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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
09/07/2009
Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009 Fairer Private Health Insurance Incentives (Medicare Levy Surcharge—Fringe Benefits) Bill 2009 Fairer Private Health Insurance Incentives Bill 2009 Health Insurance Amendment (Extended Medicare Safety Net) Bill 2009

CHAIR (Senator Moore) —Good morning. This is the Senate Standing Committee on Community Affairs, which is continuing its inquiry into the provisions of the Fairer Private Health Incentives Bill 2009 and related bills. Not all members could attend today, but everything is recorded so all members of the committee have the full story. It is not through lack of interest that the whole table is not full. I welcome Ms Hagan. I know that you have received or can receive on parliamentary privilege and the protection of witnesses, which is standard procedure. I invite you to make an opening statement and then we will move to questions from the committee.

Ms Hagan —Thank you. Apart from my role as group executive I am also the statutory CEO for both of our health funds. On behalf of Australian Unity Ltd I wish to formally thank the committee for an invitation to make a submission to the inquiry into these bills. We are pleased to have the opportunity to present our views on behalf of our health fund members. I will start by giving you a bit of background on us. We operate Victoria’s third largest health fund as well as a corporate health fund, preventative health business and dental clinics. The broader Australian Unity group also operates in aged care, retirement living and funds management. Our organisation is a neutral organisation, which means it is owned by our members, most of whom are health insurance policyholders. Our organisation’s history dates back almost 170 years. We do not make profits to benefit shareholders; we want to keep private health insurance affordable, particularly for those people for whom it is not a luxury but a necessity—often low-income earners with chronic disease.

It is estimated that one million Australians with private health insurance lived in households with an annual income of less than $26,000. It must be remembered here that we are not in control of the vast majority of our costs: the benefits that we pay out to members. This is because the Australian private health insurance system is based on the principle of community rating. This principle protects the integrity of the clinician-patient relationship and is one of the great attributes of our system. Clinicians can prescribe treatments for patients without reference to us, and we must pay for those treatments regardless of the cost. It is an uncapped liability. Community rating also means that no-one is turned away from health insurance on the basis of their age or health status, nor are the chronically ill charged premiums higher than anyone else. Community rating ensures equity of access to private health care. Community rating requires that we negotiate a fine balance over long periods of time. We must ensure that our health insurance funds have a strong cohort of young, healthy members to keep the fund healthy and costs down for all. Proposed changes to the legislation must be assessed against this long-term requirement.

Australian Unity has invested considerable time and effort into becoming a partner with our members for their health, not just in being a bill payer, by investing in evidence based programs to manage chronic disease but also programs such as Step into Life, the Better Being program and Lift for Life, which are aimed at preventing chronic disease or at least delaying its onset. We have the most extensive range of preventative health benefits on the market today.

We are opposed to this change. We are opposed to it because it tinkers with one of the fundamental fairness premises of this system—that access to private health insurance is equal and, outside of the effect of the different rebate levels, no-one pays more for the same access. The policy settings that have been in place for most of this decade have attempted to support this principle of equal access and to encourage people to take up private health insurance, because it is quite clear that the private health sector reduces the burden on the public sector.

In the 12 months to March 2009, the industry’s independent regulator, PHIAC, reported that the total benefits paid by private health funds to the 11 million Australians who hold some form of private health cover was $10.9 billion. If it were not for private health insurance, this $10.9 billion, less the government’s premium rebate component, would need to be found in the public purse. The biggest concern we have is that, by taking a series of policy decisions which individually may appear on the surface to be unlikely to have much impact and by not modelling any second-round effects—such as the impact on the ageing of the private health insurance population, the downgrading of policies that is likely to occur, the likely withdrawal of corporate funded health plans and so on—we could be setting ourselves up for a downward spiral in participation rates similar to that which occurred during the 1990s. For every person that drops private health insurance, there are fewer people left to bear the burden of the overall claims pool. Generally it is the healthier people who drop out, which compounds the effect on those left in the system, so private health insurance becomes progressively less affordable for all.

Ageing of the population places relentless pressure on costs. We did, however, have a policy measure, which was the fixed MLS thresholds in the private system that maintained the average age of the private health insurance population steady at about 39.8 years for the 27 months to 30 September 2008. This resulted in lower average premium increases for all policyholders throughout this period. However, by 31 December 2008, less than three months after the change to the MLS thresholds come into effect, the average age started to increase again. While it is far too soon to know if this is a trend that is going to continue, it is of serious concern to us. Sustained future increases in this age over time are reasonably expected to drive increases in claims costs and therefore in the premiums paid by all private health insurance policyholders. It is estimated that every increase of just one year across the private health insurance population requires an increase in premiums of around five per cent before we take into account any growth in hospital or medical costs.

Australian Unity notes with interest that the Department of Health and Ageing submission on the proposed changes to the rebate covers the issue of premium increases in just four lines on page 3 and states:

The Government does not anticipate that this measure will flow on to increased premiums.

The department’s submission does not mention the impact of ageing anywhere, and this has not been modelled but it has to be considered. What is the department’s opinion on the age profile of the private health insurance population based over the period to 30 June 2012? Because the private health insurance system operates as a whole under community rating, any actions which the government proposes on health insurance need to be analysed over five to 10 years and the impact on the community rating principle.

We submit that this long-term detailed analysis must be undertaken by the government with appropriate review of the results prior to the proposed changes to the rebate being debated in detail; otherwise those who are most likely to be negatively impacted by the subtle but ultimately profound effects of these policy changes will be those who rely on private health care to maintain their health. Often these are pensioners, working families or even young people with chronic diseases and injuries. We also submit that the government looks at other issues that impact on the private health-care sector including safety and quality, informed financial consent and others. Opposing this legislation and taking a more considered approach will help all Australians.

Senator SIEWERT —One of the issues that has come up is the issue around people dropping ancillary cover. People are saying that will have an impact on fees more than costs. My question is: if people are dropping the cover it means that the various organisations will not have to then pay out against claims. Won’t that reduce the costs to the funds?

Ms Hagan —It will reduce the costs to some degree, but, if you look at it generally in the industry, the margin that is made on ancillary products is higher than on hospital products. That allows to some degree cross-subsidisation for the hospital products. Generally the people who drop out are going to be the people who are not claiming and so are not seeing as much benefit. The people who are claiming their limits every year probably will keep it because they see there is value in having that—they do a cost-benefit equation and they decide to keep it. The people who will drop it are those who are not utilising it as much and therefore the decrease in the claims cost will not be as great.

Senator SIEWERT —But wouldn’t that then be people looking at the benefits they get from their private health insurance and saying, ‘Okay, we’re not actually getting any benefit from this’? The government has, in effect, through the rebate process been subsidising the private health funds. Because they get the rebate, people have not been questioning the value of their private health insurance and now they are going to turn around and question the value of their private health insurance.

Ms Hagan —The subsidy goes to the member not to the health fund. It is about making private health insurance more affordable for all, and at the end of the day they are getting valuable services in dental that are being done in the private sector. If it is not affordable, those services still have to be performed somewhere. The rebate is not going to the health fund; it is going to the member to make it more affordable.

Senator SIEWERT —Certainly a lot of people are arguing that that money should be paid directly into the public system rather than go into private health insurance funds propped up by people paying for cover they are not even using or see little benefit in.

Ms Hagan —I guess we have to look at the higher level principle here, which is the principle of community rating. If we all agree that fair and equitable access to private health care and to health care in general is a goal of our society, then I think we have to accept that underpinning that you need younger, healthier, non-claiming members to support the older, more chronically ill. That is just a fundamental premise of what we are doing. But I completely agree with you that private health insurers have to display value in their products. At the end of the day, that is what we do; we are about providing benefits to members and we need to look not just at dental, physio and chiro but at things that are attractive to younger people to keep them in the system.

Senator SIEWERT —By opposing and obviously being unhappy with the changes, in particular when looking at their ancillary cover, are the funds saying, ‘We are not prepared to change our products to provide products that actually meet people’s needs’?

Ms Hagan —No, that is not true at all. Every year we look closely at that. In the last year we have put in a range of benefits that are targeted at people who will find value outside the hospital setting. In those ancillary products we have looked not just at benefits for cervical cancer to all sorts of things that we have introduced to help prevent chronic disease later on but at some of the programs we have put in place to provide benefits to people now. It is up to the health insurers to have a value equation in the product for everybody.

Senator SIEWERT —If you are providing value in ancillary cover, surely people will keep it.

Ms Hagan —I guess the issue is that when it goes up by 43 per cent people will question it. Anybody who gets a bill that goes up by 43 per cent in one hit is going to question it.

Senator SIEWERT —Where do you get the figure of 43 per cent?

Ms Hagan —That is it. If you are looking at a 30 per cent rebate being reduced, obviously it is a tier in a tiered system.

Senator SIEWERT —Have you looked at some of the figures that have been presented to the committee? For example, Professor Deeble yesterday gave us figures that showed that there is going to be very little increase.

Ms Hagan —I have not seen those figures but, if you look at prices going up by up to that amount and there is no Medicare levy surcharge stick around ancillary, I think you will find people will drop out.

Senator SIEWERT —I would appreciate it if you could get an opportunity to look at the figures. I am a little bit concerned that there is little foundation in the comment ‘they all go up by 43 per cent’, particularly looking at the figures that Professor Deeble had done yesterday. Even in the other reports that I have seen I have not seen figures around 43 per cent. I have seen no justification for figures around a 43 per cent increase.

Ms Hagan —Our analysis has shown that for some people it will go up by 43 per cent—for those who lose the rebate altogether.

Senator SIEWERT —I do not think we have those figures.

CHAIR —Ms Hagan, is it possible to give figures in amounts as opposed to percentages? That was one of the discussions yesterday. Percentages have been tossed around in a lot of the debates, but we are more interested in the dollar figure. What does a 43 per cent increase mean, if that is what your analysis says? Is that $400 or $500? Certainly Dr Deeble’s submission was looking at cutting that across the year. If your private health insurance was to go up by the percentages that they quoted, his argument was that that was four cups of coffee a week. They were the kinds of figures. It would be very useful if we could see that—and we will be asking all the private health folk, not just you.

Ms Hagan —Sure, we can certainly look into that amount.

CHAIR —It would just be amounts, because percentages are sometimes thrown around without us seeing exactly what that will mean. I am a member of a private health insurance fund and I am interested in the amount, not in the percentage.

Ms Hagan —Sure. We will certainly get back to you.

Senator BOYCE —Was Australian Unity health surprised by this move by the government to change the thresholds?

Ms Hagan —Yes, we were surprised. It came without any notice to us or to the industry, as far as I am aware.

Senator BOYCE —It has also been put in evidence that this was in fact the opposite of the election promise made by the government in the area. Had Australian Unity health done any planning on the basis of the comments by the minister in I think February this year and the Prime Minister during the election campaign and subsequently around the fact that there would be no changes to the Medicare rebate?

Ms Hagan —Yes, the last annual price round had no modelling based on this in it. Nothing that we have in our prices to date as taken into account any effect from this change.

Senator BOYCE —We have had some figures from Treasury that really look at first-round effects, not second-round effects. We have also had figures from industry suggesting that half a million or more people might be affected. Have you done any figures within Australian Unity health as to what you think will happen to the number of people covered by insurance?

Ms Hagan —We have not done that modelling yet. We are about to go into the next price round modelling. Modelling takes about six months out from the submission. We are about to undertake that; however, I am aware of the AHIA’s research that has been done which is showing that up to 10 times the amount that Treasury has estimated may drop out of the system. Largely that is around the ancillary products that will not have the benefit of the MLS sitting behind them to hold people in.

Senator BOYCE —We also had evidence yesterday suggesting that health insurance was quite a sticky product, for want of a better term—that people might look at how to adjust their budgets to meet changes but that dropping health insurance was a highly unusual thing to do. Is that your experience?

Ms Hagan —Our experience is that people see value in the product and they generally stay in the product. It takes a lot for people to make the choice to drop it. In the 1990s it took a long time to build up the people in the system. And it is the same at the other end; there is a tail on the way down. It takes awhile but once that spiral is going down it is quite difficult to get people back in.

We are concerned that there has been no modelling done on the ageing of the population. We have already started to see—and while it is not a long-term trend by any stretch yet—some alarming things going on in ageing. As I said in my opening statement, one year of change in that population is five per cent in premiums. If that spiral starts and we have to put up premiums because of the ageing, things will change quite rapidly I think. Our concern is that none of that modelling has been done.

Senator BOYCE —What about new contributors? Is there anything different about the profile of new contributors in your view if prices go up?

Ms Hagan —I think there is. As I have said before, the community rating is underpinned by having to have a strong cohort of young, healthy members in the system to lower the claims in the system overall to be able to keep premiums down. We are already starting to see from the changes in the MLS that the growth in that age cohort has gone down and hence the ageing already of the population.

Senator BOYCE —I should have asked you a little earlier: how did your organisation find out about the government’s proposed changes in this area?

Ms Hagan —When it was announced in the budget.

Senator BOYCE —What was the company’s reaction?

Ms Hagan —Shocked, I guess. We have a corporate health fund. I can tell you that the day after this was announced in the media, we had large blue-chip companies in this country ringing us and saying, ‘What are we going to do about this?’ Some of these companies fully fund or partially fund their employees’ health insurance. They have categorically said to us that they will no longer be able to afford to fund this. We were immediately worried about what this is going to mean.

Senator BOYCE —I do not think anyone has mentioned the change to the corporate area. Has any action happened on that, or is there just a waiting period going on?

Ms Hagan —Without disclosing anything that is confidential, there was immediate action. There were several large tenders in the market at that point that were very well progressed. They were immediately put on hold. Our pipeline has completely dried up in terms of corporates that were interested in taking up and funding, particularly in the mining sector. That had been growing very rapidly over the last five years, and all of that has ground to a halt.

Senator BOYCE —Without revealing anything confidential, can you give us a sense of what you mean by ‘very large tenders’?

Ms Hagan —In the thousands—4,000, some of them.

Senator BOYCE —Thousands of people?

Ms Hagan —Yes.

Senator BOYCE —This would generally have been part of someone’s package.

Ms Hagan —Yes. I think some of the latest statistics out from Mercer show that employees value private health insurance in the top one or two benefits that employers can be paying in this market.

Senator BOYCE —You said large was 4,000. Are there many around that number?

Ms Hagan —Yes. In the whole market at any one time prior to this announcement there were tenders to cover something in the order of 5,000-plus employees. Now there are hardly any. Our question on that would be: has anybody in government modelled the impact of corporates withdrawing from this market? Obviously there is revenue that comes from corporates attached to this with FBT. Again, we get told second round effects do not get modelled. There are many second round effects that come from this decision that need to be considered, in our opinion.

Senator BOYCE —Not only do you have the loss of FBT revenue, but you presumably also have the fact that these people are now deciding whether to take out their own private health insurance or in some cases not to. Again, they would be going into the public system.

Ms Hagan —We are not talking about the high-income earners here. Some of our clients, which number in the thousands, cover everybody from the gardener through to the CEO. So we are not talking about a population that is skewed towards high-income earners. We are talking about covering the whole gamut of the population in some of these funds.

Senator BOYCE —When you say ‘numbering in the thousands’, are you talking about thousands of contracts with companies?

Ms Hagan —Thousands of employees in those individual companies.

Senator BOYCE —Are you able to be any more specific on that? Probably not, by the sound of it.

Ms Hagan —I can go back and see whether some of our corporates would be willing to share that information.

Senator BOYCE —It would be good if you could come up with some sort of a total figure of how many people are covered and how many people were involved in the tenders that have now ground to a halt. Following this through, would you anticipate that companies that currently offer corporate private health cover would be less likely to include it in new contracts with new staff?

Ms Hagan —We have been told pretty categorically that some of the larger companies that we have will be ceasing it for current employees as well, not just for new employees. They will not be able to afford the increase in premiums that comes with this announced change.

Senator BOYCE —Obviously you do not want to give us names of companies, but it would be good to get some sort of quantifier around this as to whether we are talking about 5,000, 50,000 or perhaps even more employees. That would be really useful to have. You mentioned in your opening comments safety, quality and informed financial consent as other areas you would like to see the government work on. Can you explain a little bit more what you mean by that?

Ms Hagan —As I said, 82c in every dollar goes out in claims for us. So we are interested in having a dialogue on anything that can help us address the claims going out the door. Informed financial consent helps our policyholders know what it is that they are up for when they go into hospital so that there are no shocks. When they get out-of-pockets that they are not expecting, that devalues the product of private health insurance. We are interested in transparency in what is happening in hospitals in terms of infection rates so that we have best practice on infection rates and we are not funding misadventure in hospital. We think that transparency is good for the consumer, but it also helps the health insurers in terms of negotiating with hospitals.

Senator BOYCE —You mentioned the average age being 39.9 and how very early indications are that that has stretched out. Can you tell us to what at the present time?

Ms Hagan —In that one quarter, from 30 September 2008 to 31 December 2008, it went from 39.8 to 39.9. That might not seem like a huge leap but, as I said, in one year it was five per cent in premiums.

Senator BOYCE —So you are talking about half a per cent rise in that quarter anyway, extrapolating those figures.

Ms Hagan —Yes, and when I say a five per cent increase in premiums, I do not mean five per cent of the premiums; if the premium increase on average was five per cent, it would need to be 10 per cent, to cover the ageing effect. It is too early to call the trend on it. The actuaries will tell you that is way too early to put a trend, but it is a worry.

Senator BOYCE —I realise that but, given that you had mentioned there was a trend, I thought we should have a sense of what that trend was.

Senator FURNER —Thank you, Ms Hagan, for coming along today. Are you are in a position to explain the age demographics of your membership for the funds that you have?

Ms Hagan —I do not have the breakdown here for age demographics. It is spread across all age groups, but Australian Unity is older, on the whole, than the average in the industry. Our average age is 45, as against an industry average of 39.9.

Senator BOYCE —Is that partly because of the corporate cover?

Ms Hagan —No. The corporate cover actually brings the average age down. It is just that our demographics happen to have been that we have gone higher than the industry average. We are largely represented in Victoria, which is 73 per cent of our market, and it is an older demographic in Victoria than in the rest of Australia.

Senator FURNER —Can you explain what sort of modelling you did to draw your conclusions on the exiting of those members out of your funds?

Ms Hagan —We have not done the modelling at a fund level. We are going on what the AHIA has done on market research versus what Treasury has done. We are about to go into the modelling for the next premium round.

Senator FURNER —So you have purely drawn your conclusions based on one submitted to this inquiry.

Ms Hagan —Yes, so we have not made any conclusions yet about premiums, but we come back to the general principle that underpins community rating—that if you have people exiting the system and if they are generally the healthier people then there is going to be pressure on premiums for everybody left in the system.

Senator FURNER —What do you say then to Treasury’s modelling of around 25,000 people likely to exit PHI?

Ms Hagan —I cannot really comment on the Treasury figures. I have not seen the models that sit behind them. All I can say is that we are looking at the AHIA figures, which are based on market research that they have done.

Senator FURNER —It probably would be helpful to have a look at the other submissions as well, I think. Like any argument, there are those that have a different story. One of the witnesses we had yesterday in Canberra, Mr Ian McAuley, referred to research on behavioural economics. He referred to ‘the endowment effect’, where people seem to hang on to what they have. In fact, other submitters indicated that, out of all types of insurance, people tend to hang on to private health insurance as opposed to any other forms of insurance because it is a greater risk to gamble on your life than to decide to withdraw from car insurance or household insurance. What is your view on that type of definition?

Ms Hagan —I guess I look at the statistics that have come through the since the change to the MLS. The industry was growing at four per cent before the change was put in; immediately after that, the growth in rate in the industry halved. So to sit and think this is going to do nothing to the number of people coming into health insurance—I think we have already seen evidence that changes to policy do have a direct and immediate impact on the number of people coming into the industry. And they are the young people, who help to hold the overall claims costs down.

Senator FURNER —Are you referring to the changes to the MLS in 2008?

Ms Hagan —Yes. The industry growth rate halved in the next quarter after that change was made, so that is 200,000 people who would have been in the system and were not in the system.

Senator FURNER —One submitter, the Australian Healthcare and Hospitals Association, indicates that the changes to MLS in 2008 did not result in any massive numbers of people dropping out of the system.

Ms Hagan —It did not result in people dropping out of the fund, but the growth rate of the industry halved. So 200,000 people who would have been in if that change had not been made were not in the system.

Senator FURNER —Conversely, with this proposal it is estimated that approximately 130,000 people may, with the stick approach, decide to join PHI as a result of changes to MLS. Are you aware of that?

Ms Hagan —Sorry, could you repeat that?

Senator FURNER —Around 130,000 people caught up in the new surcharges will probably consider joining PHI as a result of the increases in MLS.

Ms Hagan —I am not aware of that figure. We will certainly go away and have a look at it.

Senator FURNER —You will find that in DoHA’s submission. They give a breakdown of the 130,000 as well in the two tiers.

Ms Hagan —We will look at that.

CHAIR —Ms Hagan, I am particularly interested in the corporate stuff because it has not been raised much. It certainly was not raised heavily in either the submissions or the evidence yesterday and I think it is worthwhile following it up. I just want to get an idea of how it works because I do not know. If a company is paying corporately as part of its package of employment for its employees, is it paying just the standard rate? Is there no special rate that it gets?

Ms Hagan —It depends. The fund that we have is quite unique in that we tailor products to individual corporates. So, in that sense, the products are slightly different. If they value some benefits over others we will put them in and model prices based on that. The standard industry practice, though, is that it is basically a retail product with some form of discount for volume that comes into that and efficiencies that come with processing corporates rather than individual retail.

CHAIR —So the process would be based on a company’s payroll. The only change this would make when they are doing their budgeting would be to employers who are on $75,000 or above. Is that right?

Ms Hagan —The ones caught in the tiers, yes.

CHAIR —I just wanted to see if I had missed anything. When the company is doing its budgeting, the only difference in what it would have to pay out would be for the percentage of employees who are earning over 75,000?

Ms Hagan —Yes, correct.

CHAIR —I just hoped I was not missing anything.

Ms Hagan —And then they pay FBT on top of that, which basically doubles the cost of it.

CHAIR —Which they already do.

Ms Hagan —Yes.

CHAIR —And the people employed by that company, if that is not offered and they do not take up their own personal coverage, would be subject to the MLS.

Ms Hagan —If they are in the tiers, yes.

CHAIR —So the only difference would be that now they are not subject to the MLS because it has been paid on their behalf by their company.

Ms Hagan —Correct.

CHAIR —The difference would be with the tiers. That makes it clearer. I just had some sense that I may have had it wrong—that they had a special stick over them because every employer, whether they were a gardener or the CEO, was going to be affected. But it only affects the same tier arrangement.

Ms Hagan —The same tier arrangement gets affected. They will have to be funding it themselves, so whether they choose to be in private health insurance or not—

CHAIR —Fine. It is no longer a company decision; it is their own personal decision.

Ms Hagan —Yes.

CHAIR —Yesterday I asked a witness—I forget which—about the philosophical approach to means testing. This has been presented as a means-testing arrangement such that it is not changing access to private health or the availability of private health; it is actually that, from a means testing point of view, people who are earning this much money or above will now have to pay more. Is that how you see it as a company—that is a means-testing imposition?

Ms Hagan —It is coming across as means testing. On the surface probably not that many people would argue with the philosophical position, but it is the flow-on effect in that, if you have the people dropping out of the system as a result of that, you have fewer people left in the system and it drives up the premiums for everyone.

CHAIR —Yesterday, someone used the term, ‘It’s a matter of long division.’ It had been a long time since I had heard that term, but that was the way it was presented to us.

Ms Hagan —And unfortunately it hits low-income earners disproportionately when the premiums go up.

CHAIR —Another issue is young people dropping out. As an organisation, have you given any particular thought to why young people in particular have not been attracted by the continuing advertisements and the approach to lifetime cover? You have noticed the incidence of younger people dropping out before these changes have come in. I am interested to see whether, as a company, there has been a particular evaluation of why young people are not joining. That seems to be the issue. If we are not getting more young people joining, that is pulling the age up. Have you done any work within the organisation to find out why that happens?

Ms Hagan —We have looked in detail at what age groups are claiming what and then we correlate that to people leaving and the slowdown of people in those age groups coming in. On the hospital side that is the whole underpinning of community rating; you are hoping that those people are not claiming on hospital. It certainly shows that people do question the value of it. We can add more value on the ancillary side, but on the hospital side the fact is that the younger age cohorts are just not going to go to hospital in the same patterns as the older cohorts.

CHAIR —And the lifetime health stuff has not, in effect, counterbalanced that?

Ms Hagan —No.

CHAIR —It has had some impact but not enough.

Ms Hagan —It has an impact for the 30-plus age group.

CHAIR —As an organisation, do you have a demographic of your members based on their income?

Ms Hagan —No.

CHAIR —So you do not know how many there are?

Ms Hagan —We do not know. All we can go on is Australian Bureau of Statistics data.

CHAIR —The kind of modelling that you have been doing has been based on best guess as opposed to knowing how many people?

Ms Hagan —That is correct.

Senator SIEWERT —Regarding the data you quoted earlier around the halving of the growth rate, could you provide a reference for that?

Ms Hagan —It is in the PIAC statistics, in the 31 December quarterly report. I think the AHIA also has it in their report.

CHAIR —Ms Hagan, it often happens that people go away and think, ‘I wish I’d said that’ or we come up with questions. The Hansard record of this will come out within a few days. I cannot tell you exactly when, but it will be on the committee website. You can see when it is available, and you will get a copy directly. You may find something that you just want to add. It is quite a common process that people get back in contact with us.

Ms Hagan —There is one other thing that I would like to say. Regarding ancillary and general treatment and how the margins are higher on those products, what Australian Unity has done with the money is invest in preventative health. We have taken this extremely seriously. Over the last three years, with the introduction of broader health cover, we have invested multi-millions of dollars in chronic disease management programs and all sorts of benefits. They are all evidence based. We do not just pay for gym memberships; we look at what evidence there is that programs in the community can help our members to stay healthy and stay out of hospital. That is what we are using our members’ funds to invest in. Some of the programs that we have developed have been running for several years and we look at offering them to the public sector and other private health insurers. We see it as part of a private health insurer’s responsibility to look at the age demographics and what is happening with chronic disease and play a part in helping to solve the problem. We have done deep dives into our—

CHAIR —Your company has a very strong reputation in that area.

Ms Hagan —It is absolutely fundamental to what we do.

Senator BOYCE —Could you give us a couple of examples of the preventative health measures that you have taken.

Ms Hagan —About three years ago we had a very detailed look at our data to see what chronic diseases people were suffering from. It showed that coronary artery disease, for example, had been growing at a compound annual growth rate of eight per cent over the last six years. So every year there were eight per cent more benefits than the year before. We started a program for coronary artery disease, which our members have been going through who have been in hospital and diagnosed with that. Since it has been running for two years we have had 77 per cent participation rate in that program. With the people who go in, there is only a two per cent drop-out rate. They are all meeting their respective targets. Our members are meeting the National Heart Foundation targets to reduce their risks. They have a telephonic coach—a dietician on the phone—offering them support and setting targets. We have one for congestive heart failure and osteoporosis. That is at the chronic end. We are also putting in benefits for younger people or people at risk of type 2 diabetes. For those at risk we fund Step into Life and the Better Being program. There are a lot of good programs in Victoria that we are tapping into and funding for our members, and we are working with GPs to look at referrals to those programs and we pay the benefits for them.

Senator BOYCE —It is probably a bit too early to say, but have you had any results?

Ms Hagan —We are about to look at trying to correlate the coronary artery disease program, which has been running for two years, with readmissions into hospital. At the end of the day, while we are looking at better health outcomes we also need to try and moderate claims over time. So we are about to do the analysis to look at whether it has stopped secondary readmissions into hospital. We know already for heart failure that we are stopping people being admitted into hospital. If we have somebody who puts on three kilograms of weight overnight then we direct them to their GP immediately. They have been taught what to do when they put on weight. They go into their GP and are immediately put on antibiotics. Previously they would have been sent to the emergency department and admitted into hospital. That is what is happening now on that program.

CHAIR —Thank you.

[11.26 am]