be a premium increase. It said the average financial impact of
this measure on consumers is estimated to be 'approximately $116 per year,
based on the current average LHC loading of 24%'.[13]
Attitudes of private health
insurers
Coalition Senators note the legislation is opposed by
Private Healthcare Australia which represents 24 private health funds and
approximately 95% of the 12.4 million Australian who hold private health
insurance.[14]
i. Disincentive and added complexity to private health insurance
Coalition Senators are concerned the legislation will
further reduce the incentive for Australians, especially younger Australians,
to take out private health insurers. These concerns were explained by Hirmaa in
the following statement:
The measure provides a
disincentive to everyone without PHI who is over 31 years of age from
purchasing PHI ... It presents an additional barrier to those who do not have
PHI.[15]
Private Healthcare Australia said the 'significant increases
in premiums will inevitably result in many people choosing either to downgrade
or terminate their cover'.[16]
It added the increased complexity in products increased
confusion which acted as a further disincentive to consumers to pursue private
health insurance. It noted recent rebate measures had created 12 different
pricing structures to premiums based on age compared to the three rebate levels
that existed previously
ii. Timeline for implementation
Private health funds also advised the Committee that it
would be 'difficult' and 'very unlikely' that all insurers would be able to
make the necessary system and back office changes in time for the 1 July 2013
implementation date.
Private Healthcare Australia identified the additional
administrative burden as one of five core objections to the legislation. It
said the new measure would be a cost burden to private funds who will be
required to make 'considerable system enhancements before 1 July' to implement
the change. It added these cost pressures are 'inevitably' reflected in future
premium increases.
Increased pressure on public health
system
Coalition Senators acknowledge the considerable contribution
private health arrangements, especially but not limited to private health
insurance, make to alleviating the cost of provision of public health services
in Australia.
In addition, individual Australians make a contribution
first by meeting their obligations as individual taxpayers and paying the
compulsory Medicare Levy and secondly through self-insurance.
Coalition Senators believe this measure will further
undermine the attractiveness of private health insurance and shift consumers
and the associated costs of care and treatment to the public health system. In
a tight budgetary environment this trend will reduce the quality of care and increase
public hospital waiting times.
This shift of consumers from the private health system to
the public health system is exacerbated in difficult financial circumstances as
evidenced by HBF:
In the current economic climate,
this will mean that for many members private health insurance will become
unaffordable and they may choose to cancel their health insurance and rely on
an already overstretched public hospital system, to the detriment of the
community as well as a whole.[17]
Unknown impact of cumulative
changes to private health insurance
There was very strong and consistent evidence that the
measure should be analysed in the context of other recent changes to private
health insurance.
...should be read in the context
of the Government’s other executed and announced proposals to change the PHI
rebate arrangements.[18]
Evidence was also provided that the full impact of income
testing the rebate that was introduced on 1 July 2012 is yet unknown as the
full effect has been delayed as many consumers took the opportunity to prepay
their premiums.
There is a concern among some that anticipated negative
effects of changes in Government policy are not yet visible.
The Consumers Health Forum of Australia stated:
we have not yet seen the impact
of the various changes, and there have been a number of them ... We do want to
make sure that there continues to be very active monitoring of those changes so
that we are not seeing a huge impact in terms of dropout rates.[19]
Private insurers speculated the Department of Health and
Ageing had not comprehensively modelled the potential impacts of changes
already made, and proposed to be made to private health insurance arrangements
the true impacts of the Lifetime
Health Cover loading change have not yet been modelled by the Government and
cannot be modelled in isolation of the potential impacts of other changes
already made and proposed.[20]
This was a concern also raised by the Consumers Health Forum
of Australia which expressed caution and the need for monitoring to accurately
assess the possible impact of ‘dropouts’ from private health insurance and the
as a result of the measure. It stated:
It is important, though, that
there is monitoring of private health insurance participation rates to make
sure that this, as well as other policy changes, does not cause high dropout
rates. The proportion of Australians with private health insurance is
continuing to rise, despite successive policy and premium changes, and we do
not want to see that trend reversed.[21]
It was suggested by private health insurers that to make
additional changes in advance of knowing the full impact of previous changes 'is
fraught with risk'.[22]
Lack of modelling of the impact of
the measure
Coalition Senators are sceptical of evidence from the
Department of Health and Ageing that the measure will not lead to a reduction
in private health insurance. It stated:
I reiterate that we do not
believe that this will lead to a reduction in private health insurance.[23]
Coalition Senators do not believe the Government can defend
this view when by its own admission it has not undertaken any modelling to
assess the impact of these measures on consumers. Evidence from the Department
of Health and Ageing stated:
No, and we responded initially
that we did not model movement or people dropping out of private health insurance
as a result of this measure,
and
we have not modelled a specific
increase in or decrease in membership as a result of this change.[24]
Incentives Payments Scheme (IPS)
Coalition Senators note that the removal of the Incentives
Payments Scheme (IPS) was supported by various private health insurers and seen
as a 'simple and low cost option to reducing the administrative burden on
insurers'.[25]
Coalition Senators cautiously welcome the removal of the
IPS, if it does in fact remove the administrative burden on insurers.
Senator Dean Smith
Senator Concetta Fierravanti-Wells
Navigation: Previous Page | Contents | Next Page