Station: Sky Business News
Program: Trading Day
Date: 5/2/2018
Time: 3:20 PM
Compere: Helen Dalley
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


HELEN DALLEY: Meanwhile, private health insurers have joined the Turnbull Government’s attacks on Labor’s plan to cap premium increases, amid what Labor believes will be a persuasive pre-election pitch to voters. Opposition leader Bill Shorten said a Labor government could save families $344 a year by capping annual increases in health insurance premiums at 2 per cent for the first two years. Chief executive of health insurer NIB Mark Fitzgibbon said Mr Shorten’s plan was an affront to how the free market operates, describing his policy as a though bubble lacking economic sense. Well for more on this, the chief executive of Private Healthcare Australia, the peak body of the private insurers, Dr Rachel David joins me live in the studio.

Dr David, thanks so much for coming in.

RACHEL DAVID: Thanks Helen.
HELEN DALLEY: Now at the Press Club, Bill Shorten all but kind of declared war on private health insurance. He said business as usual just won’t cut it. Then on the weekend he actually put more of that very much on the line by announcing that Labor would cap premiums for two years at 2 per cent, while the Productivity Commission has a review. Now, obviously the insurance industry has said this is a thought bubble. But he does believe that will relieve some cost pressures, this cost of living issue for consumers. Why do you think it’s a bad policy?
RACHEL DAVID: We understand the frustrations with people as they look at costs going up, particularly as wages have remained flat for almost the last decade. But this is a very simplistic solution. It probably won’t save families very much in the long run, and the reason is that the only reason that premiums are going up is because health funds are paying for more healthcare every year. So last year, the rise in claims for public and private hospitals was over 5 per cent. Some years it’s been over 10 per cent and the rise in the cover we were providing for medical specialists’ gap fees was over 3 per cent.

Now, if we were to cap premiums at 2 per cent, what happens to the actual demand, the rest of the demand for services? It has to come from somewhere. So what can we do? The only thing we can do is to restrict what we pay to private and public hospitals in our contracts, or we can restrict what we pay to doctors, and that means the possibility of more co-payments for consumers and the possibility of restricted access to even private hospitals. In two years’ time also, when the cap is lifted, to meet prudential requirements and catch up, a lot of funds will be obliged to put in for double digit premium increases. We estimate, on average, over 11 per cent.

HELEN DALLEY: Obviously Bill Shorten went through a whole lot of things in the Press Club about how the industry’s return on equities is much higher than many other industries, those sorts of things. But how do you describe this idea of this policy from Labor?
RACHEL DAVID: I think it’s something that sounds good and in an era of populist politics, it’s very easy to say: well, let’s fix prices in a particularly, you know, if you’ve had a focused group where people have complained about it. But the reality is that health costs – whether you’re talking about the private system or the public system – are increasing at way above inflation every year. So, we’ve got 8 per cent increases for public health. We’ve got 5 per cent increase in private health costs. Our best negotiated premium increase was just under 4 per cent. It’s just way too simplistic to say: well, just by putting a cap on the price without looking at any of the input costs, we’re going to be able to fix this problem.
HELEN DALLEY: Do you think it’s a thought bubble?
RACHEL DAVID: Look, I do, because I just don’t see how it can be implemented in practice without overriding some of the very strict prudential requirements for the health funds that are already in place.
HELEN DALLEY: Do you actually agree with Prime Minister Malcolm Turnbull, who said yesterday that Labor wants to destroy private health insurance?
RACHEL DAVID: Look, we’ve had a very good dialogue with both major parties up until now about how we address some of the input costs that are putting upward pressure on premiums. And that means we need to be paying a reasonable price for medical devices, not the highest price in the world. We need to work hard to limit fraud, waste and over servicing in health services.
HELEN DALLEY: So you would agree that you need to do a lot of work, as does the Government, on trying to bring down these input costs. If you’re saying that the premiums are rising every year because of the input costs that you have to cover, what are you actually doing about that, to bring down either costs of prostheses or medical specialists, or even private hospital stays?
RACHEL DAVID: Well look, the whole sector needs to work on this together. The hospital providers and the doctors, as well as the funds. This year we were able to make some considerable progress by negotiating a reduction in the inflated and fixed medical device benefits. So that’s brought premiums down somewhat.

There’s still more work to do, in terms of making sure that the care that we pay for is high value, but what really troubles me is that there was no consultation about the 2 per cent cap; this came out of nowhere after the Leader of the Opposition’s Press Club speech, and it took the entire private sector by surprise, including doctors and hospitals who are rightly concerned that their benefits are going to have to be fixed at a much lower level than is appropriate because of this announcement.

HELEN DALLEY: You did say at the outset that you understand that there is this cost of living pressure on people. When wages have not been going up – admittedly, inflation has been low – your industry just won, what, 3.95 per cent increase. The Government was saying that is the lowest rise in the last few years, and that’s true, but it’s still almost double the inflation rate, and the average premium rise over, what, the last five or ten years, has been over 5 per cent. Can you appreciate that people, consumers do get fed up?

They also don’t think they’re getting value for money in a lot of cases. There are the junk policies the regulators have also talked about, where you think you’re getting cover and then you don’t end up getting the cover, or you’re getting covered for things that you absolutely would never need. Are you doing enough work on that in your industry to fix those issues to ensure people get value for money, apart from feeling like they’re not going to be paying extra every single year?

RACHEL DAVID: Well look, there are a lot of issues there, and I’ll deal with the value issue first, and that is that at this point, private health insurance is paying for two-thirds of elective or non-emergency surgery, like your hip, knee, lens replacements; it’s paying for more than half of mental health admissions to private hospitals or to any hospital; and it’s paying for the majority of dental care that occurs in Australia. So, all of these things together mean that we cannot do without, in Australia’s type of health system, we cannot do without private health. So on the value side, the reason that people get that yearly bill shock and that yearly premium increase is we’re paying for more healthcare as the population ages and is using healthcare more.
HELEN DALLEY: Yes, but do you think your industry could do more to actually make the policies both simple to read – and I know you’re being obliged to do this more – but actually put in cover that people think they’re going to get, make sure they get that cover?
RACHEL DAVID: Look, absolutely, and we’re just coming to the end of a two-year project with the Ombudsman and the Federal Government where we are doing exactly that. Policies have become very complex, basically due to consumer demand for more affordable policies, and we have agreed that we will implement a system of tiering policies into gold, silver, bronze and basic, to make it easier for our customers to choose and use their health insurance; and make a further investment in the Private Health Ombudsman’s website, which will also be an addition to help consumers with this. But health is a complex system, and that price signal for private health is very obvious compared to public health, where the costs are going up at an even greater rate but we pay for it through our taxes.
HELEN DALLEY: Do you think you’ve got enough time over the next few months to, and do you intend to engage with Labor and Bill Shorten more to try and get them to dump this two per cent cap policy idea?
RACHEL DAVID: Look, we’ve been engaging with all the major parties on some of the very big challenges about health costs, including the ALP. What we’d like to do is to separate the political rhetoric in an election year from some real, pragmatic measures we can take to address input costs, and to ensure that people are getting value for money for their healthcare, so that not one dollar of premium income is going to waste.
HELEN DALLEY: Alright, we’re going to have to leave it there. Dr Rachel David from Private Healthcare Australia. Appreciate you joining us.
RACHEL DAVID: Thanks Helen. Thank you.
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