[00:00:00] Hi, I'm Chrissy Mack from Radio Northern Beaches and you've just tuned in to the Listen and Chat with Chrissy Mack podcast. This is the space where we pull no punches, sometimes a little controversial, sometimes downright outrageous and sometimes just packed full of information that is interesting to know. My colleague and fellow presenter Michael Lester is talking to Dr. Greg Jericho today about private health insurance.
[00:00:26] Welcome again listeners to Committee Radio Northern Beaches 88.7 and 90.3 FM streaming live on our website www.rnb.org.au. I'm Michael Lester and our program is Community Voices. Australia's system of private health insurance is a very heavily publicly subsidized scheme of insurance for health that's been running for at least 25 years now.
[00:00:51] But it seems to have staggered from one crisis to another and in recent times it's variously described as painfully bad, as not working, in some languages as a dud and as a con. People are not wanting to sign up for it, despite the fact that they're in many ways being forced and encouraged and incentivized to do so. The premiums rise forever. The coverage of what they can get under private health insurance is falling.
[00:01:20] The hospital system as a result is also struggling. It's a failing system, I think it'd be half to said, and still currently, even as we speak today, in a state of crisis, not least from the point of view of the private sector industry itself, which is complaining to government. I'm pleased to welcome to our program here on Radio Northern Beaches, Dr. Greg Jericho,
[00:01:41] who's the chief economist with the Australia Institute and has spent many years writing about private health insurance in Australia and its condition. Greg is also a journalist, particularly these days with The Guardian, a Walkley award-winning journalist. So thanks very much for joining us here on Radio Northern Beaches, Greg. Great to be here, Michael. Greg, we might just open with how you would characterize the condition or the symptoms of a failing system,
[00:02:10] which I take it you think it is at this point. Yeah, I mean, I was just having a look before I can remember I broke back in 2018, which is getting on a bit now. 2018, I wondered if private health insurance was a con. In 2024, I was calling it, it's a dud. And yeah, I think it is both of those things because it is something that people overwhelmingly would rather not have
[00:02:39] and are being forced essentially or in a sense bribe by the government with both a stick and a carrot to actually have private health insurance. And in my view, that's a pretty poor way to have a health system that is really trying to privatize something that people overwhelmingly prefer to be a public service and who view it as a public good.
[00:03:09] And so as a result, the people were given a choice. The people voted with their feet and left the private health insurance system. And so the government decided back in 1999, 2000 with John Howard introducing Lifetime Health Cover to basically try and give it some life support. And that's pretty much where we are now. It's just this system that doesn't really offer what it says on the box and people would rather not have it.
[00:03:38] And yet it is costing us massive billions of dollars each year. Yeah, well, it's said to be a private system, but of course, it's completely heavily subsidized. Yeah. I believe the statistics show that the number of people that have been buying private health insurance has fallen precipitately over the last 20, 25 years from the high 90s to a little over 50 percent. Are these numbers fairly reflective of people voting with their feet or not?
[00:04:05] Yeah, I mean, it was never that high in terms of it was sort of higher close to sort of the 90s before way back, basically, when there was no Medibank and under Whitlam and then no Medicare. And the problem was by 1999, because of Medicare, it had dropped down to about 30 percent of the population had private health insurance.
[00:04:29] Much of that was older people, which isn't great if you're an insurer because it means you're having to pay out private health insurance. The one thing insurers don't like doing is actually having to pay insurance. And so that was the problem. It wasn't a scheme that anyone who was young, healthy saw any need for. And so they didn't take it out.
[00:04:49] And so the government, with the introduction of the lifetime health cover, sort of were trying to get people in their 30s to take it out because they're still relatively young, relatively healthy. So it jumped up from about 25 to 30 percent of people in their 30s taking out private health insurance, quickly jumped up to around half. But that is now dropped.
[00:05:12] And so we're looking at people in their early 30s, maybe only about a third of them, a bit over around 35 percent have it a bit higher for people in their late 30s. But it really is clear that people have worked out that, OK, you're trying to force us to take it out, but it still isn't a good deal. Because the real problem is that what private health insurance is now is not what it used to be. It's not a system that actually insures you.
[00:05:42] It's almost become a system which offers you the very least amount at the highest price to ensure you don't have to get hit with any penalties in your tax system or will have to pay higher premiums once you really want to join it in full in your sort of 50s and 60s.
[00:06:06] Greg, I believe that the basic idea of the private health insurance as a complement, as you say, to the public Medicare system, if you like, was to cover the costs that weren't covered by Medicare. For example, particularly hospital cover, some general treatment, ambulance treatment and maybe latterly dental treatment. But the scope of what is now covered if you do pay up for insurance has narrowed greatly, I believe, over time so that we now have these things called exclusions.
[00:06:36] These are things you can't insure for. And whereas there were very limited exclusions of what you could or couldn't claim for 20 years ago, now the exclusions are very, very heavy and limit what you can apply for. Yeah, it used to be basically, and this was not just before the lifetime health cover, even sort of after it, most policies didn't have any exclusions.
[00:07:00] So, you know, if you had private health insurance and you had sort of, you know, a comprehensive one, you know, you weren't just in it for the extras, you know, maybe just covering dental and optometry, but actually had the full health insurance. You were covered for everything pretty much. You know, there wasn't a concern of, oh, I need a hip replacement. Oh, that's, that's covered or a knee replacement. That's covered or I'm covered, you know, whatever. It was all covered.
[00:07:26] But now probably two thirds of all private health insurance policies have exclusions in them. So it went from basically being about 99% having no exclusions to now being about 66% having exclusions, completely flipped. And that, again, is not an accident.
[00:07:51] The really big change happened with changes to the Private Health Insurance Act in 2018 that really opened the scope for what would remain, you know, if you took out health insurance and were still able to be covered under lifetime health cover.
[00:08:12] The sort of the types of policies that would enable you to be covered were changed and allowed a lot more exclusions to come in. And it was a noticeable jump. As soon as that law passed, suddenly exclusions became the name of the game. And because, as I say, the more exclusions there are, the less private health insurance companies have to pay and they hate paying insurance.
[00:08:41] So suddenly you would be going in for something and you find out, oh, no, sorry, you're not covered for that. Didn't you read the fine print? Or, you know, suddenly they're offering all these different policies and, you know, I've sort of, you know, you look at them and the number of things which you have to tick, oh, I can not have these or I not have that or I will have this.
[00:09:04] And often, you know, you'll sort of tick these when you're young and you just keep rolling over and then you're like, oh, do I, am I covered for this or not? You know, and it's kind of a little bit like with home insurance and you suddenly find out, oh, I'm not covered for floods because this was a special type of flood. It never used to be this. Back in the 90s, you just were covered. It was just a thing.
[00:09:30] And even in the 2000s, but, you know, the Liberal government in 2018 realised that this was not a great thing for private health insurance companies to have to essentially offer policies that covered most things, gave them the ability to change it. The quote was, increase the maximum voluntary excess levels for products providing individuals for an exemption from the Medicare levy surcharge.
[00:09:57] So suddenly you could offer these things and saying, oh, you can take out this and you won't have to get the Medicare levy surcharge. Don't worry. And it just shows that people were kind of, that's why they were taking out private health insurance for two reasons, to avoid the medical levy surcharge and to be covered by lifetime health cover. So they wouldn't have to pay at higher premiums. You know, that's become what the health insurance is about, trying to avoid things.
[00:10:23] While they've been cutting back on what they're covering with these insurance, the premiums that people have been paying have been going up very, very fast indeed. And in fact, by some accounts, and not least these days with cost of living crises, a lot of people are now threatening to pull even further out of the system. What's been the story with the premiums that the private insurance have been providing? They've been growing much, much faster. Have they been inflation and wages or not? Oh, yeah, much, much faster.
[00:10:51] Yeah, over the entire time since the lifetime health cover has been in place, there were really only two years in which private health insurance went up less than wages. And that was 23 and 24. And that was due to the outcome after the pandemic and the lockdowns where we saw wages basically do a bit of a catch up because there'd been a lot of clamping down on wages during the period when there were the lockdowns and people weren't working. So there was a bit of an abnormal catch up.
[00:11:18] But the relative cost of private health insurance now relative to what it was when Howard introduced the lifetime health cover is massively different now. It's so much more unaffordable. But worse than that, the other thing is it's not just the premiums that you're paying. It's these excesses and copayments. Because, again, this was another big change.
[00:11:40] Before the lifetime health cover came in, say, again, about two-thirds of health insurance policies had no excess or copayments. So you went in for whatever, hip replacement, get your tonsils done or whatever. Oh, I've got private health insurance. It's covered. Now, you know, close to 80% of private health insurance policies have excess and copayments. So, oh, yeah, I've got private health insurance, but I'm still paying out.
[00:12:09] So you've been paying, sorry, it's about 88% of private health insurance policies have excess and copayments. So not only have the premiums been going up, but once you actually need to make use of it for whatever, you know, you say hip replacement surgery because that's a common one. There's certainly no, my dad has had it. My wife has had a knee replacement surgery. And I wasn't like, oh, this is free.
[00:12:36] Suddenly we're finding out, oh, we're really paying a lot of money for the anesthetist. And we're paying a lot of money for the actual surgery. And then the hospital recover. Let's get her out of that hospital as soon as possible because it is costing us money. You think, hang on. Basically, what it turns out your private health insurance is paying for is to kind of get you access to earlier access to surgeries, but it's not cheaper.
[00:13:04] Well, yeah, it's you're getting a little bit reduced on the cost of that earlier access. But my goodness, it's not like, oh, I've covered by private health insurance. So all is good once it all happens. It's like, no, there's some bills coming your way. And that wasn't the thing. That did not used to be the thing. It was back in 95, it was closer to 70% or so around no excess co-payment.
[00:13:32] So you go on in for your knee reconstruction or whatever. Don't worry, you're covered. You've paid your health insurance. Now they've become very much like car insurance where, oh, you've got an excess. And it's almost become that case, as people know, with car insurance, that it's almost like, oh, I've had a little ding.
[00:13:52] Oh, look, it's not even worth my bother claiming it because I'm going to have to most of it will be I'll be paying the excess, you know, because I've got a $500 excess or whatever on a thing that will cost $600 to fix. You know, it's almost and if I claim, oh, that'll go and my fees will go up and things like that. So, yeah, Greg, I mean, so not not only is the coverage of stuff that you're paying for considerably narrowed, but you're paying much higher premiums.
[00:14:20] And you're also getting huge and growing out of pocket expenses, as you said, because of exclusions and fees here on Radio Northern Beaches Community Voices. I'm talking with Greg Jericho, chief economist at the Australia Institute about the state and condition of private health insurance in Australia. You know, this approach to a privatized but heavily publicly subsidized scheme was brought in about 25 years ago under coalition governments.
[00:14:46] In fact, I believe over the years that Tony Abbott, when he was prime minister, when he was looking at some of the issues around how it was or wasn't working, would describe it. Private health insurance as being in the DNA of the Liberal Party. What about the premium rebate? What's the idea of the premium rebate? How does it work? Private health insurance is, as you point out, a bit of a misnomer. It's publicly subsidized health insurance. A little bit like private education. It is not private.
[00:15:11] It's very much subsidized by, it's a whole system of sticks and carrots for people. And, you know, if you earn a certain amount in your either family or a single, you, and if you have private health insurance, you're able to get a rebate, which basis. And if you don't, if you don't have private health insurance, you don't get the rebate. And essentially you're penalized by having to pay the Medicare surcharge.
[00:15:38] And it's, they basically set it up as saying, oh, the private health insurance rebate is a contribution to help you pay with the cost of your health insurance. But it's really sort of limited to making sure that you do take out private health insurance. A government policy having to lift up private insurance, private sector companies in a way that keeps saying, oh, well, this takes pressure off the public health system.
[00:16:07] But it doesn't really, especially when you think about public health and the real sort of cost there of if you have an actual real problem with your health that it's emergency. It always goes through the public health system. And people know that the public health system is there and they will use it.
[00:16:28] And so all that the private health insurance system is helping, the private health system in general is helping, is for some very sort of more optional sort of surgeries. Some of which you could wait for, but others you can't. And so you'll pay more to try and, in a sense, jump the queue.
[00:16:49] The problem with Tony Abbott saying it's in their DNA is it's kind of like looking at the American system and they saying, oh, private health insurance is great because it gives you so much choice and it gives you more freedoms with your health. And it's like all it does is add to the cost. It does add to the cost, doesn't it, Greg? Because this rebate on your tax, if you like, and the surcharge, which is so there's a carrot of the rebate and the stick, if you like, of the extra payment you'll have to make is very costly to the taxpayer.
[00:17:18] So it's not as if the load's being taken off at no cost off the public system. What sort of figures are we looking at here for the cost of this subsidy to so-called private health insurance and care? Suffice to say, of course, it's heading for many billions and up to the 10 billion or so, isn't it? If we're looking at the budget, the next financial year, we're looking at the government is spending 47 billion on medical services and benefits.
[00:17:42] And the budget notes that primarily that consists of private health insurance expenses, which account for a third of total estimated health expenses. 15 billion and expected to grow. It's just an astonishing. Private health insurance itself expected to keep growing and a massive impost on the budget.
[00:18:10] And it's a sense of would anyone think if the government was putting more subsidies, more into private health insurance, that that would lead to better health outcomes? And clearly not. And if we look across the advanced economies, that's clearly not the case. Better health outcomes generally come from better government funding.
[00:18:34] And the sense that Australia is we have this belief that we are we're a public health system, that we have lots of of public health. But actually, we're one of the highest in the OECD of the advanced countries for spending on voluntary, quote unquote, private health insurance.
[00:18:59] Greg, all this money that's going into the subsidies, it is a regulated environment in the private sector. There's regulatory arrangements in particular that are supposed to control the level of fees or premiums in this case that are being charged. How does this regulatory system work? Because every year, the private health insurance companies seem to roll up and demand bigger and bigger increases. And they're doing that at the moment, aren't they?
[00:19:25] Where they're saying that they're expecting, because of the cost of living and everything, that 200,000 people, they're saying there's a crisis, are going to pull out because the government isn't giving them the right sort of increases in rates. Is that right? Yeah. Every year, the government announces what can be basically the increase to private health insurance premiums.
[00:19:48] A little bit like, shall we say, with the minimum wage, where each year, private sector organisations and unions lobby the Fair Work Commission for how much the minimum wage go up. But we see a bit of the same happening with private health insurers and community groups lobbying governments for how much health insurance premiums can go up.
[00:20:10] And every year, the private health insurers and the private health companies, and unfortunately, there is a bit of a crossover between the insurers and also the owners of hospitals and who's running them, is that they keep saying that, oh, we need a big, big increase in private health insurance premiums. Otherwise, we're not going to be able to cope with it. Last year was 3.7% increase.
[00:20:38] This year, private health insurers are arguing for more. It really is always above inflation, always above wages. They are saying, oh, it's linked to health costs and we shouldn't worry about inflation or wages because it's about covering the cost of healthcare. Well, that's fine as far as it goes, but we're the ones who are earning the wages.
[00:21:06] We're the ones also paying the insurance premiums. So really what it's talking about is private health insurers wanting to protect their profits. Let's talk about the profits, Greg, because it's a big industry, private health insurance, with over 20 players and some very big names in the game.
[00:21:25] And I believe on some figures I've seen in the last couple of years, the sort of pre-tax profits that these private health insurers are making are, A, very healthy in terms of returns on equity and seem to be in the billions of dollars. I think it could be a total of around $3 billion a year pre-tax profit. They're very poor, aren't they? Yeah. And really what we're talking about is the big three. We're talking about Medibank, NIB and Bupa. They are the big three.
[00:21:51] My colleague, Dave Richardson, did some research last year and looked at their return on equity. Medibank was getting a 44.7% return on equity. NIB, 40%. Bupa, 34%. Not many industries with those returns, are there? No, the other 25 health insurers were getting like 11% return. HCF, which is a not-for-profit, was getting just 5.5% return.
[00:22:19] HBF, which is also not-for-profit, was actually getting a negative return on equity, which is how it kind of should be. The big three in 23, 24, NRB, Bupa and Medibank combined had just over $1.6 billion in pre-tax profits. All the others combined was $545 million in profits.
[00:22:43] So, you know, we're talking huge, huge return on their equity, huge profits, mostly going to the big three because, unfortunately, private health insurance, like much of the rest of Australia's economy, is dominated by two or three big players. It's just, you know, basically Medibank, private and Bupa are kind of the coals and woolies. And NIB, yeah.
[00:23:12] It's kind of coming up on the outside as a smaller one, but, you know, it's basically like coals and woolies or like Commonwealth Bank, Westpac, NAB and ANZ. You know, we don't exactly have competition. We have three firms dominating. And as a result, whenever you have a small number of companies dominating a market, they maximize their profits in a very strong way. And it's extremely clear. And, again, how do these companies make profits?
[00:23:40] Through higher premiums, through offering less for your premiums and through saying, yeah, you also got, in a sense, fees, which are those co-payments and excesses when you claim. Let's not forget the huge amount of public subsidy and cost that's going in through the system. Greg, can we turn to the hospitals themselves? You've sort of alluded to their role in this whole private health insurance. And we've seen a model of public-private partnership there, too, in hospitals as part of this whole system.
[00:24:09] And they're involved in this private health insurance game. And yet they, too, now have been struggling. And we've seen here on the northern beaches, we've seen all the fiasco and problem with the public-private partnership and the northern beaches. And companies, private hospital companies, saying that they can't survive because their relationship is troublesome with the private health insurers. What's going on between private health insurance system and private hospitals?
[00:24:35] Oh, look, it's not something I've looked at a lot very closely. But certainly what we have been seeing is some of the big private health insurers are looking to try and take over private hospitals, which, if it was to come into account, would bring into some terrible sort of vertical integration.
[00:24:54] Because, yeah, what you're happening at the moment is private hospitals, because they're basically being charged by, you know, private insurers for some of these, the surgeries and things that are occurring. And they're having to raise their costs to try and cover the costs that are being placed on them. And it's a case of who's really making money out of the private health insurance system. Private health system is the insurers, not so much the actual hospitals.
[00:25:23] And so you're seeing private hospitals really struggle and insurers saying, great, we can come in and take over and basically get you both ways. We've seen huge growth in specialist fees. And we've mentioned the huge gap now that's occurring between specialist fees and anesthetist surgeons and whatever under this system of private health insurance. They're not regulated either, are they? Or are they the specialists? And they can charge whatever they like. Yeah.
[00:25:52] I mean, there's no, you know, they don't have to apply to a government for charging fees. And people have, you know, you think about it. If you let's and I've been saying hip replacement surgery. Fine. Fine. You're getting a hip replacement surgery. Do you know the price of what that costs? No one has any clue. And you're not going to go, oh, actually, I think I'll shop around and see what the cost is from another specialist that you're going to. No, if you go to a specialist and you trust them, you kind of, they've got you over a barrel.
[00:26:21] I mean, look, the reality is a lot of this doesn't need to be done this way. I have a very close friend who's one of the preeminent heart surgeons in Australia. And he does a lot of electronics of the heart where, you know, not just pacemakers, but he kind of shocks the heart to when your heart's sort of arrhythmic.
[00:26:38] And he tells a lot of his patients, one, they don't need it, that they will need the surgery, but it's not urgent to go through the public health system because he also operates at, you know, Royal Adelaide as well as having his own private health practice. But he's like, why are you using the private health system? You don't need it. But so many like, oh, no, I want it for peace of mind. He's like, okay, I'll go through that. We'll go through the private system, but it's got to cost you more.
[00:27:07] And not everyone is, shall we say, as ethical as he is. And they'll go, oh, no, we're doing it through the private health system. It's the lack of, as everything, when there is a complete lack of knowledge on one part of a transaction, whether it's buying a car, whether it's buying a house or whether it's buying health.
[00:27:31] If you don't really know what the cost is of something, then the person selling it to you can charge, you know, they've got the advantage. And the problem is we've got a system where the government has decided to come in and essentially give the benefit to the people who have the information. They're not helping out us poor people who are actually paying.
[00:27:59] Give them more of the benefit, more of it to the private health insurers. I could ask you about future directions in reform. And we're seeing some signs because I believe that the current government has announced, has it, they're going to scrap the tax rebate for the elderly that we've been discussing. And also the new approach to private hospital and hospital funding at the national level. This all seems to be creating a lot of angst and a sense of crisis in the private health insurance industry. I guess we've got a long way to go to try to fix up this failing system, have we?
[00:28:29] Yeah, I think we do. And the problem is any attempts to actually reform the system, make it better, always gets all these fear campaigns. It's one of the reasons, for example, why there's no dental in Medicare, because if we put dental in Medicare, the private health insurers would scream blue murder because that's their big money pit. So, you know, but it just shows people would love to have a dental in Medicare. Yeah. Why don't we? Because, well, there's a private system that is very strong lobbying against it.
[00:28:59] Well, look, thank you very much, Dr. Greg Jericho, Chief Economist, Australia Institute, for joining us on Community Voices Radio Northern Beaches to talk about. And I think we can conclude it's a failing private health insurance system and has been showing signs of that over the 25 years since it was brought in. Thanks for joining us here on Radio Northern Beaches, Greg. No problems, Michael. Yep. We're getting worse care and paying more for it. Not really a good system. Not really. Thank you. Don't forget to follow, like and share.
[00:29:29] Stay safe and I'll catch you next time.