Private Health Insurance

20 October 2021

Over the next few weeks, health insurers around the country will be busy finalising their applications to hike up insurance premiums. Of course, it's exactly the same thing every year. Insurers ask for as much as they believe they can get away with. The Department of Health spends months knocking out the most egregious claims, and the minister dutifully announces that consumers are going to cop it once again but it all would have been much worse if not for his personal intervention.

As usual, every Australian with private cover will spend March thinking about whether it's worth keeping before the hikes take effect in April. The vast majority will keep some form of coverage just to avoid a massive tax hit, but they do so reluctantly every year. They sense that something is fundamentally wrong with a system that forces them to buy a high-cost, low-value service just to avoid some tax. More and more Australians are voting with their feet and opting for the lowest-cost, lowest-value insurance products. This is a clear sign that they don't see much value in private coverage beyond tax relief.

We also see more Australians intentionally forgoing the tax benefits and opting out of private cover entirely. Many Australians, like me, grapple with the question of whether it's worth having private coverage and whether it's worth having anything more than the most basic level of cover. But that's an impossible question to answer. One reason is that our future health is simply unknowable. None of us has any idea if we'll have an accident, if we'll get sick or if we're destined to live a long and healthy life. Of course, we can look at the statistical data to get a sense of what tends to happen to people in our age group who share similar lifestyles to ours, but that only tells us about averages and tendencies; it says nothing about us specifically. Normally this uncertainty is the very reason that having insurance generally. We insure parcels against the risk of loss or theft. We insure our cars against the risk of accidents. We insure our homes against the risk of natural disasters. But what risks does private health insurance actually protect us against?

It can't possibly be the risk of protecting yourself or your family from medical or financial catastrophe, because that's not what private health cover really provides.

As soon as you go to sign up for private health insurance you're confronted with a bewildering array of options, none of which simply covers everything. Even top-level coverage has exclusions, waiting periods, caps and other limitations. And, should you ever experience a catastrophe, you'll quickly learn that what you want or need and what your insurance covers are often very different things. We call it 'insurance' because it's really an elaborate scheme to partly discount a range of services you'll probably never need. It's a business that depends on confusing consumers, on massive taxpayer subsidies and on promising more than will ever be delivered.

If I sound cynical, that's because I am. I have spoken before about the horrible experiences of my late wife, Kristin, throughout her four-year cancer journey. What benefit did we get from having private health insurance? Very little. In theory, our coverage guaranteed a range of benefits that justified the huge amounts that we, along with millions of Australians, pay our insurers. But the reality was always different and always disappointing. In theory, private cover gave us a choice of specialist. In reality, it wasn't our choice; it was often our GP's choice. There is no way for patients to know whether our GPs are referring us to the top specialist in the country or just some mate they golf with. There are no data and no transparency about the performance, quality or cost of different health professionals. There is no way for patients to know whether they can trust the person who may hold their lives in their hands.

In theory, private cover gave us financial security—the comfort of knowing that we would not have to worry about money while going through the worst ordeal of our lives. In reality, my wife's operations alone left me out of pocket well and truly—way over $10,000 more than we got back. In theory, private cover also means access to premium facilities and care in private rooms in what you would think to be top-class hospitals staffed by the best nurses and allied health professionals on the market. In reality, you'd be a lot better off in Adelaide's public hospitals than in the many run-down private hospitals that we have here—and it's similar in other states. And you'd also be more likely to get a comfortable private room in a public hospital nowadays.

Australians have grown increasingly aware that the big promises of private health cover are untrustworthy. That's why we've seen the proliferation of extras in recent years—I suppose the insurers realise they have to give something back so people feel they are getting something for their money. But, even there, the insurers can't help themselves. Every time they expand the list of benefits available to their customers, they tighten eligibility, cap the benefits amounts and hike up the premiums. I wonder if there is a single private health insurance customer in this country who thinks their benefits are worthwhile—or a single one who doesn't feel a bit silly using their private cover to get a few dollars off the cost of a yoga mat. For years now, fewer Australians have been willing to pay for private health insurance—fewer people who see any value in those excessive premiums and empty promises. And, despite hiking premiums each year, health insurers are steadily becoming less profitable and less reputable—which is pretty remarkable given that the product, the service they are supposedly offering, is something that a lot of people want.

From where I'm standing, it is clear that private health insurance is becoming unsustainable. It's unsustainable financially and it's unsustainable politically. Sooner or later, politicians will realise that there is growing support for stricter regulation of health insurers, growing support for cutting taxpayer support, growing support for blocking premium hikes, and growing support for expanding the ACCC's role so they are not just monitoring insurers but actively enforcing competition in the sector or even designing standardised products which must be offered by every insurer. That's the industry's current trajectory, but it doesn't have to go that way.

If the industry wants to change course and it wants to rebuild its customer base and rebuild its reputation, it can do this. It can make that choice, but it has to make changes. It has to rebuild our trust. Cut out all the nonsense—the caps, the limits, the useless basics and everything that is meant to confuse or mislead customers. Cut it all out and focus instead on delivering what Australians want and expect from health insurance—that is, a quality product that they can rely on in times of crisis. Make it easy for people to compare your offering with the competition's and make sure they can see that you deliver true value for money. I spent many years building businesses, and that's what it's all about: building trust and delivering value. That's the outcome I want for the private health insurance industry and that's the outcome Australians want.

But if the industry stay on this path, if they choose not to lift their game, I will be a strong voice, with many others, for intervention and regulation. I will call for all their subsidies to be stripped away and channelled back into the public health system, because the public health system generally is far more effective and often doing a better job than private health systems. I will also push for premium hikes to be blocked and for the ACCC to step in. So it is time private health really look at themselves and make appropriate changes for the benefit of us all.

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