Large private health insurers the only winners in proposed rebate indexation changes

Thursday, December 12, 2013

Legislation introduced in the House of Representatives today by Health Minister Peter Dutton to shift indexation of the private health insurance rebate to an industry level is likely to have a detrimental impact on competition in the private health insurance market, and ultimately disadvantage consumers.

“The proposed reforms highlight the many problems with the private health insurance market in Australia and the limitations of trying to introduce micro reforms while ignoring the major structural problems in the sector,” says Australian Healthcare and Hospitals Association (AHHA) Chief Executive, Alison Verhoeven.

“The current proposal is complex and is very likely to impose an additional administrative burden on health insurers, a cost which will inevitably disadvantage smaller funds and be transferred to consumers. Australia’s private health insurance market is very concentrated: the two largest funds have about 57% of all members and the smallest 24 funds have only 8%. Larger funds have a far greater ability to influence premium prices and premium growth than smaller ones. Adjusting the rebate level according to an industry average price increase, rather than at the product level, will lock in existing competition structures.”

“The Senate Standing Committee on Community Affairs Committee found in June that the proposed changes would have no impact on the way premiums are calculated for high cost products. In addition, private health insurers routinely cross-subside between products to ensure overall financial solvency. While some products offered by private health insurers are only marginally profitable, many others are offered that are very profitable. As a result, most funds spend considerable time and effort recruiting younger, low risk members to boost their overall profitability.” 

“While the large health insurers have argued that transparency of pricing will be improved, it is very difficult for consumers to make meaningful comparisons between private health insurance offerings. As a result, very few people switch funds and products each year. The large funds will be the only beneficiaries of today’s proposed changes,” says Ms Verhoeven. 

The Australian Healthcare & Hospitals Association represents Australia’s largest group of health care providers in public hospitals, community and primary health sectors and advocates for universal high quality healthcare to benefit the whole community.
Media inquiries:

Alison Verhoeven, Chief Executive, Australian Healthcare and Hospitals Association 0403 282 501