Australian Unity Wants More Efficiencies in Health Reform

13 November 2015

National health reform is in the government spotlight at the moment and the Heath Minister has announced both public consultation and industry roundtable discussions.

So what types of health reform would our private health funds like to see? Canstar caught up with Amanda Hagan, CEO of Australian Unity – Healthcare, for her view.

Q: In what way would you see the private sector being able to increase healthcare efficiencies?

A: Australian Unity believes there are significant efficiencies to be gained if we focus on the underlying cost drivers in healthcare in Australia.

An obvious example is prostheses. Prostheses represent a significant amount of expenditure, comprising over 10 percent of total benefits paid by private insurers. Current pricing mechanisms for prostheses have led to benefit levels that are often twice as high as prices in comparable systems, both domestically and abroad.

Unwarranted variation is another factor – it is complex and difficult to explain – but it is at the core of healthcare inefficiency.

There are a number of health reform matters Australian Unity intends to raise at the Ministerial roundtable on 4 December and addressing the underlying cost drivers is at the top of our list.

Q: The government has been somewhat critical of exclusionary health policies, but is there a valid place for limited (and cheaper) policies in the market?

A: Ideally the industry could reach agreement on a “minimum product”, however unless we can address the underlying cost drivers and restore the rebate to 30% on hospital cover at a minimum, it is difficult to see how a minimum product will be affordable.

Until then we believe there is a place for exclusionary products where it is very clear to customers exactly what these exclusions are and where they can be easily explained. At Australian Unity we strongly encourage our members who decide these products are right for them to regularly review their policy so that it continues to be the right one for them as their circumstances change.

The real question, however, is why these exist in the first place. It is actually restrictions on products that cause the most damage to the value of private health insurance products rather than exclusions per se. These restrictions have been put in place by insurers in an attempt to contain costs because it is the only option open we have to respond to customers downgrading their cover or exiting private health insurance altogether, which has been the result of the legislative intervention we have seen over recent years.

We believe the first and most obvious health reform change the Government needs to address is reversing the previous Government’s decisions introducing means testing of the PHI rebate, removing it from lifetime health cover and tying it to the Consumer Price Index. This has driven up the cost of private health insurance and forced many consumers to either downgrade their coverage or abandon PHI altogether.  In addition, the product is now very difficult to comprehend.

The industry’s only real course of action in response to these changes has been to reduce benefits or the reality is that the sector simply isn’t sustainable.

The industry hasn’t made these changes because it’s looking to hurt its customers – we want to keep them and provide them with good healthcare. But we won’t to be here to do that without adjusting the product to reduce cost.

There’s no avoiding the fact that these changes have been the principal driver of unaffordability and while we think this will be a difficult promise for the government to keep in the short to medium term, given the trajectory of public spending on health care, we would like to see a timetable at least for the Government to address this election commitment.

So we need to both attack the underlying cost drivers and restore the rebate.

Q: What types of initiatives do you hope to see come out of this upcoming roundtable?

A: We need to see a long term commitment to the sustainability of private health insurance. That begins with a real commitment to addressing the underlying costs drivers in the provision of healthcare with a timeframe to do so.

We, that is governments, clinicians, private health insurers and others in the health sector, must develop a roadmap for lowering costs and improving quality. We need to look seriously at how to reduce waste in the system, increase efficiencies, and get the money flowing to primary care and prevention.

As long as the government is controlling what benefits have to covered and the price that has to be paid, then it is unlikely the sector will get ahead of annual premium increases well above the rate of inflation.

As we said at the time of the premium announcement earlier in 2015, it is clear health costs are rising much faster than the rest of the economy, driven by an ageing population, growing levels of chronic disease and increasingly expensive medical technologies, and something needs to be done.

Health cost inflation is currently running at 7–8% per annum. It is simply unsustainable for health costs to be rising so much faster than the broader economy. The health system needs to be fundamentally reformed, and while that reform might take a long time, it needs to start now.

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