On April 1, the one-in-two Australians who have private health insurance will start paying higher premiums. It is a familiar annual ritual.
This year’s increase is actually one of the lowest average increases in a decade, ranging from 3 per cent to 8 per cent depending on which fund you’re with. But, given hospital cover has increased by about a third over the past five years, most of us just feel we’re paying ever increasing prices for a corresponding decrease in the level of cover provided.
The Senate is currently looking at ways we can bring down the cost of private health insurance, by investigating the murky issue of prostheses costs.
The costs of replacement parts such as hips, knees, pace-makers, cataract lenses and other such devices make up about 14 per cent of the average health insurance premium. In-hospital costs account for about 70 per cent, and medical costs about 16 per cent. Most readers won’t realise this, but in Australia, prosthesis costs are among the highest in the world, and are kept artificially inflated by a broken system that we urgently need to rectify.
Lazy federal regulation is partly to blame. In 2001, the Howard government deregulated prostheses costs and allowed individual funds to negotiate with prosthesis suppliers. This led to a rapid escalation in prices, which had essentially more than doubled by 2005. Prices were once again regulated and, in 2007, the current Prostheses List was developed. Unfortunately, prices on the list were grandfathered at that high level, and they continue to grow at between six and 12 per cent a year. There has been no significant attempt to reform pricing since then, and this has led to a situation where the benefit that insurers have been forced to pay for some prostheses is many times the actual purchase price.
We’ve heard the deal-making between manufacturers and the private health system under the prostheses list described as cartel-like behaviour…
Many policy holders would not even be aware that this is a problem, or that they are unwittingly subsidising such unreasonably high prices, as it is usually a cost borne quietly by their insurer. Rest assured though, each and every privately insured person is paying for it every year through spiralling premiums, and taxpayers are also helping foot the bill through the Government’s private health insurance rebate.
It’s important to note that it is only the private health system that is beholden to the Prostheses List. The public hospital system instead goes to tender and benefits from volume discounts. According to the health insurers forced to pay out prescribed prices, some devices are charged at between three and five times what is paid for the same item in the public system.
If private hospitals enjoyed the same average pricing for prosthetic devices as public hospitals, the savings would be an estimated $500-800 million per year – which would work out to an estimated $100 – $160 per person to the average premium each year.
The Nick Xenophon Team initiated the current inquiry into the Prostheses List Framework, and during hearings earlier this month we were given assurances from health insurers including BUPA and nib that if prostheses costs came down this would be fed through to reduce premiums.
Tomorrow, we will hear further evidence from practitioners, private hospitals and health insurers. We’ve had some startling evidence so far. We’ve heard the deal-making between manufacturers and the private health system under the Prostheses List described as cartel-like behaviour, and been told that up to a third of the excess fees paid by insurers is actually pocketed by private hospitals. It also appears that there is no formal obligation on surgeons to declare whether they get any kickbacks from device manufacturers, only codes of conduct. It’s all outrageous when you consider that it is taxpayers and policy holders who are ultimately paying for this.
The Government has made small attempts to rein in costs. Last year it imposed a somewhat arbitrary 7.5 per cent price cut on hip and knee replacements and a 10 per cent cut on ophthalmic (eye) prostheses on the list. In one sense the price cuts are welcome but the Prostheses List needs fundamental reform, not piecemeal attacks.
We’ve had some positive early signs that there is bipartisan appetite for getting to the bottom of this pricing issue in order to fix what looks like a broken system, and by doing so, help keep private health insurance as affordable an investment for Australians as possible.
Stirling Griff is a South Australian senator. He is the Nick Xenophon Team’s spokesperson on Health.
Griff initiated the current inquiry on Price regulation associated with the Prostheses List Framework, which will report on May 10, 2017.
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