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An ailing system

What will save health insurance?

Last updated: 01 November 2019

Every quarter, we survey people in Australia on their household cost of living concerns. 

Some issues are frequent flyers at the top of the list – notably energy and fuel costs. But in 2019, private health insurance has topped the list for the first time.

Over the past decade, the cumulative increase in health insurance premiums has been

a staggering 66%. But this rise hasn't been matched by improvements in value. People are experiencing fewer benefits and more exclusions. 

This trend, in turn, increases the costs that we have to pay out of our own pockets, even if we have private insurance. Despite rules requiring upfront disclosure of costs, these often come as a nasty surprise to people – after they've been treated and discharged.

In response, people are leaving the private health insurance system in droves. The number of people with health insurance dropped by 65,000 in the 12 months to December 2018. The biggest drops were among younger people, who simply can't see the value in taking out or maintaining insurance.

The number of people with health insurance dropped by 65,000 in the 12 months to December 2018

So what are the solutions? If you ask the industry, it's simple – just give insurers more money. The industry lobby group Private Healthcare Australia recently called for tax breaks for employers funding health insurance for younger workers. Meanwhile, Medibank's chief actuary Andrew Matthews says insurers should be able to charge higher premiums to people who are older or sicker, with the government subsidising the difference.

But pumping more government subsidies into an industry that already receives $6 billion in taxpayer assistance won't fix the problem. Increased subsidies won't be passed on to consumers in the form of higher cover or lower premiums.

The government has already tried using lower prices to woo younger people back to the system by allowing insurers to discount premiums for the under-30s. But so far, it hasn't worked.

The fact is, there's no silver bullet. We're dealing with a system that hasn't been subject to significant review or reform since the introduction of the private health insurance rebate 20 years ago. We're not going to fix it through more ad-hoc, band-aid reforms. It needs a sober, strategic, economically robust analysis of the interaction between the public and private system and the value that taxpayers get (or not) from the various subsidies provided through Medicare, public funding and private health insurance. 

We're dealing with a crisis of trust that has been building for years. To turn it around, we'll need deep and genuine reform that puts people first.

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