Private health insurers panic as young Aussies exit

George Savvides, former head of Medibank, warns that the mass exodus of younger Australians from private health insurance will drive-up premiums and place much more pressure on the public health system in the future:

George Savvides, Medibank’s chief executive for 14 years until 2016, has warned an exodus of young people from the private system could skew more people towards the public system and make it more expensive for those that stayed behind.

“Even those Australians who are not privately insured — more than half of the population — they are benefited by having a private system that takes the pressure off the public system,” he told 7.30.

Mr Savvides said the systems were created to complement one another, with private health designed to be a life-long health system for those within it.

“People join on the basis that their premiums over life will be neutralised with young and old in the pool. So if we don’t motivate or incentivise young people to be a part of that system and go on that journey, then it will heat up and become expensive,” he said.

“If you heat up the system, it will skew to all the members who are higher claimers, and there’s no natural equalisation of risk in the pool. And that’s not a healthy paradigm.”

George Savvides is partly right.

The inherent issue with Australia’s private healthcare system is that it 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 these invincibles to sign up is to avoid penalty (eg. the medicare levy and the lifetime health cover surcharges).

The problem is that the healthy invincibles perceive that it is cheaper to simply pay the penalties than hold private health insurance, which is seeing an exodus from the system. Thus, the private health system is being left with a larger proportion of unhealthier, older, expensive users of the system, which is forcing premiums up and leading to a further exodus of the invicibles.

That said, Australians are subsidising private health insurance to the tune of about $9 billion every year: $6 billion for the private health insurance rebate and $3 billion on private medical services for inpatients:

This $9 billion of private health subsidies may produce more benefits to taxpayers if it was diverted into the public system.

After all, there is no evidence that private health insurance buys patients extra quality and safety. The Productivity Commission (PC) found that the larger, most comparable public and private hospitals had similar adjusted premature death ratios. Further, the PC found that the team-based care in large public hospitals also leads itself to better coordination of care.

Therefore, instead of wasting more taxpayer funds to prop-up the private system, maybe it is time to abandon private health insurance subsidies altogether, with the savings instead redirected into the public system?

Latest posts by Leith van Onselen (see all)

Comments are hidden for Membership Subscribers only.