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Reducing wasteful healthcare spending

Reducing wasteful healthcare spending will keep private health more affordable

Urgent reforms are needed to protect Australia’s health system in a COVID-19 world

In recent years, our unique public/private healthcare system has been weakened.

Increasing pressure on the public sector, lower rates of private health insurance membership and increasing costs of health care across the public and private sector are all putting Australia’s health system at risk.

Bold reforms are needed to restore the balance between the public and private arms of healthcare in Australia.

Medicare + strong private health sector = Australia’s world class healthcare system

We have identified several important issues that need to be addressed by the Australian Government in the 2021/22 Budget, to help decrease costs and improve the affordability of healthcare for Australian families.

  1. Reforming prosthesis funding[Link to new prosthesis page]
  2. Reforming second tier default benefits
  3. Removing unwarranted and outdated regulation
  4. Increasing the Medicare Levy Surcharge
  5. Restoring the Private Health Insurance rebate to 30%

These reform measures will ensure the costs of private health insurance for Australian families would be stabilised and upward pressure on premiums would be largely eliminated.

Issue 1: Prosthesis List Reform

Medical device prices in Australia are the highest in the world, increasing health insurance premiums for 13 million Australians.

In Australia, the Government’s Prostheses List set the prices for more than 11,000 items including medical devices like screws and stents used on common surgical procedures like knee and hip replacements.

Prices on the Prostheses List are set by reference to other items on the list with no market mechanisms. Private health funds are required to pay for items on the Prostheses List regardless of quality, efficacy, efficiency or safety.

Private Healthcare Australia developed a blueprint for reforming prostheses funding in Australia, which redistributes these excessive profits from multinational medical device companies to Australian doctors, Australian hospitals and Australian families. Private health funds have committed to passing on any savings from these reforms to consumers as a reduction in health insurance premiums.

Issue 2: Second Tier Default Benefits

Second-tier default benefits require funds to pay non-contracted hospitals 85% of the market price, regardless of quality or need. Those hospitals are then free to set their prices at whatever level they choose, often resulting in high out of pocket costs. Contracted hospitals have no or, rarely any known out-of-pocket costs.

Restoring the second-tier default benefit to its original intent, to protect rural and regional hospitals, would save $200 million annually, while consumers can be protected from rising out-of-pockets charged by uncontracted hospitals.

The majority of facilities receiving second tier default benefits are day hospitals operating in urban areas already well-serviced with medical facilities.

Issue 3: Deregulation

There are thousands of pages of legislation regulating private health insurance, including limitations on products, minimum pricing, and a host of other rules and red tape.

Removing the price controls that require health funds to pay hospital rates for a range of procedures that could be performed out of hospital, would leave pricing management up to the market, removing distortions and promoting out of hospital care.

Private Healthcare Australia estimates that removing price controls would save approximately $240 million per annum.

In addition, a change in the definition of “rehabilitation patient” in the Private Health Insurance (Benefit Requirements) Rules 2011 to make it clear that a patient in hospital for rehabilitation must receive a minimum standard of care, in line with the Australasian Faculty of Rehabilitation Medicine Standards. If this change resulted in the average length of stay reducing to the same level of the public system, around $205 million would be saved from health insurance premiums.

Issue 4: Medicare Levy Surcharge

Despite the existing Medicare Levy Surcharge, almost 200,000 high income Australians are not covered by private health insurance.* The large number of people with high incomes who choose to rely wholly on Medicare places an unfair burden on all Australians, particularly the most vulnerable.

With waiting lists for elective surgery in the public system blowing out due to COVID-19, this burden is even greater.

An increase in the Medicare Levy Surcharge of 1% would result in increased private health insurance revenue of $435 million; a rebate cost increase of $41 million, and an increased Medicare Levy Surcharge penalty of $206 million. The nett revenue to government would be approximately $164 million per annum.

* Australian Taxation Office supplied figures for 2016-17.

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