Private health insurance is a “con job”

By Leith van Onselen

MB has frequently questioned the merits of government policy that forces Australians into private health insurance, and argued that diverting subsidies away from private health insurance into the public system would lead to more efficient health outcomes.

Over the past week, several well-known commentators have gone one step further, describing the private health system as an outright “con job”.

Last week, The Guardian’s Greg Jericho penned the following:

Far from being free, the industry is absolutely dependent upon governments doing all they can to encourage people to join it and penalise those who don’t.

Since the first step into universal healthcare with Medibank in 1975, the percentage of the population in private health insurance has steadily fallen…

Take away that government-mandated penalty, and people would leave private health in their droves. The free market at play without that government blackmail would likely see many of the 60% of those with health insurance who say it does not deliver value for money leave the system.

And you can understand why nearly two-thirds of private health insurance holders think that, given with the latest increase in premiums of 3.95%, the cost of health coverage has far outstripped both overall inflation and wages growth:

And yet the industry remains extremely profitable for the 13 of the 37 private health insurance companies that are for-profit.

As the AMA told a Senate committee on the value and affordability of private health insurance and out-of-pocket medical costs last year, “the shift to a full-profit industry has created the need to ensure that there are sufficient profits to allow a return to shareholders. This is driving much of the growth in increased premiums”…

But it is not just the cost of the premiums – it is what you get for your money that is a concern. Increasingly policies contain exclusions – exclusions which add to the complexity of the system and leave people unaware of what they are precisely covered for:

Similarly there has been a large increase in the number of policies that contain excess or co-payments… now, over 80% of policies have excesses and co-payments…

We have a system that attempts to force young people to take out a private insurance policy they don’t want or particularly need in order to fund the use of it by older people.

…governments of both persuasion have attempted to prop up the private sector. And as ever the private system has taken advantage – offering less coverage while complaining about needing ever more government assistance.

And today, Fairfax’s Ross Gittins has stepped up to the plate:

Opinion polling by Essential has found that, although a clear majority of people believe “health insurance isn’t worth the money you pay for it”, 83 per cent of people believe that “the government should do more to keep private health insurance affordable”.

The former opinion is right; the latter is delusional. Governments have been trying to keep health insurance affordable on and off for decades, while its cost just keeps climbing.

Why? Because it’s a self-defeating process. The more you do to make insurance affordable, the easier you make it for the people running the health funds, the owners of private hospitals and the surgeons and other procedural specialists who work in hospitals, to raise their prices and fatten their profits. Which the pollies fully understand.

In the old days health funds were owned by their members, except for the government-owned Medibank Private. These days, three of the biggest funds – Medibank Private, Bupa and NIB – are for-profit providers, thus increasing the pressure on the government to allow big price rises and reducing the chance of getting value for money.

As Ian McAuley, of Canberra University, has written, from a policy perspective health insurance is a high-cost and inequitable way to fund healthcare.

Only 85 cents of every dollar passing through private insurance makes its way to paying for healthcare. And only if you can afford it do you share in the government subsidies taxpayers provide.

From the customers’ perspective, it’s a con job. Most people under 60 get back only a fraction of what they pay. Often when you do claim you don’t get what you expected, because you don’t get choice of doctor or a private room, you’re caught by ever-changing exclusions from your policy, or because no one warned you about a huge gap payment.

Many buy insurance to avoid waiting times for elective surgery. But if private insurance didn’t exist, surgeons would have to earn more of their income from public hospitals and waiting times would be shorter. It creates the problem it purports to solve…

Private insurance is so counter-productive and so unfair that the best thing would be to end the subsidies and use the saving to improve the performance of the public system…

Both Jericho and Gittins are spot-on.

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  1. PHI is the biggest scam or the last few decades.

    Take one, and one thing only, away and the whole thing falls into a giant mess – medicare levy surcharge.

  2. Every year ask your private health insurer to pause your cover for 3-6 months, they will do this if you’re travelling and resume it automatically once you’re back – they don’t verify the details of your travel. Just the departure and return dates.

    This way you save money for the year, are still covered and aren’t punished during tax time. Just have the crappiest cover if you don’t care about it… hey, they really don’t care about as you aslong as you’re signed up. There’s loopholes in every draconian system.


    • mrjones0101MEMBER

      You’re excluded from cover while it’s “on pause”, I made the mistake of putting my cover on hold a couple of years back for 3 months while I was overseas, it cost me more to pay the medicare levy during that period than it would have had I kept paying for the insurance.

      • That sucks. I’ve never paid the levy, I suppose mine is considered an “appropriate level of private hospital health insurance”.

  3. I called my insurer (HIF) twice to see if I could reduce my monthly costs and ended up about $100/month worse off after realising the misses was covered for IVF (at 50yrs old) but we had no cover for cardio. WTF now I am paying $400/mon for two of us. I tried seeing if Bupa were any cheaper but they weren’t. Only those junk policies that NIB sell are cheaper but they are aimed only that avoiding the penalty for not being in Private cover.

    • LOL…. well trust me it couldnt be any worst than the OBOZOCARE crap we have over here in the states. Trust me I would kill to pay $400 $500 a month for me and my wife……

  4. To call it “insurance” is also a stretch, as many discover because of the “gap” system. Most of your expenses are not covered anywhere near what hospitals or specialists will charge you.

    It should be called a “private health co-payment” system.

  5. It’s a tax fair and square.
    And I’m kind of shocked the Commies on this blog want it removed.
    Or should it only be charged to those with IPs?

    • It is a tax but it is not a fair and square tax. Why? Because as a nation we have decided over and over again that universal health care is to be made available to all Australians on the basis of their health need and not on the basis on their capacity to pay. So scrub this user pays private health insurance fee, diminished as it is by investor extraction and private health provider capture, scrub the Government rebate and fund the universal health system to a fully adequate level through the normal taxation revenue system. Let the private health system stand on its own as a true business, not a parasite. If people want fancy accommodation, pools, top cuisine and insist on their physician of personal choice etc, they can take out voluntary insurance to buy it. Good luck with customer demand on that one.

      • Also +1
        The same can be said about private schooling. Remove subsidies and let them stand as independently as they claim to be.

      • pyjamasbeforechristMEMBER

        +1 Many countries now have proved this is the most efficient way to go also so why we don’t move in this direction is beyond me. I’d much prefer to pay my current PHI premium amount as tax towards an improved public health system.

    • To attract healthy people into the system that would otherwise not make a claim at all, to help subsidise the costs of the sick. whether this is a good idea or not i’ll leave up to you.

      • Subsidizing ‘personal services’ would actually have a remarkable health impact though. Why it’s not on the list of approved services is beyond me. Reiki gets the tick, go figure.

    • How is that any different for at least 50% “standard of care”? Evidence from “double blind medical studies” is just statistical BS – ffs these are the people who for decades told you to eat grains and sugar for breakfast and never touch eggs, salt and butter. IT’S THE EXACT OPPOSITE of what you should do. So much industry lobbying…

  6. PH insurance involves paying a shit-load of cash for almost nothing. It’s the biggest fcuking gouge, con-job and scam ever perpetrated on the people of this country. No, wait…there’s the superannuation ticket clipping. Errmmm…then there’s the housing Ponzi. Oh hell, I forgot about the mass immigration scam. But what about the gross fraud and ripoffs that our banks so humorously call “services”. Then there’s the vile behaviour of our elected “representatives”, who represent nothing but their own self interest. And lets not forget the “Australia Tax” on most retail goods.

    Actually, is there any single damn thing in this country that isn’t a gouge, con-job or scam?

  7. I also object to paying so much. Oldies who use more services shd b paying more. Like a driver who crashes all the time. More risk. They get it way too easy

  8. Agree, absolute scam.

    Insurance is about transferring risk in exchange for a fee. Why then is dental capped at approx $1,600 annually when big impact accidents easily rack up $10,000 – $20,000? i.e. No real risk being transferred, hence no real insurance! The wee $1,600 cover people can easily pay by not having the insurance in the first place!

    Australia needs to stop directing money at a broken system that is used by very few people and use the funds that become available to improve the public system. A system that contrary to popular belief is already pretty damn spectacular.

  9. reusachtigeMEMBER

    I’m always for a system that encourages profits over a government run system as the profit motive always encourages the most efficient outcomes!

  10. The problem is due to Howard making it mandatory for people to take up PHI or else get taxed higher and be penalised by the 2% lifetime loading. Having such a system in place means PHI funds are guaranteed a steady stream of new customers, and thus have little incentive to deliver worthwhile products. Even more frustrating is that many policies offer to fund rubbish like homeopathy and other junk pseudoscience with no evidence base, pushing up the premiums.

    Gittens writes:
    “But if private insurance didn’t exist, surgeons would have to earn more of their income from public hospitals and waiting times would be shorter. It creates the problem it purports to solve…”

    This doesn’t make any sense at all. The reason newly qualified surgeons aren’t working in public hospitals isn’t because of the private system, but because public hospitals are already running at full capacity and there aren’t any vacancies. A public position offers a guaranteed salary, in contrast going private is risky as one only draws an income when they see a patient, they can only patients referred by GPs and there are limitations on advertising services. It’s reached a point where to land a public consultant job nowadays you need a PhD minimum to even get a look in. To reduce public hospital waiting lists, it’s not just a case of having more doctors, there also needs to be infrastructure like more hospitals and more operating theatres. Most public hospitals have limited real estate to expand, and canning PHI isn’t going to magically solve this problem.

    • Hitting, and LVO, don’t have a clue.
      I work in both public and private hospitals as an angel of mercy in the former and a gouging, merciless private practitioner in the other.
      The public system has a bottomless maw. After all, it is free! Shut down the private system by all means but the public won’t cope even with billions in extra funding.

      • GunnamattaMEMBER

        but the public won’t cope even with billions in extra funding

        …….well they’ll just have to tax those who are avoiding tax
        …….well they’ll just have to tax companies
        …….well they’ll just have to ask if allowing tax deductions for loss making investment is such a good idea
        …….well they’ll just have to ask if they want a health system run for profits or for public good
        …….well they’ll just have put greater emphasis on public health and hospital avoidance
        …….well they’ll just have to go without Private health Insurance advertising
        …….well they’ll just have to go without private health rising 5% a year
        …….well they’ll just have to ask sort out hospital and healthcare administration
        …….well they’ll just have to import loads of medical professionals from offshore and allow them to operate in Australia
        …….well they’ll just have to pay for training loads more medical professionals in Australia
        …….well they’ll just have to provide tax offsets for people going overseas for health treatment
        …….well they’ll just have to limit access to Australian healthcare by people who havent contributed to it by working in Australia

        almost all of which represents far better value than private health insurance as it currently operates

      • +1 infinity Gunna! All the current “Government couldn’t possibly do this”-issues are self imposed limitations as a result of vigorous lobbying of private interests. Get that sh*t out of the way – and wonders will never cease!

      • Exactly. Only last week I deliberately broke my arm just to use up some free healthcare. It was so easy, how could I resist ? And the best part is, no downside !

  11. MediocritasMEMBER

    There are a whole bunch of people out there who are buying cheap, crappy private health cover simply to avoid paying the (more expensive) medicare levy, then when they actually need care they fall back on the public system. Private corporations making $$$s for doing absolutely nothing while the public is left holding a big bill.

    I can’t blame people for being so scummy, people are people and they’ll follow whichever path makes the most financial sense for them. The fault here is the idiotic system which gives them this option in the first place.

    We should copy the Singaporean model if we want a hybrid public / private system; it actually works.

    • I am one of those. When I had extras cover my dentist, physio and sports masseuses proceeded to increase the price of their services as I was now a private patient. Private market efficiency my ass.

  12. Per Wheeler, market dynamics and the stated mission of health care are irrevocably juxtaposed e.g. there is absolutely no way to deliver health care under market based conditions i.e. monetizing it supersedes actual health care delivery.

    Not to mention driving costs up contra to the claim of many, admin costs, profit, looting and corruption….

  13. Agree totally PHI is a con. If you are locked into it, get a price from Mildura Health Fund 🙂

    Do not use NIB, you are supporting one of the labour party’s less bright dynasties – the Fitzgeralds. Check his salary as CEO from when it was a NFP compared to the now privatised NIB – talk about creating income from nothing except hot air.

  14. Its ridiculous that they raise the prices almost every year (every few months it feels like it).

    But its one of those things that when you DON’T USE IT, you feel ripped off…
    But when you do use it, you are thankful for it.

    Last year I tore my MCL… I got surgery within 10 days of diagnosis. I know another person without private and he had to wait 4 months. My rehab is also covered 6 times a year so that 75 bucks a visit to the Physio… then 20 bucks covered for the rest (55 bucks off pocket). Not to mention, dental… if you visit the other specialists other than dentists, such as periodentists or macro-facial specialists (had some nerve issues under the gum near the jaw)… I counted around 4 grand worth of procedures and checks and 30% was covered… the consultations were free.

    The older you get, you may also start getting issues so you may need it more… I go to the gym every day and eat healthy so I can reduce the amount of issues I have later on… but I do end up visiting the physio a lot because of that.

    So, basically… if you use it… you’re thankful you have it… if you dont use it… its a waste

    • Glad it helped you, truly.
      However, your example might effectively be a argument in isolation: if we instead funnelled public funds away from subsidies to the private sector, and back to the public sector, those public waiting times may well reduce very significantly…

      • Jumping jack flash

        This is of course the sensible option, but unfortunately doctors wouldn’t be able to gouge their patients for “free” insurance money any more.

        And on top of that, they’d need to wait for the government payment to arrive!

        “Errrgh! Its like being a high priced dole bludger! So demeaning. I didn’t study for 12 years for this!
        I need to wash the disgusting taste of public money out of my mouth!”

    • Mark HeydonMEMBER

      Ok, so once you had $4k of procedures with 30% covered? I paid $4,500 in PHI premium this year, so would still be ahead if instead paid 100% out of pocket and didn’t pay the PHI.

      And the waiting time is a furphy – there is always the option to go private and just pay it yourself. Compared to PHI you’re still well ahead.

  15. PHI seems such an expensive “insurance premium”. Always up & up & up. Now my daughter has just finished Uni (massive HELP Debt?) & can’t get a job. Then I get the BUPA correspondence basically saying your daughter is no longer a student & under 25 so for an extra $148.00 per month you can cover her. WTF that is eye gouging! So expensive. But then my youngest has a major sporting injury & needs very quick access to specialist treatment & Rehab. Can’t possibly & not even remotely possible to get that via public so thanks to PHI we’ve got very good treatment. So I am very torn. I’m sure bucket loads of money thrown at the Public system would provide great outcomes but I also can’t imagine how they would really cope. Its a bit like all the MB people saying get rid of private schools (they don’t quite say that but …) & save heaps of money & then you look at the public school dereliction & go where will all the kids fit? So right now if we junked the private “health system” how long would it really take for the public system (whatever that is in our many states & territories?) to be actually able to deliver some positive outcomes? So we’re talking 1 or 2 or 3 generations….? Very big ask & extremely difficult. Pretty easy to say get rid of PHI but replicating anything even remotely able to replace it in the public sector across so many states & territories I’d say is next to impossible.

    • My son was in hospital for surgery within days after a major sporting injury in the public system, followed by weekly check ups, so you clearly can get this in the public system but keep telling yourself otherwise to justify you PHI decision.
      You only have a waiting list for non major, non critical items that can wait for treatment.

    • Mark HeydonMEMBER

      You seem to be confusing the provision of private medical services and the private financing of medical services.
      Getting rid of the private financing of medical services (aka PHI) would not see private hospitals, the local physio, dentists etc disappear, if at the same time the medicare net were widened to allow payment for services provided privately, in exactly the same way as GP services are currently provided.

  16. Jumping jack flash

    Sure there’s a problem with PHI being crap.
    It always was.
    Australia is just a really bad target market for PHI, but doctors wanted it anyway so they could gouge their patients.

    So Howard gave it to them in return for the greatest magic trick in history – getting almost all long term unemployed off the dole queue and onto DSP where they wouldn’t be counted in the UE statistic – that was also after redefining “unemployed” as well.

    My brother was one of these long term unemployed who was convinced by his GP to get onto the DSP.

    PHI was given to us with the stick of the MLS
    Carrots aren’t ever going to work because it is plain and simply unnecessary. Howard knew this:

    “Far from being free, the industry is absolutely dependent upon governments doing all they can to encourage people to join it and penalise those who don’t.”

    “Take away that government-mandated penalty, and people would leave private health in their droves. The free market at play without that government blackmail would likely see many of the 60% of those with health insurance who say it does not deliver value for money leave the system.”

    Spot on!

    The only way to fix this small issue of PHI pricing itself out of the market (so people would rather pay the soon to be cheaper MLS) is to make the MLS stick bigger.

    And surprise, surprise, this is exactly what some groups are calling for!

  17. i was with the heads of some v large overseas PHIs and one of them said to me I cannot understand Australian PH industry – why would anyone bother with PHI in Australia as doesnt seem to offer anything. The others shared similar views and the view that it was not a market worth venturing into (was a very informative lunch)