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Monday, 14 March 2005
Page: 51

Senator McLUCAS (3:42 PM) —This is an extremely important matter, which I am pleased the Senate is allocating some time to. The Australian public have every right to be alarmed at the escalating costs consumers are facing with respect to private health insurance and they have every right to question the Howard government’s failed reforms, which have seen, as we have heard today, massive hikes in premiums along with a growing imbalance in the membership cohorts of private health insurance providers. Less than two weeks ago, on 2 March 2005—the very same day that interest rates rose—the Minister for Health and Ageing, Mr Abbott, announced the fourth consecutive increase to private health insurance premiums. Mr Abbott announced an average increase of 7.96 per cent to private health insurance premiums nationally. Maybe Mr Abbott thought he could hide this latest private health insurance rise while the public were trying to digest the financial impact of an interest rate rise. It has since come to light that many people face premium increases far exceeding the 7.96 per cent national average announced by Minister Abbott. A nearly eight per cent price hike is bad enough but, for many people, this premium increase has been significantly more. We have heard today of 17 and 19 per cent increases in premiums.

As a consequence, more pressure is being put on household budgets, particularly with an interest rate increase to cope with as well. I bring to the attention of the Senate what was said by Ms Sharon Bullock, who was reported in the Cairns Post on 5 March as saying that she thinks they will probably manage the $18 per month interest rate hike to their household mortgage. Then she says:

I will need to cut out my health insurance.

That is what Ms Bullock is facing. Mr Abbott’s response seems to be to shrug his shoulders and say, ‘What am I meant to do about it?’ This is from a health minister who complained about the bills and paperwork that he himself had to deal with after his hospital treatment recently.

Australians with private health insurance will soon be receiving more than bills and paperwork; they will be getting a letter from their respective funds telling them just how much extra they will have to pay each month. We know that many people took out private health insurance because of the Howard government’s health policies, particularly the Lifetime Health Cover, or ‘run for cover’ initiative. These people are now facing the continuously increasing cost accompanied by increasing gap fees and exclusions.

Private health insurance is now 33 per cent more expensive than in 2001, totally wiping out the government’s 30 per cent private health insurance rebate. Furthermore, in 2004, gap fees increased across the board by 19.2 per cent. Under the Howard government, you end up paying more for your private health insurance and getting less out of it when you need to. In 2001, Mr Howard promised that his policies would reduce premiums for private health insurance. Yet, every year, premiums go up. This is another broken promise from the Howard government, and it is the community and consumers that end up paying the price.

Let me mind the Senate that, in 2001, John Howard’s election policy booklet promised that his government’s policies would ‘lead to reduced premiums’. The Prime Minister and the Treasurer promised their policies would create ‘downward pressure’ on premiums and that private health insurance would be more affordable and attractive to consumers. You may recall Minister Wooldridge saying in July 2000:

We’ve got so many extra people in—that will keep downward pressure on premiums. They won’t go up five to eight per cent a year as they did under Labor.

Since the minister made that laughable prediction then, premiums have risen not by five or eight per cent but by over 30 per cent. The recent increase rubberstamped by the minister for health is the highest premium rise since the Howard government implemented its changes to the industry four years ago. It is now obvious to everyone—especially the many thousands of Australians who, in good faith, took out private health insurance—that those reforms were ineffectual at best.

The Australian Consumers Association summed up the situation best when it said: ‘Everyone is doing well out of this except for consumers.’ The current cost to taxpayers from the government’s 30 per cent rebate exceeds $2.25 billion every year. The Australia Institute argued in a recent paper that the Howard government’s reliance on private health insurance as a public policy tool is ‘delivering a disproportionate benefit to high-income earners and those who reside in high-income households’. The government claimed its policies would increase participation in private health. In particular, there was that initial increase following the ‘run for cover’ campaign, but there has been a marked and ongoing decline in the number of younger Australians with private cover. Again, the Australia Institute states that this compositional change is helping drive up the cost of health insurance premiums due to the substantially higher average cost of claims by older Australians.

If you look at the graph in their document, you can see that, for people aged 30 to 45, there has been a seven to eight per cent decrease in take-up of private health insurance. People in that age group are leaving the industry. Those are families with children. They are the people that we want to be in the private health sector. At the same time—this is the period December 2001 to December 2004—the uptake of people aged 70 to 84 years has been around 18 per cent. There has been inordinate growth in older Australians joining private health insurance at the same time that families are withdrawing.

If you look at the average costs of hospital benefits paid out by private health insurers in the December 2004 quarter—

Senator Knowles —How can you come in here and say something that is so untrue? That is so untrue!

Senator McLUCAS —I quote from the PHIAC figures, Senator Knowles. The average cost of hospital benefits for the family age group paid out by private health insurers in the December quarter 2004 is around $100. The average cost for older Australians’ hospital benefit starts at $750 and grows for people over 85 to about $850. That questions, in my view, the ongoing sustainability of private health insurance if we continue down this track of families and younger Australians withdrawing and older Australians, whose draw on the funds will of course be higher, increasing in their membership. Private health subsidies have not reduced pressure on our public hospitals, as the government claimed they would. Statistically, privately insured Australians continue to use public hospitals at the same levels. It is not shifting the burden from the public sector to the private because, when you need acute and high-level surgery, a lot of that is still always going to happen in the public sector.

In 2004, gap fees across the board also increased, as I said earlier, by 19.2 per cent. In addition, the Australian Private Hospitals Association has estimated that out-of-pocket costs for Medibank Private patients in a private hospital not approved by the government-owned insurer will increase by up to $400 per visit under their new competitive selection processes. The potential out-of-pocket costs for privately insured Australians do not end with these changes and the premium increase. Unless the increased fees flow through to those actually providing the health care, private hospitals will have no choice but to raise the patient gap fees. Australians who have chosen private health insurance deserve to get better value for their money. It is clear they are paying more but getting less from their private health insurance funds.

The Howard government will still not take responsibility for the rises in private health insurance premiums. In today’s Financial Review, for example, it is reported that employees of the NIB Health Funds were warned not to blame the Howard government for this latest premium increase. It is reported that an email instructed employees not to say that the government had approved their rate increase when dealing with its members or the general public. They are saying, ‘Don’t say that. When people ring up, don’t blame the government.’

According to Annabel Stafford’s article, NIB has told its employees that, ‘The government is obviously going to be sensitive to this type of suggestion and we are not allowed to say it.’ From the behaviour of senators in this place at the moment, and during question time today, that is absolutely true. There is a level of sensitivity that is being shown from those who sit on the other side. I have to say that is typical of the Howard government’s response to the massive rise in private health insurance. They say: ‘Don’t blame us. It’s not our fault. It’s the consumer’s fault. It’s the rising cost of medical procedures or prostheses. It’s the states’ fault. It’s anyone but us that must take responsibility.’ And now we have one industry player so browbeaten, obviously, telling its staff not to blame the Howard government’s policies for this massive premium hike.

I am afraid to say that the Howard government have got it wrong from day one with this policy. They promised premiums would decrease. They promised that the more people there are in the system, the more pressure would be brought to decrease premiums. That has just not happened. We have seen a 33 per cent increase over the last three years. And this is what Treasurer Peter Costello was saying back in 1998, and they are saying it again today. On 29 November 1998 Mr Costello was interviewed by Glenn Milne on Face to Face. Mr Milne asked Mr Costello to respond to the view that the Labor Party was putting at the time, which was that they were going to give them a 30 per cent rebate but the funds would probably just jack up the premium and absorb the rebate. ‘What can you do,’ he asked the Treasurer ‘to stop the funds from doing that?’ Mr Costello said:

I don’t think that’s the case, Glen, because one of the reasons why premiums keep rising is that membership keeps falling—this is insurance.’

He went on to say:

... one of the best things you can actually do to bring premiums down is to (1) stop the decline in membership and (2) turn it around and put it back up because then you’ve got more people paying more premiums sharing the risks, and this is a very big part of the private health insurance proposal.

I put it to the Senate that Mr Costello got it wrong in 1998. While there was an increase in membership as a direct result of the ‘run for cover’ campaign, we are now seeing a decrease in membership, particularly of younger Australians joining private health insurance, while we are seeing a growth in membership of older Australians. As I explained, of course, their call on the funds is much higher than that of younger Australians.

The Liberal election policy in 2001 got it wrong when it said that there would be downward pressure on premiums and that they would not see increases that previously had existed. So Mr Costello got it wrong, the Liberal Party election policy got it wrong and Minister Wooldridge got it wrong when he suggested back in 2000 that there would be no increase. The Prime Minister got it wrong and now Mr Abbott has got it wrong. I am afraid this is a policy that is simply not working. We have seen a 33 per cent increase in three years. It has completely wiped out any benefit that the 30 per cent rebate has provided to health consumers. The real question that should be answered that was not answered today in question time is the question about the ongoing sustainability of the private health insurance industry in this nation.