HEALTHCARE REFORM: PRIVATE HEALTH INSURANCE

Dr Rachel DavidChief Executive OfficerJuly 2016.

ABOUT PHA AND PHI .

PRIVATE HEALTHCARE AUSTRALIA

3

19 96%Private Healthcare Australia is

the Australian private health

insurance industry’s peak

representative body

Major health insurance funds of the industry on membership

PRIVATE HEALTH INSURANCE IN AUSTRALIAPublic health, public benefit

4

33 13.4 $18.35competing health insurance

funds

Australians (55.8%) rely on

PHI for treatment when they

need it

BILLION

in annual benefits paid to

members

THE HEALTH FUNDS

Provide:

INSURANCE REIMBURSEMENT SERVICES

THE ISSUES .

PRIVATE HEALTH INSURANCE IS UNDER UNSUSTAINABLE COST PRESSURE

10

Hospital costs

7.6%Medical specialist gap cover

7.1%

Medical devices

8.9%Allied health reimbursement

6.3%

11

8.00%

5.90%

4.30%

8.00%

4.70%

5.80%5.59%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Public Hospitals Private Hospitals Medical Prostheses General Treatment All PHI 2016 Weighted

Average Premium

Increase

BENEFITS VS PREMIUMS (2015)

THE EXTERNAL ISSUES

12

Increasing utilisation by fund

members relating to ageing and

chronic disease

Erosion of PHI rebate due to

means testing & indexation

Technology

HEALTH COSTS VS PREMIUM COSTS

6.5%

Public hospital

agreed funding

increase

5.6%

Average

Increase in cost

of health fund

premiums

8%

Increase in

cost of health

services

WHERE IS THE MONEY COMING FROM?

Health funds are becoming leaner

PHI management expenses are down to 8.5% comparing well with general insurance and other industries

This is 25% less than in 2008, and has reduced from over 13% in the year 2000.

VALUE FOR MONEY? .

83

87 87

8485

84

78

82

8081 81

82

70

80

90

2005 2007 2009 2011 2013 2015

Hospital Extras

Hospita

l

Extras

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Top 10 high claims paid by PHI Private Healthcare Australia - Annual High Claims Survey, Calendar Year 2014

Rank Total Benefits Paid Description

1 $565,346 Prematurity of infant

2 $523,127 Biliary pancreatitis

3 $399,400 Benign tumour of pituitary gland

4 $380,653 Bipolar disorder

5 $374,521 Gallstone of bile duct

6 $372,529 Mitral stenosis

7 $369,172 Biliary pancreatitis

8 $368,484 Cancer of gallbladder

9 $362,036 Intestinal ulcer

10 $338,925 Prematurity of infant

VALUE FOR MONEY?

Selected Episodes: Proportion Performed in Private Hospitals (AIHW)

PRIVATE SECTOR CONTRIBUTION

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82% 80% 72% 70%Mental health

treatment, without

ECT, same day

Knee procedures Complex middle

ear infection

Lens procedures

65% 64% 57% 55%Cancer therapy(Chemotherapy)

Other major joint

replacement & limb

reattachment

Hip replacements Major procedures

for malignant breast

conditions

PUBLIC HOSPITAL WAITING TIMES

Perception versus reality

FACT:

Average public elective waiting

times have more than doubled

since turn of century

OVERNIGHT PATIENTS

of all overnight patients are staying in

private hospitals

Implication: If PHI levels fell to around pre-2000 levels,

Australia would need at least 8% extra public hospital

beds…plus more for population growth.

42%

TIMELINE: PHI REGULATION IN AUSTRALIA .

REGULATION 1996 – 2001‘Three pillars’ stabilised PHI membership: taking the pressure off public hospitals

Lifetime Health Cover Medicare Levy Surchage 30% rebate on premiums

UNDERPINS 75% OF DEMAND

Successful in putting a floor under the premium increase ‘death spiral’

IN ADDITION…...TO MANAGING OUT-OF-POCKET RISK

Informed financial consent /

known gap

Second tier default benefits Prostheses list to determine

medical device benefits

UNINTENDED CONSEQUENCES

Regulation stabilises membership growth but further restricts ability for health funds to manage input costs

THE REGULATORY ISSUES

PROSTHESES PRICING

COST-SHIFTING

THE ARTIFICIAL FLOOR

THE WASTE

REINSURANCE ARRANGEMENTS

PHI REVIEW .

PHI REVIEW GOVERNMENT OBJECTIVES

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Address market failures Increase transparency Reduce need for regulation

PHI REVIEW – HEALTH FUND OBJECTIVES

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Sustainability

of the whole health

system

Affordability

managing input costs

and creating

efficiencies to keep

premiums low

Transparency

help consumers

navigate a complex

system

PHI REFORM .

HEALTH FUNDS ARE WILLING TO DO THEIR PART

• Ensure all savings from PHI

reform are passed on to

members

• New models of care for

chronic disease and allied

health

• Transparency on out-of-

pockets and quality

• Make it easier for

Australians to use their PHI

• Common clinical terminology

and navigation

• Rapid implementation of

Gold/Silver/Bronze

PROSTHESES PRICING .

Reforming Prostheses List pricing is an immediate step

the Government could take to ease premium price

pressures on consumers.

Health funds have committed to pass on, through lower

premiums, every dollar that is saved through prostheses

pricing reform.

THE GOVERNMENT NEEDS TO DO ITS PARTStop the gouging of private health patients and veterans for medical devices

Australian health funds are forced by government regulation to pay the highest prices in the world for

medical devices, at up to 5 times the price charged for the same device in the same hospitals to public

patients.

This is pushing up premiums – a record $2bn has been spent on medical devices in the last year

The first step is a new Prostheses List Advisory Committee to drive price disclosure and reference pricing

This will bring medical device benefits in line with real market prices locally and globally to save between

$150 and $300 per policy.

A further $120m will be saved from DVA patients that could be better utilised to support veterans’ health

PROSTHESES PRICING

Device PL Price Comparison PriceDifference

Zimmer Trilogy cup uncemented $2,900 $1,939 Almost 50%

Xience Everolimus Eluting Stent System $3,450 $655 426.3%

Evia HF-T cardiac pacemaker $13,520 $6,862 Almost 50%

UNSUSTAINABLE GROWTH IN PROSTHESES COSTS

35

8-12% 14%$800million

annual growth of prostheses

benefits

of all hospital benefits paid by

health funds are prostheses

could be saved with a new

pricing model

BUSTING THE MYTHS

The Medicare system and the

private health system are mutually

exclusive and compete with each

other for resources

1.

BUSTING THE MYTHS

There is over $10 billion in Federal

Government subsidies going to

support Private Health Insurance;

2.

BUSTING THE MYTHS

There is $5.1 billion of extra money

tied up in health funds as ‘excess

capital’ which could be passed

back to members

3.

BUSTING THE MYTHS

There is something wrong with

health insurance because people

don’t get back all the money they

pay in premiums

4.

BUSTING THE MYTHS

Consumers don’t value private

health insurance because it is ‘all

too confusing’

5.

FUTURE OPPORTUNITIES

Re-align incentives to encourage health funds to invest in chronic disease management and out-of-hospital

preventive treatment

‘Prospective risk equalisation’ replaces retrospective system based on claims made

Top 2.5% of ‘frequent flyers’ responsible for 35% of all PHI benefits

More than half of Australians have a chronic condition, 45% of people over 45 have more than two (AIHW)

A majority of people suffering CD are not enrolled in a CDMP

41

TOP 12 CHRONIC CONDITIONS BY COSTPrivate health insurance benefits paid (hospital only) 2013-14

1 Osteoarthritis

2 Coronary Heart Disease

3 Depression

4 Oral disease

5 Colorectal Cancer

6 Chronic Kidney Disease (excl. regular dialysis)

7 Cerebrovascular Disease

8 Diabetes

9 Coronary Obstructive Pulmonary Disease

10 Lung Cancer

11 Asthma

12 Osteoporosis