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COMMUNITY AFFAIRS LEGISLATION COMMITTEE
10/07/2009
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, everyone. Our committee is continuing our inquiry into the provisions of the Fairer Private Health Insurance Incentives Bill 2009 and related bills. Senator Judith Adams cannot be with us today, but she was particularly keen for me to put on record that she would like to have been here but was not able. She is checking out the hospital system in Perth at the moment. I reinforce to the witnesses that all your evidence is on Hansard, so it will be available to other senators. It is just because of other commitments that we have not got the full committee. It is always a bit worrying when you think there are only a couple of people who have turned up.

Welcome. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. Either of you may make an opening statement; we will then go to questions.

Mr Bransby —Firstly, I would like to thank the committee for the opportunity to be here today. HBF is a leading health fund in Western Australia, and I am speaking today on behalf of over 800,000 Western Australians who are HBF members. HBF is a not-for-profit fund which has provided health cover for Western Australians for well over 60 years. HBF is by far the largest health fund in Western Australia. Fifty per cent of all Western Australians with private health cover are our members. Partly because of the position we have long held in Western Australian communities, we are rather different from other health funds: our concerns extend beyond those who choose to insure their health through us. If you look at our annual report you will see that HBF’s stated mission is to ‘lead the way in improving the health and wellbeing of everyone in the Western Australian community’, so we invest a good deal of our energy in initiatives that address major chronic issues affecting the Western Australian community as a whole—issues such as obesity, smoking, alcohol abuse, poor diet and lack of exercise. We partner with organisations such as the Cancer Council, the Heart Foundation and the Red Cross to encourage changes in behaviour that will help people live healthier lives.

We have campaigned for changes in WA’s smoking legislation, we have spoken out to encourage Western Australians to drink responsibly and we have helped run events that encouraged tens of thousands of Western Australians to exercise. These are activities that we have initiated on behalf of all Western Australians, not just HBF members, and the single motive behind all of them is to improve the health and wellbeing of our community. I mention this simply to illustrate that we have a track record of speaking and acting in what we believe are the best interests of the Western Australian community as a whole, not only those of our members. So, while as a not for profit fund we feel compelled to speak out in the best interests of members—interests which we believe are clearly under threat with the proposed changes in the private health insurance rebate—we also believe we are representing a wider constituency.

Western Australia has the highest take-up of private health insurance of any state. In fact, last year Western Australia became the only state where over half the population holds private health cover. In Australia as a whole, the figure is around 45 per cent. So it is fair to say this state has more to lose than any other with these proposed changes. Let me make it very clear: HBF has no political alignment. The position we have taken on the proposed changes to the rebate is based on our assessment of the impact in terms of the health outcomes for all Western Australians, and we believe these will be detrimental.

I recognise that in the current economic climate governments must make tough decisions in order to find savings, but I believe that penalising those who have done the most to relieve pressure on the public health system is seriously misguided. We know that many of our members already make significant personal sacrifices to hold private health cover. Many do it because they believe that taking personal responsibility for their health care is the right thing to do, not only for themselves but for those who depend on the public health system. The financial impact of this measure on thousands of our members who will be directly affected is relatively easy to gauge, although of course we are not privy to their incomes. If the measures were to go through in their current form, we estimate that around 32,000 single members and 139,000 Western Australian families will experience either a reduction in their rebate or the loss of the rebate altogether. In all, we believe that over 170,000 of our policies will be directly affected. These are people who overnight could find that their premiums had risen by up to 43 per cent.

I have no doubt that many of our members who are affected by these changes will look for ways to minimise the impact of this shock. Some will exit private health. Others will downgrade their cover. Either way, the effect will have a reduction in their access to quality health care. The key to keeping down the cost of private health insurance is ensuring that as many people as possible contribute to the pool of funds available to pay claims. Any change to the rebate which encourages members to leave would be certain to lead to higher premiums for all those who stay.

The committee will already know that the Australian Health Insurance Association estimates that 241,000 Australians are likely to drop their private health cover and another 728,000 will downgrade their private hospital cover if the measure passes. What is more, the association’s research suggests that an additional 774,000 Australians will decide to drop their health cover for ancillary services such as dental and optical services. I have no reason to question that the impact in Western Australia will be any less dramatic than in the rest of the country. If the association’s modelling is correct then thousands of our members will choose to depend solely on WA’s public hospitals. As for those who would drop their ancillary cover, many of these will subsequently forgo dental, optical and other care that they otherwise would have had and also need.

HBF has been very successful in attracting younger members to private health insurance through our ancillary products. Ancillary cover is an entry point to private health insurance for the young and healthy, but these products will be the first to be dropped if this measure is introduced, and our ability to attract younger members will be badly harmed as a consequence. It is well understood that health inflation is outstripping CPI. In 2008-09, the benefits we paid to our members increased by 11.9 per cent over the previous year. This year, we expect them to increase by a further 6.4 per cent. For health funds to continue to pay these levels of benefits it is essential that the burden be carried by as many members as possible. A reduction in the rebate will lead to an exodus of those members who judge that they are least likely to need to use their cover. The younger and fitter members are the very members which funds like mine need to retain if we are to see even greater pressure on premiums.

Anyone who drops their private health cover will of course be an additional person who is dependent on an already stretched public system. What is more, for anyone who chooses to drop their private health cover the government will save the 30c in the dollar that was their rebate but will also lose the 70c that the individual had previously contributed to this country’s healthcare. The ultimate impact on the public health system is very difficult to gauge. But it seems very possible that the balance between Australia’s private and public health systems will be profoundly and adversely affected. This is a balance which has delivered health outcomes that are the envy of much of the world.

When it was introduced in 1999, the 30 per cent rebate made private health insurance cover affordable for millions of Australians. At that time, the private health sector was in what looked like a death spiral. The proportion of the Australian population with private health cover had dropped from around 70 per cent in the 1970s to around 30 per cent and was still falling. The rebate, together with lifetime health cover and the Medicare levy surcharge, arrested that decline, restored the balance between the private and public system and relieved the pressure on public hospitals. I wonder why any government would risk these tremendous gains for the sake of raising revenue in the short term, particularly at a time when Australia’s ageing population is certain to place increasing strain on the country’s health services.

In summary, I believe that the changes which are being discussed would not only cause considerable hardship for all of our members but threaten the balance between Australia’s private and public health care which has served this country so well. I thank you for that opportunity.

CHAIR —Thank you, Mr Bransby. Mr Walton, do you wish to add anything at this stage?

Mr Walton —No, thank you.

Senator CORMANN —Just before I get onto questions, I thought I would place something on record again. I have previously worked for HBF and I am also a member of HBF.

CHAIR —Thank you, Senator Cormann. You have put that on record before, but it is good of you to do it again.

Senator CORMANN —Mr Bransby, did you see this measure coming?

Mr Bransby —Not at all. When we sat back and did our planning last year we never considered that this measure would be coming in and did not factor it in when we set our premiums for this particular year.

Senator CORMANN —And why is that? Is it because you had an understanding that there were some firm commitments in place?

Mr Bransby —We certainly had had some commitments from the government the previous year that we would be retaining our rebates and so forth, so we planned accordingly. We rely very heavily on consistency in public policy when making planning decisions for our organisation.

Senator CORMANN —You have talked us through some of the high-level numbers in terms of who it would affect your members. Have you done any internal modelling to assess how it will work its way through your forecasting?

Mr Bransby —We have used the numbers produced by the association. Given that we are seven per cent of the Australian market, we have just used that modelling across our fund and come up with the same outcome. We do not see that it will be any different in Western Australia.

Senator CORMANN —But moving forward as you put together your next rate change application, presumably you will have to come up with some firm assumptions as to how it will impact on things like membership trends overall, in terms of the number of people downgrading cover, in terms of—

Mr Bransby —We are working on that round now. We will be using the same assumptions that come out of the association in terms of the impact on our fund. That will be significant losses in ancillary cover and significant downgrading of product. But we cannot give you the accurate numbers because we have not done that work yet. But we are looking for significant reductions in those areas.

Senator CORMANN —You mentioned earlier that this time last year you appeared before another Senate committee to discuss the changes to the Medicare levy surcharge. Those changes ultimately passed were somewhat watered down compared to the original measure. However, since that measure was implemented in October last year, what have been your early observations of what the changes to the Medicare levy charge thresholds have been?

Mr Bransby —There is no doubt that the market is smaller. It has been widely reported that 200,000 fewer Australians joined the sector as a result. We also believe that the full impact of the changes in the surcharge have not come through yet. The trigger point will be tax time, which is about now. So we are forecasting an exodus from private health insurance in the second half of this year as a result of that. At this stage, the early impacts are fewer people joining the sector.

Senator CORMANN —You had the changes last year. You have the changes to the rebate this year. You have the general economic conditions. How would you describe your operating environment now compared to two years ago?

Mr Bransby —It is extremely challenging. There is no doubt that with the current economic conditions people are looking at every cent they spend these days. Unemployment is rising. That was reported widely yesterday. Any disincentive to be in this particular sector right now is discouraging people from joining the sector. Our product and our proposition are under threat. It is a very challenging time.

Senator CORMANN —You mentioned in your opening statement how people are facing increases if they lose the rebate of about 43 per cent. But there is a proportion of your membership that potentially will face increases of up to 66.7 per cent, isn’t there? Treasury has quantified the number losing the 40 per cent rebate as small—two per cent. Nevertheless, the highest increase that somebody will face as an immediate result of this is 66.7 per cent is it not? The 43 per cent figure is based on losing the 30 per cent rebate. But there are the 35 per cent and 40 per cent rebates.

Mr Bransby —Oh, yes. Absolutely. There is a percentage of members—probably the pensioner groups and so forth—who will be impacted even more adversely than 43 per cent.

Senator CORMANN —To be fair, pensioners will not face the 66.7 per cent increase because they would not be in the income bracket. As members leave and members downgrade their cover, how will those below the income thresholds be impacted? Do you foresee that there will be an impact on premiums for them?

Mr Bransby —Over 80 per cent of our policy holders are probably below the $75,000 threshold. However, when those above the threshold downgrade revenue will come off. That will cause premiums to increase. The payment pool stays the same size. Anyone who leaves the sector or downgrades because of rebates no longer being there will cause the revenue falls. Therefore, that can only push costs back onto premium levels for the whole pool. I would see bigger increases for that larger pool of people in the future as a result of that.

Senator CORMANN —Even though you might lose members or have members downgrade their level of cover, do you expect that your expenses will go down?

Mr Bransby —Not at all. Our claiming pool will be the same size. To minimise premiums and to support the claiming pool—our expenses; our benefit payments—you need as much participation as possible to hold premiums at a realistic level. I would expect that the lower end will be impacted significantly. Remember also that there is probably a million Australians with household income of less than $26,000 who have private health insurance. I feel for those individuals.

Senator CORMANN —They are presumably most likely to try and hang on no matter what. If wealthier people downgrade because of this measure, then they will be the ones who will have to cover an increased burden. Is that correct?

Mr Bransby —Absolutely. As the managing director of a health fund, I see lots of complaints and lots of complimentary letters that come through from our fixed income pensioners and low-income families. They clearly say that they would rather not eat than get rid of their private health insurance cover. Those people will stay, there is no doubt about it, because they see the value in it. And they are the ones who will be penalised.

Senator CORMANN —You very quickly went through those figures in terms of the number of members who you expect to downgrade. Can you quickly tell me that again? How many people do you expect will downgrade?

Mr Bransby —Those numbers are Australian Health Insurance Association numbers. Do you want me to repeat those?

Senator CORMANN —Just as far as they relate to HBF.

Mr Bransby —We do not have those. All we have done is used the same analysis. But I can take that question on notice and send that through.

Senator CORMANN —What I am interested in is if you have done any internal modelling in terms of this. Clearly, if you make an assumption about how many people will leave that will flow through in terms of how much revenue you will lose. How much revenue you will lose will give you some indication as to what the premium change impact would be moving forward. If you can take on notice a question as to what your expectations are, that would be good. I am not looking for your rate change moving forward. I am just looking for that part of your rate change that you think will flow from this measure.

Mr Bransby —We are doing that piece of work as we speak, because we are coming into a rate presentation.

Senator CORMANN —This measure will come before the Senate some time in August.

Mr Bransby —We can do it by then.

Senator CORMANN —Can you talk us through what a member downgrading means for that particular member at the time that they access services? What down downgrading mean?

Mr Bransby —There are two things. Firstly, there is no surcharge applicable to ancillary products. The first thing that you would probably do is drop ancillary products, because there is no penalty to dropping them. So if you do not need any of that, you can give it up. There is a revenue pool there that produces surplus results. Given that 80 per cent of our members have both products, they supplement each other. But I would suggest that if you did not see the value in an ancillary product there is no stick, if you like, to make you continue on with that product. I expect there to be a significant drop off. That may be whole hospital cover.

If you felt that the price was excessive and you were young and healthy and never saw a need for it you might take on a bigger excess. So you would reduce your premium and pick up some of the front-end risk on any hospital statements. You would look for every opportunity to take the premium down as low as you possibly could and probably pick up some of the risk through excess in certain products we have.  You may drop your ancillary cover to reduce your total premium and then you may take a high-risk product to take more cost out of that brand.

Senator CORMANN —Or you might increase the number of exclusions on hospital products.

Mr Bransby —That is right.

Senator CORMANN —What are the proportions of the benefits you pay in ancillary? It is mostly dental; is that right?

Mr Bransby —Fifty per cent of ancillary benefits are in the dental space.

Senator CORMANN —And what is the other 50 per cent made up of?

Mr Bransby —Optical and other ancillary services.

Senator CORMANN —So people who drop their ancillary cover would have to either access dental services in the public system—

Mr Bransby —Absolutely.

Senator CORMANN —or fund it themselves?

Mr Bransby —Or maybe just not do it at all. If they did, they could fund it themselves or access the public system, if it is available—as with dental, for example.

Senator CORMANN —What are the most typical exclusions of your hospital products? What do people exclude to reduce the cost of their health insurance premiums?

Mr Bransby —There are 50 to 60 different iterations of a health insurance—

Senator CORMANN —If you give me the names—

Mr Bransby —For example, if you felt that you were pretty healthy you might drop heart cover. You can drop knee cover and all those sorts of things. You can do all sorts of iterations for stuff that you would not expect to happen. For example, you can have a policy without any heart cover.

Senator CORMANN —So if one of your members who is otherwise privately insured but has excluded heart cover has a heart attack, do they have to go into the public system?

Mr Bransby —Straight into the public system, yes. For any exclusion you do take, if you do suffer from that illness in the future then you are going to place additional burden back onto the public system.

Senator CORMANN —In your experience, is there sometimes confusion in these sorts of circumstances where members actually arrive at a private hospital thinking that they are covered for something that they are not?

Mr Bransby —Absolutely. There is no doubt. This will force people to have a look at their policies and look for alternatives to make it cheaper.

Senator CORMANN —How much do you usually pay, on average, for heart surgery—a bypass or one of those little machines? What costs are we talking about?

Mr Bransby —In total or—

Senator CORMANN —Yes—in total. What sort of benefits do you pay out for heart surgery?

Mr Bransby —About $167 million.

Senator CORMANN —Sorry. I meant on a procedure-by-procedure basis.

Mr Bransby —I would have to take that on notice. I cannot tell you, but it is quite significant.

Senator CORMANN —Just the prostheses for some of these procedures is about $50,000 or $60,000; is that right?

Mr Bransby —Yes.

Senator CORMANN —If someone has that particular procedure excluded—

Mr Bransby —It is a big cost back on the public system, yes. Anything to do with the heart, for example, is very expensive. We can take on notice what the specific costs are for specific items. But you are right—a stent is probably $10,000 to $15,000. We can get you some more details, if you would like. It is very expensive, yes.

Senator CORMANN —Treasury has actually made an assumption that people will not be downgrading their cover. Are you surprised by that assumption?

Mr Bransby —Yes, I am, actually. Anecdotally, the talk I hear coming through the system is that people will be looking at the whole proposition and will be looking at every opportunity to downgrade. If you do not see value in ancillary, for example, and you are in that middle-income bracket, you would probably struggle to find value and maybe you would self-insure. I would also suggest that if you did get a substantive increase on an already relatively expensive product you would look at the proposition again to see whether you could take some cost out of it. So I am surprised at the numbers that have come out of Treasury on downgrading.

Senator CORMANN —Is it fair to say that, given the way the policy structure is reducing the rebate, increasing the Medicare levy surcharge in certain income tax brackets, the most rational response would be to downgrade your cover? Isn’t that the most rational thing about someone could to if they wanted to minimise the impact of the cost increase?

Mr Bransby —It does sound like a rational response.

Senator CORMANN —Just looking at the proportion of private hospital admissions versus public hospital admissions, obviously one of the key arguments in favour of policy supporting the private health framework is that it helps relieve pressure on the public system. Some people have suggested before this inquiry that increasing private health insurance membership has not contributed to taking pressure off public hospitals. Can you comment on that?

Mr Bransby —Naturally if you have participation rates in excess of 50 per cent, which we have in Western Australia—and our private hospital system in Western Australia is fully utilised—then if there is any reduction in that and you put that burden back into the public system then it would sort of get the balance askew. So my personal view would be that the balance is probably right.

Senator CORMANN —It would have been before your time, but do you have any historical information in terms of what private hospital utilisation rates were in the late eighties and early nineties compared to now?

Mr Bransby —We can access that. We can actually provide that data to you but I do not have it with me.

Senator CORMANN —I think you will find that a lot of the growth in demand has been absorbed by private hospitals. I note your comments in your opening remarks in relation to the work that HBF does trying to reduce tobacco smoking. Does HBF have a view about the opposition’s proposal to increase the excise on tobacco as an alternative to means testing the private health insurance rebate? What are your views on that?

Mr Bransby —We have actually publicly stated that we support the increase. We think the greatest deterrent to people smoking—and we do try to encourage Western Australians, particularly, not to smoke—is to increase prices. We publicly support any deterrent to people smoking and the impact that may have on the health system in general.

Senator CORMANN —So if the parliament went ahead with the alternative of increasing the excise on tobacco rather than means testing the private health insurance then you would support that?

Mr Bransby —Yes, we have publicly supported that.

Senator CORMANN —What sort of impact do you envisage this broken promise on private health insurance rebates having on community rating? What do you think the impact will be on community rating? Will it put pressure on community rating?

Mr Walton —What aspect of community rating are you referring to?

Senator CORMANN —Obviously the healthier and the better risks are leaving and the claimant pool of worse risks stays the same. Aren’t you going to be under more pressure to find products to keep the young and healthy in and make it cheaper for them and essentially increase the burden on those who I guess are worse risks? Won’t there be a temptation for the industry to try and capture the costs that are faced by the more expensive risks somewhere? You will not be able to do it with the younger and the healthier because they will just leave or downgrade their cover.

Mr Bransby —We certainly are very strong supporters of the community rating. We think it is the only way that our system works. So any means testing outcome that would encourage a change in behaviour would be adverse, I would have thought, in terms of how you mix your product up. So, yes, you are probably right; we would be looking for ways to encourage people to join the sector and obviously the young and the healthy would be the group we try to attract. So it could have some impact.

Senator CORMANN —You mentioned before that when people downgrade their cover one of their options is to increase front-end deductibles. That means there will be increased out-of-pocket expenses at the time of accessing the service. How do you think that will impact on people’s perception of value?

Mr Bransby —I think it puts it under threat. There is no doubt that the biggest concern and the biggest threat to our value proposition is out-of-pocket costs. You only experience those we you utilise your cover so I think it will have a detrimental effect on the value proposition of the product. There is no doubt about that.

Senator CORMANN —Do you think it will just be a first-round effect in terms of membership and premiums or do you think there will be a series of effects—perhaps second, third and fourth? Do you think there is the potential for an accelerating downward spiral similar to what was experienced in the eighties and early nineties?

Mr Bransby —I absolutely do because if you are a non-claimant, the excess products and the upfront deductibles would not have an impact until you became a claimant. So it is overtime when you use it that you would really start to question the value of it. We have had a strategy at HBF of trying to minimise out-of-pocket expenses to clearly preserve the value proposition. This does not encourage that.

Senator CORMANN —Are you aware that Treasury have said during Senate estimates that they excluded 1.4 million Australians with private health insurance—those with ancillary cover—from their modelling because they did not have income data associated with them?

Mr Bransby —Yes, we heard that.

Senator CORMANN —Treasury have concluded that only 5,000 of those 1.4 million people will drop their cover.

Mr Bransby —I find that really surprising. We have 20 per cent of our fund members who have ancillary cover only. If there is no universal impact on ancillary then I have no doubt that that particular product will come under threat for that group of people.

Senator CORMANN —Is it fair to say that, given that Treasury did not assume a downgrading in cover and that they did not include 1.4 million people who have ancillary cover only, the modelling results underestimate the impact this will have on private health?

Mr Bransby —Absolutely. There is no doubt.

Senator CORMANN —Statements have been made by the industry that this will put additional pressure on public hospitals. Have you done any work to assess how much additional pressure it will put on public hospitals?

Mr Bransby —It is very hard to gauge. Without knowing people’s incomes we can only use relatively old data on what income levels are. But we have absolutely no doubt that any downgrading and any exodus from the sector will put increased pressure back on the public system. There is no doubt about that.

Senator CORMANN —I have a final question. Last year we had the changes to the Medicare levy surcharge thresholds and this year we have Labor’s broken promise on private health insurance rebates. Are you concerned about next year’s budget?

Mr Bransby —We just need consistency from governments when setting budgets, yes. We have two changes in two budgets that have come as a surprise to us, on both fronts, and it does make it extremely challenging for us to plan ahead, particularly given that we have to lock in our revenues and premiums very early—probably well before the next budget. We do need consistency around policy when forecasting. So, do I remain concerned? Yes, I do.

Senator CORMANN —If the government were to tell you that this is it, would you trust that sort of assurance?

Mr Bransby —We look for consistency in policy.

Senator SIEWERT —I would like to go to this issue around ancillary cover. As I understand what you have just said, five per cent of your members only have ancillary cover.

Mr Bransby —No, I think it is about 20 per cent of our members who only have ancillary cover. Some 80 per cent have both and the remaining 20 per cent have ancillary cover only.

Senator SIEWERT —So what is the five per cent?

Mr Bransby —I am not sure that I mentioned five per cent.

Senator SIEWERT —Okay, I must have misheard. So 20 per cent have only ancillary cover. You do not have an understanding of the incomes of your particular policyholders, do you?

Mr Bransby —No, we just use access data so we just look at general population norms.

Senator SIEWERT —In your opinion is it more likely that those only holding ancillary cover will be people on lower incomes or people on higher incomes?

Mr Bransby —We actually find, and this is in my opinion, that ancillary cover is an entry point for the young into the private health system. We tend to find that they start there and then they move into full-blown hospital cover. Our job is to get people into the sector—to espouse a proposition. We have had a lot of growth in that space in the last couple of years. It is our entry point; it is what we specifically target to get people into the system. So I would suspect that a lot of those would be the young.

Senator SIEWERT —So there is a potential that they are on a lower income rather than a higher income and potentially are not going to be affected by the change in the rebates.

Mr Bransby —You are probably right; they would probably be at the lower end, I would suspect—but I am only suspecting.

Senator SIEWERT —We had a bit of a discussion in Melbourne yesterday around what is classed as younger. I was delighted to know that I was counted as young.

CHAIR —You were overjoyed by that!

Senator SIEWERT —Yes, I was overjoyed—my son does not believe it, mind you. It seems to vary between the different funds. What do you count as young? I will not be offended.

Mr Bransby —We actually push people through life stages as distinct from age. So there are young singles, there are middle families and then there is the retiree bracket. You can be a retiree at a relatively young age, I assume. But I would say that up to the age of 30 would probably be what we consider to be young.

CHAIR —The answer we heard yesterday was 40 something.

Senator SIEWERT —It was 48. I know because I just fit in there.

Mr Bransby —We would call those the young singles, and perhaps the middle phase would be the young family. So we use life stages as distinct from discriminating age wise. So we have young singles, young families et cetera.

Senator SIEWERT —Your growing family, your older family.

Mr Bransby —So you could still be a young family, but—

Senator SIEWERT —That, to me, makes much more sense. In terms of the million that are under 26,000, this is all based on the ABS data, isn’t it?

Mr Bransby —Yes.

Senator SIEWERT —You will not have an idea of what type of policies those million people have.

Mr Bransby —No, not at all. I can only assume that it would be hospital cover, but I do not know. We have not got access to that data.

Senator SIEWERT —That is the assumption that I thought it would have been—basic hospital cover. Thank you.

Senator FURNER —You mention—I think it is correct—you have had 800,000 members over the last 60-odd years.

Mr Bransby —Yes.

Senator FURNER —What has been the growth in that over the 60 years? Can you give me some data with respect to what the inception was and how it has grown over those 60 years?

Mr Bransby —Can I take that on notice and provide that to you?

Senator FURNER —Yes, sure. Would it be fair to suggest that there certainly has been an increase in membership as a result of the booms in Western Australia?

Mr Bransby —There has certainly been an increase, there is no doubt.

Senator FURNER —None of the witnesses, unfortunately, have been able to ascertain or provide us with data on the income of their membership, but certainly out of that 800,000, there would no doubt be quite a few covered by the higher spectrum of income as a result of the mining sector and energy and resource industries?

Mr Bransby —Yes. A lot of them may have come via the corporate groups. There was a major push— particularly in Western Australia if you are talking about the mining sector as an employment differentiator as the market got so competitive—to offer private health insurance to that group of people. We actually see that as being a significant threat now with the reduction in rebate, because the costs to the business would increase and therefore we may see some decline in that part of the sector as well.

Senator FURNER —Are those contracts generally made by organisations of the mining sector or are they made up by individual arrangements between—

Mr Bransby —It is normally specific to the corporate, the employer, and it is quite a big industry in Western Australia.

Senator FURNER —What does the employer get out of those arrangements?

Mr Bransby —It is more an employment differentiation for them. As the market got competitive, it is just part of the proposition to attract people to their particular sector.

Senator FURNER —So a particular employer does not have any contractual arrangement with you to get some sort of percentage gain by putting their employees into a particular cover or—

Mr Bransby —Certainly the corporate gains are dissipating. A marginal discounted price for an employer group would come under threat—or the price would.

Senator FURNER —That is not what I am asking. I am asking whether particular employers get some sort of gain,—to use a raw term, a ‘kickback’—from your organisation as a result of putting their employees into a particular—

Mr Bransby —Not at all; not through HBF, no.

Senator FURNER —You indicated that around 302,000 would be affected by a reduction or a loss of the rebate. Where did you get that sort of data from? Was that using the industry modelling that you have been using?

Mr Bransby —We said 170,000 policies were directly affected.

Senator CORMANN —Is there any chance you might be able to table your opening statement, just so we can have a look through it?

Mr Bransby —Yes, sure. So 32,000 singles, 139,000 families, totalling 172,000 people affected.

Senator FURNER —How did you reach that conclusion? Was it once again using the industry modelling?

Mr Bransby —Absolutely. We do not have individual people’s incomes. We just use the normal access data modelling for Western Australia.

Senator FURNER —Given that Treasury has indicated that there will be an estimate of 25,000 dropping out, did you consider at any stage using that as opposed to the industry modelling?

Mr Bransby —We have done all sorts of modelling. We have used both lots of modelling, but when you actually slow the plan you start to think of what the worst-case scenario may be. You just do not know.

Senator FURNER —So you would rather use worst-case scenario as opposed to somewhere medium or in between?

Mr Bransby —I personally think we have to. We get one chance a year to have a look at our premium prices for the issuing year, so you have to go to the top end of it. There is no doubt about that.

Senator FURNER —Have you been making predictions already about what the premium increase will be based on your concerns of this particular effect?

Mr Bransby —It is far too early for that. We are starting to do that modelling now.

Senator FURNER —In response to Senator Cormann’s questioning on ancillary products you spoke about there being no penalty. Would you like to see a penalty on the arrangements for the reduction of ancillary matters?

Mr Bransby —Not particularly. We really want to see the preservation of both. We actually treat health cover as both areas, not just hospital but also allied services and so forth. Our job is to encourage people to take out both. I do not want to see any more change to the private health insurance system essentially that is going to create any disincentive for people to leave at all. Do we need encouragement? I think it is up to us as health funds to be sure we have got a proposition that works and that makes it reliable and ongoing as we go forward.

Senator FURNER —You have painted this picture—I would not say of doom and gloom, but certainly of a significant impact on your organisation. Have you done any forward estimates of what the impact will be on your staff at all?

Mr Bransby —Once again, we try to run our health fund on a very modest expense ratio. We are a not-for-profit organisation. Our job in life is to provide benefits to members in the health services area. Obviously, like any other business, if the business contracts in revenue our claims pool will stay the same. The only other place we can go to take cost out of our organisation would be through people. So as revenue comes off we do not see any reduction in our claims costs; there is an ageing population out there and so forth. The only other area you have to drive efficiencies would be through the people. So I would suggest that if revenue came off our employment numbers would reduce.

Senator FURNER —And once again that is subject to if that happens.

Mr Bransby —Absolutely true.

Senator FURNER —Have you had an opportunity to have a look at other submissions that have been put into this inquiry at all?

Mr Bransby —Not at all, no. Sorry, I have read the industry association’s submission.

Senator FURNER —That is the only one you have read?

Mr Bransby —Yes.

Senator FURNER —I would certainly encourage you to read a number of the others to get a balance on what has been suggested, particularly from Mr Wells, Dr McAuley and Dr Deeble, who has had, I would suggest, expert experience in this particular area. Certainly Dr McAuley indicates that the likelihood of people dropping out is very remote based on what he defines as the endowment factor. People tend to hang on to their health insurance because, unlike other insurance, once people have it, they wish to retain it for particular reasons: you do not want to put a price on or gamble with your health. What would your view be on that type of definition?

Mr Bransby —If you think about it, we needed a lot of incentives for people to join the sector, because it is in decline. So people were encouraged to join through the introduction of all these incentives—rebates and lifetime health cover and the Medicare levy surcharge. That is when the sector started to flourish. If you look at history, it has not been treated that way. So maybe the sentiment has changed. But my view would be, clearly, the sector was in decline pre all these incentives to join. And I accept that, as we take them away, people will leave. That is my view.

Senator FURNER —With respect to the notion of having an impost on the public sector, with a dramatic influx of additional people into the public hospital system, the department indicates that that will roughly be around 8,000, wherever that might be the case. However, people like you and other funds have indicated that that will certainly be greater. In the minister’s second reading speech he indicated that, under the new arrangements of $64 billion of COAG—which has been a negotiated agreement with the states and territories—hospitals will receive 50 per cent over and above the old Australian healthcare arrangements. That certainly puts a different picture to that painted by fund industries about what the impact will be on the public sector.

Mr Bransby —And what was their source of data?

Senator FURNER —Theirs is based on a calculated change in funding of $64 billion over the next five years. So, naturally, that type of funding will certainly increase the benefits for the public sector and hospital admissions and no doubt have a bearing on the figure that they have proposed of 8,000 additional hospital admissions. I am not privy to how they came to that conclusion but it no doubt has a bearing on the 25,000 people they believe will drop out of private health insurance. So you do not dispute or refute that?

Mr Bransby —I really would not like to make a comment. I would have to do a bit more analysis on it.

Senator CORMANN —I just want to follow up on a few of the questions asked by Senator Furner, particularly in relation to the Treasury modelling and the sort of modelling you used to do your forecasting. Do you think it would be prudent if HBF based its forecasting on modelling that excluded 1.4 million Australians with private health insurance from their assessments and assumed that nobody would downgrade their cover as a result of the changes to the private health insurance rebate?

Mr Bransby —Absolutely not. I could not run the business that way.

Senator CORMANN —In relation to the changes last year, are you aware that Treasury and the health department both confirmed during Senate estimates that they still expect about half a million fewer Australians to be in private health as a result of the changes to the Medicare levy surcharge—that is, that last year’s changes still are working their way through the system?

Mr Bransby —That is the assumption we have used there. So hopefully they have—

Senator CORMANN —You would report regularly to PHIAC on a range of statistics, including your health fund margins?

Mr Bransby —We do.

Senator CORMANN —You may not have the specifics at your fingertips but, by way of general trends, how has your health fund margin been tracking year on year over the last two years?

Mr Bransby —For the last couple of years the margin has been declining because we are paying more and more out in benefits.

Senator CORMANN —So you are paying more and more out and fewer people are coming on board compared to what you previously forecast, so your rate change will have to go up some time down the track, as it will have to for the rest of the industry, will it not?

Mr Bransby —As fewer and fewer people join it impacts on the premiums and the premium has to of course go up. Over the last couple of quarters, fewer people have been joining. Therefore, with fewer people in the revenue pool and claims costs continuing to rise, the only place you can source that back to hold a margin is through increased premiums.

Senator CORMANN —I am just asking—

CHAIR —Senator Cormann, I am letting you go ahead, but it has been our natural process here that a follow-up question comes through.

Senator CORMANN —I was in the line of questioning. As premiums increase by more, that in turn will have an effect on the members who remain—all of them, including those below the threshold?

Mr Bransby —Absolutely correct.

Senator CORMANN —So more will decide that it is getting too expensive and it is no longer good value and that will turn on itself, will it not?

Mr Bransby —It will just continue to slide. That is exactly correct.

Senator CORMANN —And those people will then turn to the public system and displace people who otherwise would have had access to a public hospital bed?

Mr Bransby —Exactly true. That is the only place they have got to go—to the public system.

Senator CORMANN —So, if I were to say that all Australians will be hurt by these sorts of policy changes—not only those in those income brackets, I would be right, would I not?

Mr Bransby —I would agree with you, yes.

Senator FURNER —When was your last premium increase?

Mr Bransby —It was implemented on 1 April this year.

Senator FURNER —What amount was that?

Mr Bransby —The average increase was 7.95 per cent.

Senator FURNER —And when was the last premium increase prior to that?

Mr Bransby —It was 1 April last year.

CHAIR —When was the last year that there was not an increase?

Mr Bransby —It was not in my time.

Senator CORMANN —How much were the previous two increases? You said 7.95 per cent this year. What was the one the year before and the year before that?

Mr Bransby —Much less. You are testing my memory. It was 3.95 per cent the year before and the year before that it was probably around four per cent.

Senator CORMANN —So it has already been trending up?

Mr Bransby —Absolutely. When you have got claims costs increasing and benefit payments going up, you have got to claw that back somewhere, and the only place you can get it is through increased premiums.

Senator SIEWERT —I want to go back to the percentage of your members who have ancillary cover, basics cover and combination cover. Eighty per cent had a combination of both.

Mr Bransby —Yes, or thereabouts.

Senator SIEWERT —What percentage has just hospitals cover?

Mr Bransby —I would have to take that on notice.

Senator SIEWERT —At the moment, I have got 100 per cent—

CHAIR —That is right; without hospitals cover.

Senator SIEWERT —I would have thought that more people would have just basic hospital cover than would have ancillary cover.

Mr Bransby —I would have to come back to you on that.

Senator SIEWERT —We have already discussed that we would expect those on a low income would just have hospital cover.

Mr Bransby —I can take that on notice and give you the full break-up, if you like.

Senator SIEWERT —That would be appreciated. Thank you.

CHAIR —Mr Bransby, we are out of time, but I have one question. Can you give me any data from your perspective about the dollar amount of the increases? We have a graph from the Australian Health Insurance Association, which is doing a general modelling of what it would be. People are throwing around their percentages, but I am really interested to know the dollar amount we are talking about. Have you done any consideration of this within your HBF products? When we talk about a 43 per cent and a 66 per cent increase, can you give me any information from your perspective as to how much that is?

Mr Bransby —As in what that means in dollars?

CHAIR —Yes.

Mr Bransby —Can I take that on notice as well?

CHAIR —That would be fine.

Mr Bransby —We have probably got it here. Did you want the pooled amount or just per policy?

CHAIR —You could take it on notice. For the family one, the AHIA figures show that around $1,000 to $1,500 is the highest increase per year and about $500 or $550 is the biggest increase for an individual per year. But we would like to see your modelling on that as well.

Mr Bransby —We are not far off those.

CHAIR —So, for a family on an income of $250,000, the increase for the year is $1,000 to $1,500? Is that the kind of figure you have—at the top rate?

Mr Bransby —We are a little higher, but that number if not far off.

CHAIR —If you could take that on notice it would be appreciated. Thank you very much for appearing before us today.

[9.44 am]