Coalition desperately tries to avert private health insurance ‘death spiral’

By Leith van Onselen

Commentators often talk about the electricity “death spiral”, which arises when demand for power declines, due in part to customers taking up solar, leading to higher prices to cover fixed network costs. That is, the more people that take-up solar power, the faster decline in electricity demand, and the more fixed costs must be spread over a smaller volume of electricity, raising costs for everyone else.

A similar phenomenon seems to be in play with Australia’s private health insurance system, with actuary Jamie Reid recently claiming many Australians would soon find it cheaper to pay the Medicare Levy Surcharge than to have private health insurance.

The surcharge is meant to penalise high-income earners who do not have health insurance, but Reid noted that the combination of higher insurance premiums and a reduction in the impact of the health insurance rebate is making paying the surcharge an increasingly attractive alternative. As a result, more people may opt out of health insurance, placing more pressure on the public health system.

In an attempt to avert the ‘death spiral’, young Australians are now being targeted with premium discounts in a bid to arrest falling memberships and ensure the overall financial viability of the system. From The ABC:

The ABC can reveal the Federal Government plans a raft of transparency and affordability measures to help take the pressure off health insurance premiums, which have increased by an average 5.6 per cent a year since 2010.

Central to the strategy will be encouraging more young people to take up private health insurance, with discounts of up to 10 per cent for the under-30s…

To entice young people to take out health insurance, funds will offer discounts of 2 per cent a year for a maximum of five years for people aged between 19 and 29.

For example, a 19-year-old who takes out health insurance would be offered a 2 per cent discount on his or her premium, building to a 10 per cent discount by the time they are 24.

That discounted rate would remain until they are 40, after which it would be phased out.

Attracting more young people into private health insurance is critical to keeping the sector sustainable in an ageing population…

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, the only incentive for the invincibles to sign up is to avoid penalty (i.e. the medicare levy and the lifetime health cover surcharges).

The risk is that healthy invincibles may perceive that it is cheaper to simply pay the penalties than hold private health insurance, which could see an exodus from the system. Thus, the private health system would be left with a larger proportional of unhealthier, older, expensive users of the system, forcing premiums up and leading to a further exodus of the invicibles, and so on.

The above reforms could, therefore, help to arrest the death spiral.

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    • Choice need to review why hospital medical professionals are taking all the resources. Vastly overpaid and vastly cavalier in their consumption of other resources (over-prescribing of treatments etc)

      • Medical Professionals in Australia are very expensive because they train for many years and their insurance is expensive.

        However, their specialist bodies to their best to ensure that their is a limited supply of specialists (not GPs) in Australia. They limit the number of new specialists that are admitted each year to keep the shortage and the high rates.

        It is an old fashioned “closed shop”.

      • Freddo – you are smoking something there my friend. They charge what they charge because they can. There is no score card as to whether you get value for money and the referral process is totally at the whim off literally which way the wind blows on the day. Just like the public in Sydney and Melbourne who get spun a narrative about housing supply being limited and that’s why prices are high you have unfortunately bought their spin. There is zero competition and zero review, largely nothing to do with how long they studied and their indemnity insurance.

      • Even StevenMEMBER

        FreddoVs is correct. 6 years med school for best and brightest – medical services will never be cheap. But the specialists are where the real rort occurs. Salaries way above what a free market would see if they didn’t restrict number of specialists each year. Hopefully the AMA self destructs due to infighting between GPs and specialists.

  1. The above is still based on the notion that our under employed young people will have the income to pay PHI or income growth to pay it in the future. Something I’m not so sure about.

  2. Paying premiums for decades wouldn’t be such an issue if the goal posts weren’t being continually shifted by government, insurers, and providers. Who knows what your premiums will buy you in 5 years, let alone 20 or 30.

    • you are blaming the wrong players. See my comment below. Medical professionals sucking the system dry is the problem.

      • Even StevenMEMBER

        Yes, medical professionals, private hospitals. Also, ageing demographic, longer life expectancies, greater availability of medical treatments and higher expectations by the public. The private health insurers aren’t causing the blow out in premiums.

  3. It’s just another utility item that is becoming too expensive for many people now. Elec/gas/insurance/rent/home prices/tolls/etc. Add it all up and it’s becoming scary what you need to earn now. Privatising the utilities got us here.

    • looking at it the wrong way. If you want to see where a publicly run health system goes take 5 minutes and look at the NHS in the UK. Every single year, every single one requires at least GBP 5-10bn of emergency funding to keep it running. Government run is not the future. Change the incentives around, see below
      Oversight incentives at play
      (1) you spend your money – most oversight and where all health system relationships should be in the future, not there right now
      (2) someone else spends your money
      (3) you spend someone else’s money ( you are less caring because its not your cash)
      (4) someone else spends someone else’s money – least oversight on value achieved from money spent, this is where the health system is now and would be even worse if it was entirely government ran

      • The fallacies at play here are that a) the average punter can make educated decisions about what kind of healthcare they need, b) they have substantial control over when they’ll need it, c) they’ll always have the funds available for the care they need and d) not getting it is an option more often than not.

      • @drmsithy – you couldn’t be more misguided in that opinion. In rebuttal
        (a) why? We trust the average punter to get on top of financial planning for retirement so why not educate yourself as to what is needed. You fundamentally miss the point that “you” are the single biggest expert on what you need, the doctor only guesses at what is wrong where as you know what is wrong with you.
        (b) when…. rubbish, affordability is completely separated from the concept of time when there is a free safety net. This issue is about reducing the pressure on price which means the problem would be sorted if all hospital medical professions took a 50% pay cut and had to incur a price signal in their treatment prescribed. This is course of action would be completely free of “with respect to time”.
        (c) not getting care… no one is advocating NOT getting care is a reasonable outcome. Again the free safety net dissolves that argument to nothing.

        Give us your solution to affordability then, all knowing wise owl that you are. What are you advocating? Just keep throwing more cash at it, it will be fine?

      • “Every single year, every single one requires at least GBP 5-10bn of emergency funding to keep it running.”

        How can it be emergency funding if it’s a predictable annual necessity?

        Perhaps a more accurate statement is that the NHS is clearly underfunded, undermined by austerity obsessives who used the GFC as their golden ticket to slash, burn and steal essential public services on behalf of their money-grubbing, profiteering privatiser puppet-masters.

        30,000 excess deaths each year in the UK due to NHS underfunding;

        As a British taxpayer I was happy to contribute to the NHS. I believe most Britons feel the same way.

    • I get it Travis. I’m not sure that with all the competition we get a better service. I’m not in that space to give an informed opinion.
      I lived in the UK for a while and had company private health, and I needed that for dental ( wasn’t able to get an NHS dentist), and like here get ahead of the queue. But many people don’t have a good safety net and need assistance. I think we have a social responsibility.

      • I agree with your sentiment and I’m actually not really advocating for more privatisation. I want REAL control of where my health monies are spent in a way more free market place. I don’t want my insurer to dictate where I get treatment (not blaming them they are just responding to a farked system). I want to know how good that specialist really is before I reward him with my spend. We have to as patients have the ability to know what doctor is worth premium cash and one that doesn’t achieve as good outcomes and should not get paid the same as the very best doctors out there. And some professions don’t deserve to hold onto historical high premium remuneration just because of their proximity to highly paid (& well deserved) doctors e.g. the bulk of anesthetists.

  4. GunnamattaMEMBER

    Health insurance for any Australian under about 50 – particularly the young and relatively healthy – makes little sense unless the individual has ongoing medical issues (and even then they need to be serious), is looking to reduce tax, or has conspicuous disposable income.

    The ‘Mental health’ focus they seem to be looking to leverage to get younger people to join, would be vastly reduced simply by cheaper housing and better jobs.

    As one of the idiots who has paid for private health insurance for 18 years (and has it for family) i have wife and kids overseas for 4 months getting thoroughly treated there because every health medical experience here is an exercise in fleecing.

    Australian health insurance is a lynchpin of one of the all time great rorts.

    • “because every health medical experience here is an exercise in fleecing” – too right Gunna. Hospital medical professionals vastly over remunerated.

    • Mate had shoulder surgery last month. Out of pocket $3000 despite having private health insurance. People will be asking what they bother paying premiums for.

      • Ronin is right Mig. For non life threatening stuff the public system will make you wait in pain for 6 months. But without health insurance you can still take th private route, you just pay full costs. Factoring in that you don’t need to pay premiums, this might be bearable if it doesn’t happen often. Not sure though.

        Either way, it is not “insurance” like home or car insurance that covers your full loss minus the excess. Health cover pays you a fixed amount while the actual costs can be almost anything above that, and bad luck to you.

      • @Arrow2 – the waiting list in YOUR area can be long. Did you know that you can ask to be treated in another part of the state or even interstate to take advantage of a much shorter wait list? No one ever tells you that but you can. Because anything resembling like a normal market is forbidden in the current system you don’t have transparency over things like getting treated outside your region.

      • I know he’s right and in my experience the longer you wait the more you realise you don’t need it. If you’re coming from emergency or are already in hospital you’ll always get surgery ASAP.

        And yes I have literal experience here, I was supposed to have surgery on my foot over a decade ago. Never had it. My foot is fine save for maybe a twinge I have bear every once in while. People I know who’ve had foot/knee/shoulder surgery keep going back.

      • A2
        Fit and Healthy 60 yo….no private insurance.

        Had surgery last month to remove a 500cc cyst and repair tear to abdomen wall in a private Bangkok hospital (cycling accident in January – broken femur done on public health, AOK) as waiting list for elective surgery here 12 months +

        Operation by professional urologist – close to 2 hour operation
        Private hospital – no appointment necessary
        Operation done within 2 days of arrival
        General Anaesthetic
        Spinal Block required – paralysed from waist down
        All including theatre staff spoke excellent English
        3 nights in hospital
        Looked after hand and foot including post operation

        Total Cost: $2,500 AUD……get the job done in a private hospital in Australia, god knows how much…

  5. migtronixMEMBER

    Government is a crime. “get private health insurance or we’ll take your money and give it to them anyway”.

    I encourage everyone to drop private cover – try being healthy for a change you slobs.

      • And now we’re going to confuse insurance with care, great well done Ino. You can’t insure your house when it’s on fire, that’s not how insurance works. Insuring old people who are guaranteed to get ill by having young people who are virtually guaranteed not to need it pay is a f-ing scam!

  6. All efforts will be a complete waste of time. Unless you fix the elephant in the waiting room this thing will go bust eventually.
    The bottom line is that, excluding the GP visits part of the system, the players get paid way too much. Google the top paid jobs in Australia and you’ll note that the hospital medical profession takes 24 or 25 out of the top 30 positions. Adding to this is the over prescription in the treatment process, you know the prescribing of 5 X-rays when 2 will do OR prescribing branded medicine when the generic drug at 1/1000th the price will do just fine. We’ve all seen it personally let alone all the other instances we are not privy to. It’s the incentives operating that make the system and it’s players perverse in their behaviour.
    As a society we are in enslaved to Doctors, for instance did you ever question the specialist and his/her fees/charges that in advance and hunt around for a real bargain? Probably, no is the answer. The system is farked when we accept blind referral from GP’s for specialists. Ask yourself when did your GP refresh their opinion about whether that referred specialist was “still good” let alone were they any good in the first place.
    Collectively we are stuck in Hofstede’s Power Distance relationship. The doctors asserting power and us patients having none so we remain unquestioning. I encourage you to flip this around next time you visit with any medical professional, after all they are just a service provider at the end of the day no more deserving of your respect than your mechanic or shop assistant. They are there to serve you in return for your money.
    EDIT – ATO data here, have regard to the top 30

    • Medical Professionals in Australia are very expensive because they train for many years and their insurance is expensive. They have trained for 10 to 14 years on low wages and very long hours.

      That said, their specialist bodies to their best to ensure that their is a limited supply of specialists (not GPs) in Australia. They limit the number of new specialists that are admitted each year to keep the shortage and the high rates.
      It is an old fashioned “closed shop”.

      (edit replied to wrong post)

      • Freddo – you are smoking something there my friend. They charge what they charge because they can. There is no score card as to whether you get value for money and the referral process is totally at the whim off literally which way the wind blows on the day. Just like the public in Sydney and Melbourne who get spun a narrative about housing supply being limited and that’s why prices are high you have unfortunately bought their spin. There is zero competition and zero review, largely nothing to do with how long they studied and their indemnity insurance.

    • HadronCollision

      Wrong place

      Anyway, Drs DO work long hours for years. I know an RMO who is on like 25$ an hour! I dunno why he quit his highly paid systems engineering job. Prolly to actually help people.

      • “prolly to actual help people” lol, and RMO isn’t using any IT services? Or do you only actually help people when you can legally kill them?

    • HadronCollision


      If you choose to, you can absolutely change the power dynamic of this relationship.

      Moreover, it depends on the culture of the area.

      I live in the Northern Rivers and the GP attitudes are broadly different to Melbourne (of course it varies practice to practice too).

      I come to every appointment armed to the teeth with relevant information and ask pointed questions so I know I am being referred to the right person.

      (Disclosure, I work in the health system, so am privy to some extra insights, but regardless, I ensure I am an informed consumer).

      Ex: we were referred to a general physician, but I questioned that and had it redirected elsewhere.

      So, as with anything, you can choose to be a passive consumer, or an enabled participant.

      • agreed mate, elsewhere here I’ve made the argument that the bulk of the affordability issues reside at the hospital visit end. GPs do have their own issues but in terms of bankrupting the system in both monies and objective its the hospital professions that take the cake.

  7. On an aside…. seeing Sydney and Melbourne populations are exploding, have they been building new hospitals to cope with it. Or has all the funds gone into emergency roads and tunnels?

  8. I did the maths on this years ago and the only time I contemplated private health cover was when the hospital bills associated with pregnancy were a consideration. Otherwise it was a complete waste, as I generally refuse to do a thing where “it’s good for your tax” is a prime motivation

    • Actually going in with Private cover via a health insurer will cost you more, as the “insurance” does not pay for medical professionals.

      Here’s an easy example.
      Anesthetist for 20 min procedure in private charges $1600.
      Medicare pays $250.
      Private health insurer pays Gap, which is $300-250 = $50
      You pay $1600-300 = $1300

      Go via public system (you may have to sit in a queue for a year). Cost = $0.00

      The problem is that the “health insurance” does not pay for much.

    • Lignje
      Like any insurance (such as life. car etc) it is a waste only if you don’t claim. At claim time no-one asks how much premium they paid over the years.

      • correct Plane – that’s a situation operating at number (3) (see above comment) on the oversight. You are spending someone else’s money when you claim from insurance

    • Jumping jack flash

      I considered PHI when my wife was pregnant, and then discovered that the public system is excellent.

      I reckon a lot of it comes down to public ignorance.

      Private health insurance and private health services can be all in your face with flashy advertising, well-placed pot plants, and shiny veneer, and then nobody thinks to look at the public system which is just as good, and in many cases, far superior. As with everything, it just needs more funding.

      You’d never see an ad for medicare on the tv at night, or a montage of the local base hospital – “broken hill base hospital, for all your health needs. With friendly staff, comfortable beds, and great views”

      • obstetrics is the one area where private insurance is a very good thing to have

        unless you are determined to go the hippy new wave water birth type bullshit

        Elective cesarean section is best for baby, and least likely to be disastrous for the mother

  9. Jumping jack flash

    This is a great plan, but if you scratch below the surface it is a token effort and the statistics will surely mean that it is as insipid and useless as any other government policy to actually effect change where a private, gouging, oligopoly is involved.

    We have a youth unemployment crisis, and those lucky enough to find jobs are not going to need PHI with the amount of money they earn.
    Maybe they’re counting on people under 30, who don’t even need PHI, and may not need it in the future either depending on circumstance, getting it purely because of the discount offered to them?

    The total number of people that the PHI oligopoly will need to pay their 10% discount to is 3/5ths of SFA.
    Surely a master stroke! It will certainly fix the industry!

    The whole PHI thing was originally designed around a stick, not a carrot, that’s why they had the MLS and the income thresholds to force people onto it.
    They’re trying to turn it into a carrot. It just isn’t going to work that way because PHI is fundamentally unnecessary.

    The best way to improve a stick is to make it bigger. If they were actually serious they’d raise the MLS and lower the income thresholds.

    • flip it on it’s head. Define affordability not as having more capacity to pay but rather reduce the cost of what is paid. In a housing analysis we already know that giving more grants to first home buyers, ie. increasing their capacity to pay, doesn’t improve affordability rather we need to reduce the overall prices of housing in the same way we need to introduce competition to the remuneration of hospital medical professionals.
      Doesn’t it irk you in the slightest that an anesthetist occupies the 14th slot in the top paid employment?

      You do know that a heroin addict is more practiced to inject drugs than an anesthetist? you do know that the bloke who mixes gasses at the local BOC warehouse is more practiced in mixing gasses to a prescribed recipe that can be read off a piece of A4 paper?

      • Jumping jack flash

        Agree, reduce what is paid for sure, but these are private oligarchs with fixed costs for running an Australian operation, and the government has no control over that.

        The government is simply trying to turn a stick into a carrot to get more healthy young people to seed their ponzi.
        I don’t even know for what end. Why should the government get involved at all? In PHI, the P stands for Private.

        Their plan will fail for so many reasons, not the least of which, due to the youth unemployment problem the government themselves caused by continuous high (skilled) immigration even when faced with the facts that there is a labour surplus.

        My point was that if the government still needs PHI, then they should look back to its roots as to how Howard originally implemented it. Howard was no fool, he knew PHI was totally unnecessary and the only way to get people to take it up was to force them to do it with the stick of the MLS and the income thresholds.

        It seems the MLS at its current size is ineffective, (because of the greedy gouging PHI oligarchs no doubt), so the obvious solution for the government, if they were actually serious, and remembering they have absolutely no control over what the PHI companies decide to set as their premiums, or the doctors decide to charge for their services, would be to increase its size.

  10. thank goodness they will not be funding aromatherapy and all that rubbish….can also get rid of remedial massage etc

    chiro is the evidence behind what they do…using an ‘activator’ to click muscles and joints when they cant be bothered doing their charlatan manipulation to fix croup/middle ear infections etc, what a joke

    • in fact that is probably the thing that could save the system in it’s current form. The system needs thousands of people who pay a normal tariff and only claim small amounts for bullocks stuff.

    • Just wait till you tweak your back and nothing works.
      Then in 15 minutes you’re walking out of the chiro with it fixed except for the remnant ache that goes in 2 days.

      They’re effective for acute issues. While they can assist with chronic issues they’ll never fix it.

    • Your ignorance on the health benefits of remedial massage as opposed to physiotherapy is laughable.

  11. 10% discount to younger people is no incentive. The insurers will only over time jack up the price or give you less for it.

    • Kinda what happened with the “carbon tax”, eh?
      Last year: Oh look, I got some money back this year… I think… maybe… kindof…
      This year: Oh ****!

  12. here’s a tip for everyone for the next time you get referred to a specialist for an operation in hospital. Don’t tell them you have insurance, mainly because you don’t have to but also because it rules you out of this tip.

    The good surgeons get allocated some “free operating time” under the medicare system and can be as much as 2 weeks per year. They are meant to use it for the more worthy and it’s an admirable policy. However, a vast chunk of the surgeons never use their full entitlement. So again, next time as them if they have allotted medicare operating time spare and ask for your operation to be done under that allotment for free.

    • I don’t know what system you talk of. Your really have no idea at all. You are making most of your stuff up. It’s quite bizarre.

      • anecdotally I’m afraid but I’m personally the evidence, had knee operation and wisdom teeth removal on said programme, all by my referred surgeon and absolutely no fees to me. All because I posed the question “I can’t afford this because of …… can you do it cheaper?”
        try it next time and see for yourself
        also if you want independent evidence of this then ask yourself about all this charity type operations the punters might see broadcast on a current affair TV from time to time, you know the type of poor kid or elderly person who gets the top surgeon the moment it’s on TV. You don’t honestly think they say to that person “hang on, we can’t do this a current affair programme for 6 months because we have to wait for this kid/eldery patient to do their time on the wait list”.
        its staring you in the face if you want to see it

  13. I found out that all the big stick “you’ll pay more later if you don’t sign up now” penalties are simple to get around – just say you’re living overseas and you can ‘suspend’ your cover, meaning that you’re still on the books but don’t have to pay premiums until you ‘return’.

    • and why do you reckon that is? Could it be that you are physically not inside the geographical boundaries of Australia and thus not only can you simply not get treated here but the big thing the big thing there is no possible way you can incur costs to the system?

    • In theory you are supposed to provide evidence of your time resident overseas.

      In practice we have never been asked to do so (and would probably struggle to do so now, if we had to – those passports have long since been replaced).

      Might be a bit different as more and more data matching capability evolves and any random call centre worker can run a website query to see when you passed through customs.

      • already happening. you go to border force office in your state capital city and get a printout of all the exit and re-entry dates for your travels. They have a record of all historical now expired passports you’ve ever used.
        You then give that printout to your insurer and they give you the accompanying period exemption for the 10 year penalty calculations

  14. The solution is to force the so called health “insurers” to actually provide health insurance. That is, force people to pay an EXCESS so that the system is not abused, and FULLY cover costs above that excess. We instead have a free-for-all where every greedy consumer attempts to maximise their benefits by claiming stuff they don’t need.

  15. Surely the solution is for everyone to pay for medical care at the point of use, to ultimately force private medical companies to find ways to provide services at rates which people can afford. I wouldn’t be paying my doctor $200 for a 15 minute appointment about my erectile dysfunction – I’d be going to the guy who had found a method of providing the same thing for $50 – online/AI/whatever. Actually, I’d be doing something else with the $50, but you get the point.

    • bolstroodMEMBER

      Get your point.
      better still do away with private health, put ALL rescources into the Public sytem and increase the Medicare levy, and regulate Drs. fees and charges.
      Private health Insurance is just another Neo-liberal wet dream.It does nothing but add another layer of expensei.e. profit taking.

    • Indeed.

      We should institute the same up-front payment system for the police and fire services.

      No cash ? Bad credit ? Sorry, your house burns down. Plus your neighbours are going to sue you for the damage to their houses from the fire in yours.

  16. What is wrong with letting it spiral to death anyway? It seems pretty useless, with all the govt support is PHI actually saving any govt money?

  17. It’s already in a death spiral … there is no need to GenY/Z to consider paying at present. They are ‘invincibles’ and will be looking too keep as much values to themselves. What incentive is there? Marginal at best at 2% Off, I mean really…

  18. Of course the point of all these measures is to trick or coerce younger and healthier people into funding even more of the health care costs of the ageing baby boom demographic – even though those same baby boomers didn’t have to worry about penalties like lifetime health cover when they were younger, and it didn’t cost them nearly as much to subsidise the health care costs of the old through their taxes and the public health system as there were fewer oldies, per capita health spending on the old was lower, and the older generation back then weren’t a bunch of hypochondriacs seeking medical attention for everything.

    This can’t go on much longer, surely.

  19. MediocritasMEMBER

    Buying “insurance” for something that is absolutely 100% going to occur (you will get sick, you will die) is daft.

    If we want a private-sector healthcare model that actually works then we should copy Singapore’s.