Private Health Insurance: more carrots

• Abstract
• Characteristics of this policy
• Purpose and process analysis
• Expected outcome
• References

Abstract

The Australian Federal Government has a longstanding commitment to increase the number of people with private health insurance (PHI). It has done so by introducing a raft of incentives for individuals to join PHI. The most important of these reforms were implemented in 1999 and 2000 and were reported in Survey Round 1. This survey reports on some recent policy changes to the incentives and examines some of the evidence of the impact from the earlier reforms.

Neue Entwicklungen

current    previous

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Initiators of idea/main actors

• Regierung

• Kostenträger

• Politische Parteien

Stakeholder positions

This survey reports on two changes to the incentives for taking up and retaining PHI; one that was implemented in April 2005 and one that is proposed to be introduced in April 2007. Before providing more details on these policy changes, a synopsis of the previous round of reforms is provided.

PHI rebates - shifting the bill to the public purse

As part of the 1999/2000 reforms, the government introduced a rebate that effectively reduced the cost of PHI premium by 30%.  All Australians are eligible for the rebate, the effect of which was to transfer 30% of the costs of PHI onto the public purse. The change to this policy that came into effect on the 1 April 2005, has meant that older Australians can now claim higher rebates. People aged 65 years to 69 years are eligible for a 35% rebate and for those people over 70 years of age the rebate available is 40%.  This policy provides a financial incentive for those aged over 65 to take out or retain PHI.

Lifetime Health Cover: Go private young

Another major reform in the 1999/2000 period was the introduction of the so-called Lifetime Health Cover (LHC) policy. From July 2000 onwards, this policy has imposed a penalty for people who take up PHI after the age 30.  For each year over 30, a 2 per cent loading (cumulative) is added to the cost of the private health insurance premium up to a maximum of 70 per cent. For example, a person who delays joining until the age of 40 has to pay 20 per cent more for their PHI than someone who joined at the age of 30.  This policy is widely viewed as the driving force behind the large increase in private health insurance membership just prior to July 2000.

The Government is proposing to change LHC by removing a person's penalty loading once that person has been insured for 10 consecutive years.  This policy aims to counter some of the disincentives for those aged over 30 and who did not take out PHI prior to July 2000.

The higher rebates for older Australians were part of the Government's election commitments and stated that the most recent set of reforms are designed to 'reward' older Australians who have taken out private health insurance.  This implied that the aim was not necessarily to increase PHI membership amongst the demographic.

There has been some, albeit limited, debate on the higher rebate change.  There was some concern, voiced by opposition political parties, that under Australia's community rating a rise in private health insurance membership amongst the elderly would raise the cost of premiums overall.  PHI companies have not been opposed to the change even though the aforementioned issue could be of some concern to them as a collective industry.  However, individual companies will not be affected because of Australia's reinsurance system where PHI companies are protected from high claims by the elderly.

The Government claims that the changes to LHC will create an incentive to retain or take up PHI for those Australians who have been penalised for not taking out PHI before the age of 30. 

Actors and positions

Regierung
Prime Minister	sehr unterstützend		stark dagegen
Minister for Health	sehr unterstützend		stark dagegen
Kostenträger
Australian Health Insurance Association	sehr unterstützend		stark dagegen
Politische Parteien
Opposition party	sehr unterstützend		stark dagegen
current    previous

Influences in policy making and legislation

These changes to the PHI incentives were passed by the federal parliament without any major amendments.  It should be noted that as of June 2005, the current Federal Government has, for the first time in its ten year period in office, a majority in both houses of parliament.  This significantly diminishes the power and role of the opposition parties in the parliament.

Legislative outcome

Enactment

Actors and influence

Regierung
Prime Minister	sehr groß		kein
Minister for Health	sehr groß		kein
Kostenträger
Australian Health Insurance Association	sehr groß		kein
Politische Parteien
Opposition party	sehr groß		kein
current    previous

Positions and Influences at a glance

Adoption and implementation

Responsibility for implementation lies with the Department of Health and Ageing, although the actual administration of the LHC changes will rest with the PHI companies.  PHI companies are responsible for administering and collecting the LHC loading from those clients who joined after age 30.

As would be expected, the changes to the higher rebate has administratively been smooth because the mechanisms for the rebate have been in place for quite some time.  It was a simple policy change that is strictly determined by the age of the policy holder.

Changes to LHC are yet to be implemented, but thus far this has been a very low profile reform and is unlikely to cause any problems.

 

Monitoring and evaluation

The Government announced that a review of the higher rebates would be undertaken.  This review would examine:

1. How the higher rebates have been implemented by funds including the mechanisms used to identify and notify eligible members;
2. The legislative framework that supports the higher rebates;
3. The number of people and policies affected by the higher rebates; and
4. Whether the delivery of the higher rebates can be improved to ensure that they are provided only to people eligible to receive them.

As at October 2006, the review is being considered by the Minister and a report should be released in the near future.

Expected outcome

Higher rebate for the elderly - concerns about attracting bad risks (the elderly) and deterring good risks (the young) thus increasing premiums futher?

There have been clear indications from the Government that the intended purpose of this policy was to reward older Australians for having taken out PHI - not encourage new members amongst this age group.  The concern amongst some commentators was that this policy would encourage the elderly to join and because this group are higher users of the health care system, the policy may increase pressure for higher premiums.  Given Australia's community rating (equal PHI premiums regardless of age) policy, higher premiums may lead younger cohorts to reassess the value of taking out PHI and therefore lead to a constant cycle of an ageing PHI population.

Figure "PHI membership by age" (see above) shows the age distribution of the PHI for four different periods.  It shows how the different policies have coincided with changes to the overall PHI coverage and for different age groups.  The 1997 graph demonstrates that PHI coverage was between 25% and 30% amongst the youngest cohorts and drops sharply for people who were in their early twenties.  The graphs show an upward trend for subsequent age groups up to age 60 and then drop again.  

The 2000 line in the graph shows the age distribution when PHI coverage reached its peak following the introduction of PHI incentives.  The graph indicates a large increase of PHI coverage amongst almost all age groups but most significantly for the 30 to 40 age groups.  The only age group where there was little change was for those aged 75 and over.

Since 2000, the graph illustrates a gradual decline in membership amongst those aged 60 and below and an increase for those aged 60 and above.  This means that in the period between 2000 and 2005 the PHI population has been ageing relative to the rest of the population.  In fact, prior to the 1999/2000 reforms, the average age of the PHI population was 38.6.  When PHI reached its peak in September 2000, the average age dropped to 36.8 but has been rising ever since.  Just prior to the most recent reforms the average age was back to 38.6 and in the fifteen months since the reform it has climbed yet further to 39.

The latest figures do show that the most recent set of reforms has coincided with a greater proportion of those aged 60 to 79 taking out PHI but lower proportions of the population with PHI amongst the 80+ year olds. 

There appears to be an underlying trend of an aging privately insured population which has been reinforced by the latest changes to the PHI incentive scheme. This should be a major concern for those who believe in the importance and vitality of the PHI industry.  The trend that is now emerging has shown that the 1999/2000 reforms were able to produce a one off lowering of the average age but have not arrested the gradual trend of younger people dropping out of PHI and older people retaining or taking out PHI.

Lifetime Health Cover: join later - save premiums

The changes to LHC have not been implemented and therefore the impact cannot be established yet.  The Government objective for this policy is to create incentives for those people who have taken out PHI after age 30 and are paying a LHC loading.  If these people remain in PHI for 10 consecutive years, their loading will be removed and PHI will become cheaper.  However, this change may also have the unintended effect of making LHC a less potent 'stick' to encourage younger cohorts to join PHI.  Under the current system, for every year a person over age 30 does not join PHI they do not have to pay a full year premium - but instead they have to pay 2% loading if they join in the following year for the rest of their insured lives. With this change they only have to pay the 2% loading for ten years.  This effectively means that by not joining you can save 100% of the premium now for a 20% penalty spread over ten years. 

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch
current    previous

The current policy debate in Australia has relied on simple relationships between health insurance coverage, and public and private hospital use. That is, it is often said that a rise in PHI coverage leads to a rise in private hospital use and must therefore be easing the burden on the public hospital system. However, there is unexplained variation amongst the privately insured population. Most use their private insurance when being treated in hospital but a considerable number of them do not and continue to use the public hospital system even though they are privately insured. A recent paper by Fiebig, Savage and Viney has attempted to explain this variation by grouping the insured population, using their stated reasons for purchasing private health insurance. They found that the reason for purchasing insurance is significantly associated with hospital utilisation, particularly the probability of being admitted as a public or private patient.  This implies that some of the Government's incentives may increase PHI membership but depending on the reason why individuals joined they may not use that insurance when they go to hospital.   

References

Sources of Information

For information on the Government reforms to the PHI incentive see: www.health.gov.au/phi

For data on PHI membership see: www.phiac.gov.au

For a copy of the CHERE Working Paper by Fiebig, Savage and Viney see: www.chere.uts.edu.au/pdf/wp2006_2.pdf

Reform formerly reported in

PHI Incentive Scheme Process Stages: Umsetzung, Evaluation

Author/s and/or contributors to this survey

Kees van Gool

Empfohlene Zitierweise für diesen Online-Artikel:

Kees van Gool. "Private Health Insurance: more carrots". Health Policy Monitor, October 2006. Available at http://www.hpm.org/survey/au/a8/3