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Speech to the Australian Health Insurance Association Conference.

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Minister for Health and Ageing


Australian Health Insurance Association Conference

11 November 2009


- Traditional custodians of the land;

- Richard Bowden, President, AHIA;

- Dr Michael Armitage, CEO, AHIA;

- Pat Anderson, Cooperative Research Centre for Aboriginal Health;

- Ladies and gentlemen.


Thank you for having me here this morning. I am happy to be here to support your conference, and the private health insurance industry which is a vital part of our health system and an important player in the national health reform process that this Government has been progressing as a key priority.

Your conference is timely, as is the topic - ‘Investing in the future’.

As you all know, we are at a vital time in healthcare. I think you all know how serious the Government is about reform, which is why I am pleased your organisation and the private health sector more broadly is taking such a keen interest in the debate.

We need this level of engagement from you. In fact, the National Health and Hospitals Reform Commission’s Report states that reform must be driven at all levels of the health system, and it specifically includes health insurers among the groups that must be involved.

The Australian health system has many strengths, one of which is the mix of private and public financing and service provision in our health system and the resulting competition.

However, this competitive tension does create issues that need to be considered as part of health reform. The Commission reports: “There are concerns that a two-tiered

health system is evolving, in which people without private health insurance have unacceptable delays in access to some specialties….”

Nobody wants us to head down the American road of spiralling costs for private health or large numbers of unprotected citizens. This is partly why the private sector in Australia receives significant government support, especially through Medicare and the Private Health Insurance Rebate.

In addition, private health in Australia needs a strong public health system - the two complement each other, and give each other strength.

This was a point recently made in the draft Productivity Commission report on Public and Private Hospitals. Hence the sustainability of the health system applies to both the public and private systems.

Private Health Insurance Rebate

This brings me of course, to the 30 per cent rebate, something I know inflames passions and robust debate. I understand that some in the industry vigorously opposes these changes - but I would like to explain again why the Government believes these are justified.

The Rebate was introduced to make health insurance more affordable. The Government supports the rebate, as we made clear before the last election and since. But in the changed global financial environment you are and we have had to make some changes - as are governments and businesses around the world.

Without change, spending on the rebate was projected to double as a proportion of health expenditure by 2046-47. In the face of demographic pressures and spiralling costs across the health sector, this was clearly unsustainable.

The cost of the rebate to the Commonwealth has ballooned over the past decade from approximately $1.5 billion per annum in 2000 to $4 billion last financial year.

This is also reflected in the Mid Year Economic and Fiscal Outlook released last week which showed an increase of $276 million in Private Health Insurance Rebate expenses since the Government forecasts in the May budget. This equates to an extra $1.1 billion over four years.

The changes we have announced to the rebate will provide a fairer distribution of benefits - with the largest benefits provided to those on the lowest incomes. At the same time, it will have a minimal impact on participation with 99.7 per cent of people projected to maintain their hospital cover.

The rationale is simple - those people that can afford to pay more, should. Private health incentives should be supporting nurses, taxi drivers and secretaries to have private health insurance, not Members of Parliament and CEOs - or even millionaires.

We clearly do not believe that subsidising the insurance of millionaires is more important than investing in more doctors and nurses, chronic diseases, cancer care and hospital infrastructure. And you know, and I know, that the vast majority of high

income earners do not keep their insurance because of the rebate. Research has shown that up to 76 per cent of high income earners regard it as essential to have private health insurance, with the main reason for insuring being security and peace of mind.

Moreover, the incentive to take up or keep private hospital cover will be increased by the proposed increase in the rate of the Medicare Levy surcharge for higher income earners - to either 1.25 per cent or 1.5 per cent.

Not passing this change would cost taxpayers $2 billion over the life of the budget, and around $9 billion over the next decade.

The health insurance industry has in part funded a survey by Ipsos into private health insurance, and this year’s results have just been released. In the survey the industry included questions about the impact of the Government's insurance changes. Interestingly, with proper advice about the implications of Lifetime Health Cover and the operation of the Medicare Levy Surcharge even this survey of your own found that only 7,000 memberships would be dropped, or approximately 15,000 people - a tiny number from the millions insured. And it is in fact, 97 per cent fewer people than estimated by your own Association, the AHIA, who estimated 241,000 would drop out. It was even 72 per cent less than the Government’s estimate of 25,000.

What this shows is that the changes are aimed at sustainability, but are very unlikely to affect participation other than in the most marginal way.

This resonates with an earlier dispute we had with your industry over our changes to the Medicare Levy Surcharge. The AHIA claimed that up to a million people would drop out of insurance. However the proof has shown there have been no drop outs. On the contrary, in the June 09 quarter over 43,000 more people were covered by private hospital insurance, and this is over 211,000 more than the same time last year.

Your product has shown itself to be more resilient than your own advocates expected.

As you know the rebate legislation was rejected in the Senate in September. It is likely that I will re-introduce this legislation in the upcoming sitting fortnight and I hope attention will be drawn to the strength of these arguments about sustainability, fairness and participation.

Private Health Insurance Premium Round

Something also of interest to most of the delegates here today will be the upcoming 2010 Private Health Insurance Round.

In the 2007 election we promised to end the “tick and flick” mentality of the previous Government - and as you know we did that.

We know any increase can put pressure on families - which is especially true during times of economic uncertainty. That’s why the Government has been and continues

to be determined to restrict increases to the minimum necessary to ensure that legal requirements are met.

Last year, the Liberal Shadow Health Minister predicted rate increases of up to 12 per cent, in fact I approved increases of an average of 6.02 per cent.

Today I can announce publicly what we have already discussed with the industry - namely the process for the 2010 premium assessment round.

On 9 October insurers were sent the information that is required to be provided when seeking rate changes for 2010.

Last week I wrote to insurers giving them formal notice that the closing date for lodging applications had been brought forward to 20 November - which is Friday week. Insurers were notified of our intention to use this date in March this year.

This earlier timeframe will allow more time for the Government to assess applications to ensure that the increases sought are the minimum necessary. During the process the applications are carefully scrutinised by the Department of Health and Ageing, the Private Health Insurance Administration Council and the Australian Government Actuary. It will also allow more time for interaction between the Government and industry after initial assessments are made.

Each insurer’s application will be considered on its merits - but I am determined that premium increases should be the minimum necessary to ensure the affordability and value of private health insurance continues. This may involve requesting resubmissions, as was the case for many funds last year.

We are also taking action to make the process more transparent. In the 2009-10 Budget the Government committed to increase transparency, which I can confirm will include:

 Publishing a copy of the premium round instructions sent to insurers to assist them with their applications; and

 Publishing average increases for individual insurers allowing consumers to compare their fund’s performance with other insurers and drive competition in the market.

We are taking this action to ensure that consumers know clearly what increase will occur. And you will also be able to compare yourselves against other funds.

I look forward to once again engaging in this process with the insurance industry to reach an outcome that gets the balance right.

Reform reports

Getting the balance right is the key to our wider reform agenda. As the Reform Commission makes abundantly clear, we simply can’t afford to continue to provide health services ‘business as usual’. Our health system is at a tipping point. It isn’t broken - but we must act now to ensure sustainability in the future.

The report provides the Government with 123 recommendations for reform, covering access and equity issues, governance, and the need to create an agile and self improving health system that can meet emerging challenges.

The Government has also released two of our other reform papers - the first ever draft National Primary Health Care Strategy and the report of the National Preventative Health Taskforce.

Options on the table include the Commonwealth taking over funding and policy responsibility for all non-acute health care, including primary health care, hospital outpatient care, dental care, aged care, non-acute mental health, and all sub-acute care delivered outside hospitals.

However, the common theme running through all three reports is the importance of reshaping our health system so that we can keep people as healthy as possible for as long as possible, and treating and managing disease where appropriate in the community and as close to the home as possible.

The key directions of the Commission’s report build on and extend many areas of the Government’s health reform agenda so far, in areas like workforce initiatives, primary care, prevention, better performance and accountability and addressing gaps and inequities.

Changes proposed include a better framework for accountability in primary care, and the better management of patients with chronic disease. This could be achieved through the voluntary enrolment of targeted cohorts of patients or groups with a single provider.

We know that the current health financing systems do not always support people getting the right care at the right time from the right health professional.

With options like voluntary enrolment on the table, we have an opportunity to rethink how we can structure the system so that it is not financial considerations that drive a person to a particular health professional, but health need.

Chronic Disease

I know that your sector is clearly aware of the shadow being cast over our health system by the increasing incidence of chronic disease. The Commission projections are that with no policy change, health and aged care costs are projected to rise from $84 billion in 2003 to a massive $246 billion in 2033. And your projections will also anticipate this growth.

The Private Health Insurance Act 2007 allowed insurers to cover a wider range of treatments provided outside hospital, and to cover services that aim to manage and/or prevent the onset of illness and disease, such as chronic disease management programs.

Many insurers have responded to these new opportunities and are offering more innovative products that focus on prevention as well as disease management and treatment.

The take-up of these programs is still low, but it is growing. Participation in programs recorded by the Private Health Insurance Administration Council has almost doubled from 9,901 in 2007/08 to 19,577 in 2008/09 and total benefits paid for these programs has more than doubled from $4.0 million in 2007/08 to $9.1 million in 2008/09.

Other programs and services such as weight management, stress management and quit smoking are also now being offered by a number of insurers

These are obviously still very small numbers, representing just 0.08 per cent of the $11 billion of benefits paid out by insurers. I hope that these programs will continue to grow across the industry in the future and am confident they would increase the value proposition for many Australians if they did.

I appreciate that some of you believe the Medicare Select proposal from the National Health and Hospitals Reform Commission might take this even further. The Government is considering this recommendation, along with all 122 others, but I feel I should remind those enthusiasts for this idea that the recommendation is to undertake more work on this option - there is no proposal to implement it immediately, nor would it be possible.

National access targets

The Commission has also made a number of suggestions to improve the public accountability of health services.

It recommends that National Access Targets be developed and applied to all health services, including public and private hospitals.

These National Access Targets would measure and report on whether people get the services they need and when they get them, including elective surgery.

Greater public reporting on access, availability, safety and outcomes would allow patients to make informed decisions and choices about hospital care.

We have already taken large steps in this direction - the new National Health Care Agreement contains stringent reporting requirements and access targets for our public hospitals.

Activity Based Funding

You would also be aware that the new Agreement with the States includes a commitment to implement a nationally consistent approach to activity based funding (ABF) across all public hospital services.

The intention is to introduce ABF at the state level for all hospital care.

In effect, the casemix approach for acute services will be extended to emergency departments, subacute care, outpatients and community health services.

When it is implemented, each of the states will be counting and costing their public hospital services in a consistent way. It will make it possible for the first time to compare the cost of hospital services across public hospitals, across states and across settings.

The Commission also recommended the application of ABF for private hospital services and proposed that its implementation be accelerated across all hospitals to enable the early development of efficient costing of hospital activities.

The public has a right to know where, and how efficiently, its funding is going, and they need a means to compare activity and performance. ABF should not be feared by public or private hospitals - it is a mechanism to drive innovation in the delivery of efficient, best practice clinical care.


Such is the importance of these proposed reforms that we are now in the process of involving the entire Australian community in one of the most exhaustive consultation process ever undertaken in this country - and I say exhaustive quite deliberately! We have already completed 70 of these consultations involving more than 5,000 people

in every corner of the country.

Some of you have already been active participants in this process and I thank you for your contributions. I also look forward to a consultation with the private health industry in two weeks time. I strongly encourage you all to have your say, because these changes will affect all of you, and the way you do business.

In December we are holding a specific health COAG to discuss reform with the states, and we will then present our national reform plan in early 2010. Our preference is to work with the States and Territories to deliver this reform plan, but if they won’t join us on this journey, we will seek a mandate from the Australian people at the next election to pursue necessary change.

We will be choosing the options that are best for the Australian people - to improve health outcomes, health equity and the cost effectiveness and sustainability of the very large amounts of taxpayers’ funds that are spent on health.


As you can see from this brief foray into what is on the agenda, there is a lot of activity on the horizon that may affect your industry and its place in the broader health system.

I have been frank with you today. Australia will continue to rely on a mix of public and private financing for health services. I continue to be frank when I say that I believe the broad health reform agenda will provide opportunities for the private health sector.

In fact the Reform Commission recommends that the overall balance of spending through tax, private health insurance and patient co-payments be kept at around the same level as it is now, over the next decade.

I hope that you will see the great benefits that the proposed reforms could deliver to all Australians, including the millions of Australians who are, and will continue to be, members of private health insurance funds.

Our goal is the same. Your conference theme is focused on ‘investing in the future’. That is our focus and agenda as well. I want to help create a sustainable health system that continues to have a strong public and private sector, where the two sectors work together, and where Australians have equal access to services and outcomes, regardless of income or location.

A health system where patients are kept healthy and out of hospital as long as possible, with treatment and care more accessible in the community.

A health system that won’t cripple the next generation with higher taxes and unchecked funding.

A health system with the right balance, that can continue to be a shining example to the rest of the world.

I look forward to working with you all to create this health system.