Is the investment in private health insurance worthwhile?

A frequent topic of conversation at any social or workplace gathering is the cost and unfairness of private health insurance.
A stethoscope by a Credit cards payment

A frequent topic of conversation at any social or workplace gathering is the cost and unfairness of private health insurance. Despite guaranteed free treatment in public hospitals, we are both conditioned and persuaded to purchase a costly product that too often fails to deliver value for money or provide the expected choices and peace of mind.

Now, for the first time in 15 years, as premiums and complaints rise, the proportion of the population with private health insurance is declining. And recent polling shows 20 per cent of those who have private health insurance (46.8 per cent of the population) expect to downgrade or drop their cover in the next six years.

Why health insurance customers are unhappy

Most of the antipathy towards private health insurance seems to be related to service and price, with premiums increasing at rates well above inflation. But there are also concerns about lack of transparency about what is covered, waiting periods and exclusions, and unexpected out-of-pocket costs.

The public consultations held by health minister Sussan Ley in late 2015 found common themes: poor value for money; high out-of-pocket costs; and lack of transparency and complex regulations.

Media stories tend to highlight the rejection of claims without appropriate medical review and the raft of exclusions, which unsuspecting policy holders often discover too late.

Ley has promised action on several fronts, but changes seem a long way off. The 2015 public consultations have yet to produce any direct response. A media release in February 2016 promised cheaper premiums as a consequence of prostheses pricing reforms. However, the recommendations in the final report from the Industry Working Group have yet to be acted upon and so are unlikely to have any impact on premium increases in 2017.

In September 2016, the minister announced the establishment of the Private Health Ministerial Advisory Committee to provide advice on private health insurance reforms. This committee will not report until late 2017.

While the Turnbull government debates how to respond to public concerns within the constraints of its ideological support for privatised health care, and health funds try to lure us with marketing offers, Australians who are querying the affordability and value of private insurance must make their own assessments and take their own, appropriate actions. This is not easy as trusted resources and advisers without conflicts of interest are few.

Government announcements on protheses won’t make health insurance cheaper for a while.

Is the investment worthwhile?

It is virtually impossible to directly compare policies and costs. It’s estimated that about 40,000 variations of private health insurance policies are available. What these cover depends on a range of agreements individual funds have with private hospitals and doctors, and patients are not privy to these agreements.

Certain checks are essential at the time of purchase, based on health status and age. It makes no sense for a young woman to have a policy that excludes childbirth, or for an older woman to have a policy that covers it.

For starters, people with private health insurance should look at their medical and financial histories and likely futures. Most people should be able to assess for, say, the past five years, what they have paid in private health insurance premiums, what benefits they have received and what additionally they have paid out-of-pocket in deductibles and gap costs.

If costs paid exceed benefits received, this raises questions about whether private health insurance is still viewed as a worthwhile investment.

A 2015 analysis by CHOICE magazine found the average annual premium for a basic hospital-only policy was A$1,507. For a policy that included ancillaries (extras like dental and optical) it was A$2,324.

Data from the Australian Prudential Regulation Authority shows the average payment from insurer to patient per episode of care in September 2016 was A$2,209 for hospital and A$60 for general treatment (medical/ancillary).

The average out-of-pocket cost to the patient was A$284.20 for hospital, A$48.01 for ancillary and A$129.02 for medical (in-hospital medical services). The gap payments for medical vary widely depending on location (A$257.31 in the ACT, A$46.10 in South Australia) and by speciality.

People who have experienced a hospitalisation (emergency or elective, as a private or public patient) will have a different, expanded set of experiences and financials to draw on. The subsequent health outcomes and their costs must be weighed against issues such as the importance of a private room, quality of care, whether choice was available and, if it was, the extent to which it was important.

Most careful analysts will quickly determine, as the CEO of the Private Health Insurance Administration Council has pronounced, that the purchase of ancillary cover is “irrational”.

The average benefit paid per service is quite low given the actual costs of those services – A$69 for optical, A$62 for dental, A$35 for physiotherapy, A$30 for chiropractic – and the total annual benefit paid per person for ancillary services is A$389. Such cover is not insurance but a tightly capped set of rationed benefits. Dumping ancillary cover could save the average family A$500 to A$1000 per year.

Dumping hospital cover is a more difficult decision. Financial factors such as the Medicare Levy Surcharge and the Lifetime Health Cover Surcharge come into play.

However, most people with incomes above A$90,000 (A$180,000 for families) would pay considerably less in surcharges than the cost of an average policy, so self-insurance to enable the use of private health care as and when needed becomes a real option. But this simple accounting does not factor in the unknown (and unknowable) savings that may accrue from the bargaining power that funds have with private hospitals and doctors.

Other stakeholders in health care could help improve transparency in the system and assist decision making. Hospitals and doctors could be more upfront about costs and gap payments, especially the hidden costs of surgery from anaesthesiology and additional doctors who attend and bill.

Funds could make policies shorter and simpler, with exclusions and waiting periods clearly identified and fewer annual changes. The federal government needs to implement greater protections for those who purchase private health insurance and ensure better value for the substantial funds taxpayers invest in private health insurance, directly and indirectly, through the private health insurance rebate, premiums, Medicare reimbursements and out-of-pocket costs.

The essential question that remains to be answered is why taxpayers are heavily subsidising a product that is only purchased by half of them and used, even when sick, by even fewer? If private health insurance is to facilitate the choice for all Australians that the co-existence of public and private systems represents, then immediate and significant reforms are necessary.

Do you have private health insurance? Do you think you are getting value for money? What tips do you have for ensuring you get the best deal with your insurance cover?

The Conversation

Lesley Russell, Adjunct Associate Professor, Menzies Centre for Health Policy, University of Sydney

This article was originally published on The Conversation. Read the original article.

  1. Andrea  

    Had to have an Operation. Went to Specialist. She wanted $800 out of pocket. I’m on the Pension. Her Anaesthetist wanted $750 out of pocket.
    Told her to ‘get ……….’, in a very nice way, by not bothering to go back to her.
    No wonder they can drive Merc’s, BMW’s etc!
    I drive a nearly 38yo car, as can’t afford a new one! But I digress……

    Went to GP. I went through Public System, as a Private patient. I’ve Top Hospital & Extra’s Cover.

    Damn sight cheaper. Very happy with service I got from EVERY medical person, with whom I came into contact.

    • Chris Young  

      Review your hospital cover if going as private in public hospital. This is called a MB minimum benefit available on lower covers. You will save a ton.

      • Andrea  

        Thanks for that, Chris.
        I’ll certainly check it out when next in Pvte Health office.
        I review my Cover at least every six months.
        Fingers crossed, I won’t need any Surgery in foreseeable future!

        Cheers to you!

  2. Joseph  

    There’re many material items’ in this world I would gladly give up, rather than NOT having Top Hospital Private Cover.

    If I’m sick enough to have to be in Hospital, I want my own Doctor, or Specialist, Ancilliary Staff, AND a Private Room, where I don’t have to listen to the inane babbling of the patient in the next bed, his or her visitors’, with their screaming kids’, in tow!

  3. Guy Flavell  

    Why would pensioners/ retirees bother with the huge cost of private health cover when they
    have the World’s best health service available … at basically NO COST whatsoever.

    Here’s a list of the FREE health entitlements we can all enjoy as pensioners, ie:

    1) Free medical procedures at public hospitals. A 6-7 month wait for non-emergency but,
    immediate service for emergencies like strokes, cardiac, falls, etc. You can also have the
    operation done by your OWN specialist. FREE home nursing when returning home.
    2) Free visits to your own GP including free Xrays, blood tests, etc. – absolutely nothing to pay.
    3) Free (twice a year) podiatry, dietitian, psychologist and other such problems by GP’s referral.
    4) Free minor skin treatments, eg: removal of suspected skin cancers .
    5) Free hearing aids renewed every 5 years at no cost. Only the best quality aids are supplied.
    6) Free mobility aids like walking frames, special invalid chairs and scooters. (a huge savings).
    7) $28 per visit for COMPLETE dental services including FREE dentures.
    8) Free annual optical checks with FREE glasses if needed.
    9) $5.20 pharmacy scripts up to a reasonable number, then totally FREE.
    10) Free CPAP machines for sleep apnoea sufferers plus a $147 Government annual allowance
    to assist with the extra energy costs on same.
    11) Free MEPACS home alarm systems with push-button pendants in case of emergencies.
    12) Free ambulance services in all states.
    13) Free visits to your home by occupational therapists to help you with mobility problems.

    So, why would any pensioner in this country stupidly pay for private health cover when their
    concession card or health card provides them with all the above fabulous benefits ???

    • Carmel Wells  

      How do pensioners receive free glasses???

    • Jayne  

      Where do I go to get $28 Dental check?
      My last Dentist’s account was $168, for check-up, smooth, & clean, less what Pvte Health Cover paid back.
      Need Upper Denture….quote $1000, less Pvte Health Cover payback……?$…..

      Glasses…..have to get new Reading ones…….cost approx $500, less what Pvte Health Cover will pay back…….?$……

      So where can I get, as a Pensioner, all these ‘cheaper’ costings’ in your above comment, Guy?

    • The mobility aids you mentioned and other items are not free in Queensland. The home alarm systems are not free, the free glasses you mention are horrible and bifocals not graduated lens,there are still many prescriptions that are not on PBS list.Hearing aids are not free. I have extras private insurance, tailored to meet my needs. I need for therapies on a regular basis. $200: 00 paid towards my new prescription lenses. As for public hospital that is free, I cannot fault the care and service. I have had excellent dental care from the public dentist as well. I do however find it unhelpful that to get to specialist appointments in the city, three hours from where I live, there is insufficient help provided for transportation. We do have better services than many countries though.

  4. Jan  

    Guy. Most of the things you are quoting as FREE under Medicare are not at all. The hearing aids you say are free are very low tech ones, not suitable for high hearing loss. In severe pain with a hip replacement needed you may have to wait 3 plus years as the hip is not life threatening. The eye glasses are not good . Doctors visits are not free. You are obviously not old with medical problems and have not experienced these things.

  5. Chris Young  

    Most intelligent article writen to date as points out ‘reforms’ needed. The govt has such controls on this market the PHI industry is deformed. The way they are increasing our population with immigration is of concern as most opt to not pay for visitor PHI despite it being a visa requirment then jumping to medicare. Our own 30+ pay LHC where as migrants are exempt. We need an LHC amnesty for aussies so they can take out PHI at fair price. 70% for the children of anzacs is a disgrace.

  6. Elizabeth Litster  

    I have top hospital and extras cover. I have just been informed I need a MRI. This is not covered by my health fund. As I have medical cover I cannot get it done under medicare. As a pensioner why do I bother struggling to pay my health insurance. Every year it goes up and every year it covers less and the doctors want more and more gap money.

  7. Mrs. Puddles  

    PHI and Banking (ethics or lack of them) are just another insidious form of taxation (bank charges and PHI). Price hikes way above CPI and Australian Banks profits its been alleged are the highest percentage of GDP against all other major nations and not a Royal Commission in sight. Anyone had the run-around with Medicare lately? Gone to online claiming as the 131 number goes immediately to message to go ‘on line’. Go online, now that’s where the real run around is at its best – nowhere can you ask a simple question? We are computer literate – pity for those who aren’t. Good on Starts at 60 – great reporting.

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