Profitable gap in private health hurting hospitals

CONSIDER this. I say, give me thousands of dollars every year and when you get into strife I'll guarantee you get the best of whatever you need. But when the crunch comes I refuse to meet those costs while pocketing record profits.

Sound sketchy? Welcome to private health insurance in 2024.

With the Australian Government releasing its Private Hospitals Health Check, it is clear systemic reform is necessary. It confirms private hospitals have been going backwards, with revenue outstripped by higher costs and runaway inflation.

Over the last few years around 20 private hospitals have shut their doors entirely, while more than 70 services have closed in other hospitals.

Aussie families are coughing up big bucks for their healthcare. A typical health insurance policy can set you back around $4,000 every year. At any time, let alone during a cost-of-living crisis, that makes the value proposition provided by insurers more important than ever.

To be upfront, I have had private hospital cover all of my adult life. I dropped extras cover a decade ago because a new pair of glasses every two years, an annual dentist check-up and the odd physio appointment was far cheaper out-of-pocket than the premiums charged.

But on hospital cover I have continued to pay rising annual premiums, often grudgingly, but the value proposition was always clear to me.

My choice of surgeon or specialist. My choice of world-leading private hospital facilities. And both in a timeframe of now. When you start a family, the desire for that peace of mind grows exponentially.

So it is bewildering that over the last few years health insurance companies have raked in billions in record profits, while forcing the very hospitals they rely on to the wall.

In 2021-22 health insurers racked up $1.1 billion in after tax profits. It doubled in 2022-23 to $2.2 billion. The latter was on the back of an average 3 percent premium hike.

In just the first quarter of 2024 the insurers pocketed $800 million in profit. Now it is suggested some insurers may be seeking a 5-6 percent premium rise in 2025.

Their eyeroll-inducing claim is that if they get more, they can pay more. The health insurance industry's rapacious profiteering over recent years belies that logic. The benefits they paid to hospitals fell and runaway inflation has seen the gap widen.

For instance, in 2015 the average payment hospitals received from health insurers for a hip replacement was $22,166. Despite almost a decade of growing costs and inflation, in 2023 the average payment was $20,548. Private hospitals are losing money on the procedures, treatments and services they provide.

That insurers are squeezing hospital payments out of concern for members' premiums, while seeking even higher premiums, is Orwellian in its application of doublethink.

Private hospitals providing state-of-the-art technology, world-leading procedures and essential treatments across metropolitan, suburban and regional Australia at a financial loss, is clearly unsustainable.

Private hospitals perform 68 percent of surgery in Australia, including the majority of serious operations like hip and knee replacements, malignant breast cancer procedures, hysterectomies, eye surgeries and most of the treatments, like chemotherapy, people rely on every day.

When something is crook with private hospitals providing the full gamut of surgical, medical, obstetric, psychiatric and rehabilitation care, the risk is the public hospital system goes critical. Waiting lists get longer and deeper. Everyone is worse off.

That private hospitals have closed and others are barely hanging on while insurance companies rake in record profits, is evidence the system is out-of-whack.

Without a mechanism that ties premium increases to payments for care in private hospitals, any premium increase next year is just lining insurance company coffers. If there is nothing compelling insurers to meet the true costs of care, the experience is they simply won't do it.

Structural reform of the relationship between funders and providers of private healthcare is needed, but it won't come quick. In the meantime, if health insurance companies can't be forced to meet the costs of their members in hospitals, then the government will have to fill the void with temporary co-payments to keep private hospital doors open and the healthcare system afloat.

If not, for the first time in decades private hospitals will have no choice but to charge patients gap fees to meet the shortfall left by derelict health insurers.

Without vibrant and robust private hospitals there would be no point having private health insurance.

Brett Heffernan is Chief Executive of the Australian Private Hospitals Association. Published in the Herald-Sun and Courtier Mail on 7 November 2024.

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8/11/2024 Private health insurance needs surgery