NIB chief, Mark Fitzgibbon, has reportedly written to Health Minister, Peter Dutton, calling for an end to “risk equalisation” – a policy that forces health funds to subsidise the costs of other insurers’ most expensive members, claiming that the current system disadvantages young people. From The AFR:
Mr Fitzgibbon wants a “sensible discussion” on risk equalisation, which partially compensates health funds for the hospital costs of high risk patients… Equalisation shares a proportion of costs for members aged 55 years and older on a sliding scale with the industry. Funds pay a share based on the size of their membership…
NIB would be significantly more profitable without risk equalisation… The reason NIB has a high liability, and doesn’t receive money back, is a result of its younger membership. NIB customers are aged an average 37 years, compared to 40.5 years across the industry, Mr Fitzgibbon said…
He said it was a significant driver of premium increases and removed the incentive to sign up younger people…
The industry regulator is set to begin consultation investigating if risk equalisation impairs pricing competition and protects consumers. Mr Langley said although risk equalisation had a touch of “Robin Hood” about it, change was unlikely.
Let’s not kid ourselves, private health insurance is explicitly designed to “punish” the young.
The inherent issue with all universal private healthcare systems (including Australia’s) is that they can only remain solvent if enough young and healthy people (the so-called “invincibles”) agree to sign-up. They are the ones who are likely to pay more into the system than they take out. And in the absence of risk-based pricing (absent from Australia’s private system), the only incentive for the invincibles to sign up is to avoid penalty (the medicare and the lifetime health cover surcharges in Australia’s case).
Removing equalisation would likely encourage private health insurers to target younger members via an escalation of cheaper “basic hospital” packages – i.e. plans that are principally designed to avoid the Medicare and Lifetime Health Cover surcharges, but offer next to no protection if/when one falls sick and needs to go to hospital. Indeed, NIB is already a big provider of “basic packages”, which is probably a key reason why the average age of its customers is only 37, instead of 40.5 years for the industry as a whole.
However, in removing equalisation, many funds offering policies targeted towards older demographics would likely find themselves disadvantaged, requiring them to either increase their premiums or to close-down. While younger, healthier demographics may not care about such an outcome, it could have adverse consequences for the system as a whole, and could place extra pressure on the public health system.
NIB’s call to remove equalisation looks like a classic case of vested interest, and the Health Minister would be well advised to undertake a detailed assessment of potential impacts before announcing any changes.
