Health cover puzzle has another answer

Premiums rising beyond the willingness of many to pay, says

FEDERAL Health Minister Greg Hunt has been in full salesman mode, selling the latest scheme for rescuing private health insurance. The centrepiece is another attempt to get younger people to join up or, at least, to stop leaving.

The question nobody seems to be asking right now is: what is the future of private insurance and private hospitals if younger people continue to drop out and the whole system becomes financially unviable?

Younger people, who pay their premiums but are unlikely to make many claims for decades to come, subsidise older people whose claims greatly exceed their premiums. Actuaries often argue that this system, called community rating, should be abolished and premiums should reflect each policyholder’s current risk. This is what general insurers already do.

The Howard government moved partly away from community rating 17 years ago, penalising over-30s with higher premiums. The new scheme will give small discounts to people under 30.

But abandoning community rating altogether would mean few older people could afford private health insurance and younger people would still have to pay for something they are unlikely to use. Private insurance would become irrelevant to health care.

Most analysts think the scheme won’t work. The proposed savings for people under 30 are too small, their wages too low and their other debts too high. But if there is not a massive shift towards more younger people joining, premiums for everyone will continue to soar and private insurance will become increasingly unaffordable for almost everyone.

The insurance companies have a problem their main rival — Medicare and the public system — do not. We accept the need to pay through our taxes for things we will not use because that’s the way the country keeps going.

But we treat commercial products very differently. If someone is trying to sell you something, you will weigh up whether it presents good value for you or whether there are more pressing demands on your cash. Premiums are rising beyond the capacity or willingness of many to pay. The costs of health and hospital care rises much faster than inflation, driven not only by rising prices but everincreasing demand and by new drugs and technologies.

This is compounded by the large amounts of money the insurers skim from every dollar a policyholder puts in. Across the industry, they take $14 in overheads for every $100 they receive in premiums. That constitutes operating costs, management fees and very healthy profits.

Medicare, the public insurance scheme, has total overheads of 3 to 4 per cent.

Unless the basic dynamics of private insurance funding change, and it is hard to see how they can, this industry does not have a long-term future. That is not only a problem for shareholders and employees but for every private hospital in the country.

Private hospitals account for one bed in three. They are too important to ignore and research shows them to be as efficient as the public system.

The nexus between private insurance and private hospitals threatens the entire Australian hospital system. But there is a better way.

If private hospital services were funded directly by the Commonwealth as a single national insurer, and we all paid our premiums through taxation, the nation would save money overall and deliver a much more efficient and equitable health system.

And everyone with the need could have access to both private and public hospitals. One third of our hospital beds would no longer be reserved only for the well-off. Martyn Goddard is an independent health policy analyst who lives in Hobart.