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09 Sep 2019


The economics of private health insurance (PHI) is usually a pretty dry subject, but it is a topic that should engage us all irrespective of whether we work in the public hospital sector, private practice, or primary health care. 

The media hype about PHI membership is true. The latest Australian Prudential Regulation Authority (APRA) data indeed confirms people are dropping out of PHI at a very high rate – nearly 30,000 (28,000) in the last quarter alone, leaving just 44.2 per cent of the population insured for hospital treatment. The lowest level of PHI hospital insurance in 12 years. What is more alarming, is who drops their PHI. If it is the elderly, PHI will falter in the delivery of reducing pressure on the public hospital system.    

Yet, a fact so far missed in the media to date, is that older cohorts are not leaving PHI – they are taking it up in increasing numbers. This means two things – those dropping out of PHI are mostly the young and the remaining pool of PHI members is ageing quickly. These membership trends ramp up the pressure on PHI premium increases and trigger even more young people to leave. 

Although the prevailing narrative is to blame doctor fees for undermining the ‘value proposition’ of PHI, especially in the eyes of younger Australians, a quick reflection suggests blaming doctors is a beat up and a diversion. Especially since young people in general are statistically least likely to require hospital treatment and PHI, and therefore be exposed to an out of pocket cost. 

Instead, young people are likely to be dropping PHI for a host of other economic reasons. For instance, the labour market has been deregulated for well over a decade and early career workers have weak wage bargaining power, broader wages growth is flat, the fragmented employment of the gig economy continues to rise as an important employment sector, and under-employment within the labour market prevails. Add to this, the fact that young people leave university with large debts, the rental housing market remains high in most cities and the affordability of buying a house remains out of reach for many young people.  More likely than not, young people are leaving PHI because they are genuinely squeezed by cost of living pressures. This is not something doctors can fix.

Conveniently ignored in this debate is why doctor gap fees emerge. It is not because specialists are avaricious. Instead, it is because government and health insurers have failed to fully index the MBS rebates and the rebate levels paid by insurers. Until around the year 2000, many clinicians could maintain a viable business model without charging significant Gaps. Gap fees were relatively modest[1]. It could be argued that this link was broken in the mid-1990s when the Government decided to switch the MBS indexation formula to match the Wages Cost Index. It was a cost saving to government, but the decision shifted the indexation cost onto clinicians and patients and we (patients and clinicians) have continued to bear this cost and reputational damage ever since.

It is timely to consider who loses if PHI does fall over. The financial health of PHI is not just a concern for private practice specialists who rely on privately insured patients to provide sustainable, high quality services. All clinicians will be negatively affected if PHI were to fail. A health sector totally reliant on an already over- capacity public hospital system will simply mean longer and longer wait times for hospital treatment. As noted in the 2019 AMA Public Hospital Report Card, there is already emerging evidence of public hospital bed block in emergency departments which delays patient transition to in-patient ward beds and puts patients at greater risk of complications. The Commonwealth Government also caps public hospital growth funding at 6.5 per cent per annum, limiting the extent to which public hospital wait lists can be reduced.    

It is hard to imagine how public hospitals, that struggling to manage existing demand under this funding formula, would accommodate the additional patients if PHI shut down and private patient treatment in private hospitals was not an alternative. This scenario should be of concern to all clinicians – including those in the primary healthcare sector who already struggle to get their patients admitted to public hospitals in a timely manner.

The sustainability of PHI is not an academic discussion or an issue for private practice specialists.  It is worthy of the serious attention of all who work in the healthcare sector and dedicate themselves to treating patients and improving the health of Australians.


[1] Australian Government Department of Health, Quarterly Medicare Statistics accessed 27 August 2019

Published: 09 Sep 2019