Behind the private health insurance ‘death spiral’

Spiral

The Grattan Institute report ‘The history and purposes of private insurance’ [1] by Stephen Duckett and Kristina Nemet made headlines in Australia last month, particularly the somewhat lurid language describing private health insurance being in a ‘death spiral’. However, the full paper contains a thoughtful analysis of the tensions between the private hospital system and the public hospital system, the underlying funding arrangements and a discussion of the ambiguity of the role of private health insurance in a national health system that intends to provide universal access to all.

Duckett and Nemet discuss that the role of private health insurance can be complementary to the public system, in the sense that people who can afford private health insurance are able to have access to services that might not otherwise be guaranteed in the public sector. These include some allied health services, ‘choice’ of treating doctor and additional facilities such as a private room in a private hospital. Patients are using their insurance for additional or complementary services or facilities.

The recent public discussion around the role of the Prostheses List can be seen in this light. The Prostheses List is a list of implantable medical devices for which Australian private health insurers must pay a benefit. An underlying principle of the Prostheses List is that it provides a doctor with the ability to choose the optimal device for that patient. Patients accessing the public hospital system, while certainly receiving an appropriate device, are not likely to have the same extensive range of medical devices available to their treating doctor.

Duckett and Nemet also explore the role of the private system as a substitute for public health care. It is in this area where there is contention. Does the private hospital system substitute services that would otherwise, all things being equal, be carried out in the public system? The private hospital system is in many cases designed to carry out ‘procedures’ and is perhaps less well equipped to manage emergencies and more complex medical cases. There are very few private emergency rooms for example. Is the clinical threshold lower for receiving care in the private hospital sector lower than that in the public sector? In this case, is the private hospital system substituting care or providing care that would be unlikely to be delivered in the public sector and therefore adding to the cost of the overall health expenditure?

The paper raises legitimate questions that policy makers will certainly struggle to address. The increasing cost of private health insurance and its’ value proposition is a frequent subject of public discussion. Both sides of politics have enacted a variety of policy levers, the Coalition, generally in support of private sector and Labor more in favour of the public sector. Neither side of politics advocates abandoning the dual public and private system, so it is likely that the tension between the two systems is likely to continue for some time.

[1] https://grattan.edu.au/report/the-history-of-private-health-insurance/

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