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Speech to the AHIA National Conference Sydney Tuesday 13 July 2004 AMA President, Dr Bill Glasson

**Check Against Delivery

The Value Proposition for Private Health Insurance and the Private Health Sector

 

Good morning.

It is a pleasure to be here at your annual conference.

Who would have thought five years ago we would be here today with more than 43 per cent of the Australian population privately insured.

It's a real achievement for us all.

The AMA considers this a near-perfect balance between the public and private sectors.

In 1999, just 30 per cent of the population was insured.

They were the severely risk averse members who were also big claimers so your industry was in the vicious cycle well and truly.

Membership was falling at two per cent per annum and Russell Schneider was finding it tough to put a good spin on the quarterly figures.

The 30 per cent rebate and Lifetime Community Rating were the right policies at the right time.

Some said it would be a waste of money, and still do.

There are those who still want the money put straight into the public system. 

The private health rebate still has its detractors.

The problem for them, however, is that the policies worked and are still delivering.

The rebate and Lifetime Community Rating had a big impact on health fund membership.

Membership rose by 50 per cent - almost overnight.

Lifetime Community Rating is a price signal to people approaching 30 years and older to consider buying health insurance and keeping it or pay a higher price.

The critics said it was Lifetime Community Rating that pushed membership.

I think maybe the massive 30 per cent reduction in the premium was more effective in getting people to sign up. 

You have to look more broadly at the policies and their effects - the benefits to the health system.

The opponents might as well acknowledge that the resurgence and the stability of that resurgence are due to the combined effect of the Lifetime Community Rating measure and the rebate.

The rebate has been effective in another way.

Between 1995-96 and 2002-03, private hospital admissions have increased by 63 per cent and public hospital admissions have increased by 14 per cent.

It would be a brave person who maintained in the face of those figures that the private health rebate had not:

a)         had any impact, and

b)         had not helped the public hospitals.

These patterns are markedly different to the historical growth in admissions to both sectors.

But opponents of the rebate do maintain that it has had no impact and it has not helped public hospitals.

I would find it difficult to keep a straight face and maintain that a 63 per cent growth in admissions in the private sector and a 14 per cent increase in the public hospitals is compatible with this view.

We all need to go away and think about this carefully.

If the current admission growth rates continue for only a little longer, private hospitals will have 50 per cent of all admissions.

It is over 40 per cent already and already 50 per cent of surgery is done in the private sector.

Analysts have been able to dismiss these figures in the past by saying the private sector is small.

That its casemix is different.

That all the difficult work is done in the public system.

But once it hits 50 per cent of all admissions, it will be hard to maintain that position.

The AMA is a strong advocate for the public hospitals and nothing I say should be seen to denigrate our great public hospitals.

They have unique roles - in particular the teaching and training role, which cannot be provided in the private sector.

They are always under enormous pressure and never more than now.

If it weren't for the private sector being there as a big relief valve for the public system, it would be in meltdown now.

Whether the private sector continues to play that role depends on a number of things - not least of which is continued support for the 30 per cent rebate.

We must have that as a minimum.

But it also depends on the growth in premiums.

We need to do all we can to keep premium increases to a minimum.

I note that management expenses have been travelling in the right direction.

Medical participation in gap cover schemes seems to us to have peaked at about 70 per cent of private inpatient medical services.

If anything, it may go down from here depending on health fund schedule indexation.

But either way, it has probably peaked as a source of premium growth. 

We have a common goal in wanting a strong, vibrant, patient-focused and efficient private health sector that provides the best health care possible.

If it can be done at a reasonable cost, for a reasonable return to the hospital and with affordable premiums, that would be a bonus.

The theme of this presentation is the value proposition of private health.

It would come as no surprise that while the Federal AMA is concerned with the performance of the health system at the broadest level, it is also very interested in maintaining the balance between the private and public systems, which has always been a characteristic of our system.  

We like to see the private sector up there punching at or above its weight.

A healthy private sector supports patients in their efforts to:

  • access affordable and high quality health and medical care;
  • have the medical practitioner of their choice;
  • avoid being told by Government or other third parties who they can and can't have, and
  • avoid managed care. 

These policies go hand in hand with a strong private health sector that is underpinned by the availability of affordable and worthwhile private health insurance products.

Successive Federal Governments have let medical gaps - the difference between Medicare rebates and fees charged - blow out from $200 million in 1984-85 to more than $2 billion today.

The Government has dropped the ball on keeping the MBS up to date.

In the non-hospital sector, they have the safety net now that kicks in at $300 or $700 worth of medical expenditure by individuals or families.

This is the alternative for not indexing the Schedule properly and we are still seeing how its introduction is being received by patients, the profession and Government.

I would not expect any changes before the election.  In the hospital sector, there is the public system for public patients.  For private patients, private insurers are the de facto safety net.

The Government's dropping of the ball has to be picked up by you increasingly.

Just like the AMA and the AHIA lobbied together over the 30 per cent rebate, there is another lobbying effort we should do together to keep the MBS for inpatient services up to the mark.

If there weren't a private health insurance system, the public system would simply collapse under the weight of the additional demand on its services, even if the rebate were redirected to it - which it would not be. 

The system works only because a large number of Australians exercise their choice not to use the public hospital system and are prepared to pay for the privilege.

Let me now turn to matters closer to the heart - the relationship between doctors and the health insurance funds.

As I mentioned earlier, AMA policies support the private health industry and consequently private health insurance

But we are totally opposed to the US style managed care that some might see as a way of capping costs.

This is fundamental to the AMA and I would simply say that any move in that direction will not be welcomed.

I'm pleased to say that there is no evidence that your industry is actively moving in that direction but I can tell you we will be keeping a very close eye on you.

While I don't wish to dwell on negatives, I must point out that many doctors are uncomfortable with schemes that force them into relationships with health insurance funds as they see this as the thin edge of the wedge.

Let's not go down that path.

Let's look for ways to work together.

Let's think about how to reach a middle ground.

We recognise that Gap cover schemes can obviously benefit patients but we discern a trend that doesn't sit comfortably with some doctors and their relationship with their patients. 

Into the bargain we see that funds benefits tables, with a few notable exceptions, are not keeping pace with rising costs.

As I mentioned earlier, the participation rate for gap cover schemes has levelled off in recent times and settled at around 70 per cent.

From the funds perspective this might be a good thing but unless benefits keep pace with rising costs then I predict we will start to see a decline in participation.

I don't think this is in anyone's interest, not the funds, not doctors or patients, but it will reflect the reality of our business imperatives.

As you would all be aware the AMA produces a list of fees annually and we are assisted in this by a comprehensive and detailed analysis of economic factors by Access Economics.

It's not just something we make up but is a real reflection of the costs of running a practice and making a reasonable living.

A recent ABS study found that the average GP earns, before tax, around $100,000 a year and the average Specialist around $180,000.

Of course there are those who do better but unless we can guarantee a reasonable return for our brightest Australians who have put in 12 to 17 years in post secondary study and training then the problems we are seeing with shortages of doctors are bound to increase. 

The medical workforce shortage is looming as one of the biggest issues around.

We have convinced the government there are serious shortages of GPs.

Now we have to convince them there are similar shortages for specialists.

That and nurse shortages are the biggest constraints on the health system at present.  You need to bear this in mind as you set your rebate schedules and premiums.

There is no worse situation than to be unable to supply hospital services to your members due to capacity constraints like the fact there are no specialists to provide the service.

We have an ageing medical workforce.  Thirty per cent of GPs are 55 years old or more and the same is nearly true of specialists.

We understand and appreciate that you have to balance your costs  - benefits - against income - premiums

But if we are always sliding backwards rather than keeping pace with the cost of running a medical practice, there will be no incentive for specialists to stay in the system and that's a major problem for all of us.

Who is going to want private health insurance?

We have worked together on prostheses reform over the last twelve months.

It was necessary because the growth in expenditure was going almost vertically up the page in the last three years following the earlier government reforms.

The growth trend was not dissimilar to CEO salaries although not health insurer CEO salaries, I am sure.

I think we are getting the reforms a bit more realistic this time and it is going to be necessary to have some prostheses with gaps although we all hope the gaps are small and the number is few.

We are moving into unknown territory but if we share the vision that we don't want to choke off technological change and we want to have a comprehensive range of no gap prostheses per MBS item, then we won't upset our patients and members respectively and we will have done a good job of the reforms.

They'll still think private health insurance is a quality product.

Second tier was one of Dr Wooldridge's great decisions and we opposed its removal.

It brings a balance to the negotiations between hospitals and health insurers and it protects the day surgeries and smaller hospitals that are often providing day procedures at high quality and lower cost.

I think the recent decision to retain the 2nd tier default benefit is a good decision and again, it is one that will benefit your members in the long run.

The irony is that it is widely agreed that the 2nd tier default benefit requirements contain quality provisions, which are superior to the quality provisions in contractual agreements.

We need to continue to advance quality care in private hospitals with sensible provisions, which aren't onerous on clinicians.

We need provisions that aren't based on a bad apples or blame the doctor mentality and which are genuinely related to the delivery of high quality care.

Ready portability of private health insurance cover is the key to competition between health insurers and we should be loathe to restrict the movement of members to other funds particularly if that movement is the result of a decision by a fund to curtail cover in some way. 

Where there is a decision to restrict portability, it should be rare and in response to a unique and serious situation and it should be strictly time limited so it does not get built into the structure of the industry or into the competitive arrangements in a large market like Melbourne.

The private health sector is on about choice and if we restrict choice, we restrict the value of the product.

Disunity is death for an industry.

We spent most of the nineties fighting each other.

I think the issues were dead serious and the fight had to be had.

But in the last few years, relations between health insurers and the medical profession have improved.

I think there has never been a better opportunity to advance the notion of the private health option being an affordable, high quality option, which is a key element of the health care system in Australia.

Thank you.

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