Rise in health premiums likely lowest in decades
Health fund members are being promised the lowest average premium rise in almost two decades.
However, the introduction of gold, silver, bronze and basic categories of insurance may compel some members to pay even higher premiums or dump their policies.
Health Minister Greg Hunt told The Weekend Australian he expected to approve an industry average below the 3.95 per cent announced this year. That would be the lowest since 2001, when insurers agreed not to raise premiums in exchange for government reforms.
Mr Hunt is due to make a decision on insurers’ 2019 premium applications by early February. The increases will come into effect in April, when insurers will also start rolling out the new categories.
It has now emerged the government did not model the impact of its final category design, even though Mr Hunt claimed it had been shown to have a neutral or slightly beneficial impact on premiums, in line with a previous commitment.
Documents obtained under Freedom of Information laws reveal Deloitte modelled seven possible designs, with different allocations of hospital treatments and services between categories, and reported varying impacts on premiums and membership.
It is not clear why Deloitte, which had also worked with the Private Health Insurance Ministerial Advisory Committee for more than a year, was not asked to model the final design.
The last four designs modelled in August were found to have an overall impact on premiums that varied between -0.3 per cent and 1.4 per cent — just from current policies being resettled into the new categories. Between categories, the impact on premiums ranged from -0.1 per cent to 15.5 per cent, with Deloitte having to also predict any shift in members.
When Mr Hunt announced the final design in October, he pointed to an overall impact of zero to -0.3 per cent on premiums. The modelling on the outdated design that referred to a -0.3 per cent overall impact had underly- ing category impacts ranging from -5.9 per cent in bronze to 5.9 per cent in silver. However, that may no longer be relevant.
After the latest modelling was done, the government made significant changes to the categories under which certain orthopaedic surgery and devices would — and would not — be covered.
Mr Hunt defended the decision not to model the final design, saying “we knew roughly what it would be because we then went straight to market”, referring to last month’s call for health funds to apply for premium increases.
The design process had taken six months longer than expected, with late lobbying from some specialist groups and extensive consultation. Asked about some of the variations shown in the other modelling, Mr Hunt was confident they achieved the right balance, helping to achieve the low premium rise he had been aiming for.
“The actual outcomes are going to be lower than the modelled outcomes, in all likelihood,” he said.
Early in the process, the government agreed to add a basic category to provide insurers with more premium revenue to pay for benefits in higher categories.
Its final changes to the design included shifting spinal fusion from gold to silver, where it will now be covered alongside back, neck and spine surgery, and splitting pain services into general pain management in bronze and pain management devices in gold.
Insurers will also be able to offer “plus” policies, with more than the mandated level of cover, and have 12 months to implement the new categories.
The shake-up comes amid a continuing fall in the proportion of the population with private hospital cover. The September quarter rate of 44.9 per cent was the lowest since 2009, and Mr Hunt would not be drawn on whether, or when, it might be stabilised.
The design options considered in the August modelling were all expected to hasten the exodus of members, with Deloitte conceding it was “more likely to be understating than overstating the membership impacts”.
With an election due within months, the Coalition has yet to propose its next wave of health insurance reforms. A Labor government would cap premium rises at 2 per cent from 2020 to 2022 and hold a Productivity Commission inquiry.