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Community Affairs Legislation Committee
07/08/2018

DAY, Ms Katinka, Campaigns and Policy Team Lead, CHOICE

DIAMOND, Mr Mark, Chief Executive Officer, National Rural Health Alliance

KIRKLAND, Mr Alan, Chief Executive Officer, CHOICE

ROOT, Ms Josephine, Policy Director, Consumers Health Forum of Australia

Evidence from Ms Day and Mr Kirkland was taken via teleconference—

Committee met at 11:46

CHAIR ( Senator Brockman ): Welcome, everyone, to Parliament House in Canberra. This is the first public hearing of the committee's inquiry into the Private Health Legislation Amendment Bill 2018 and related bills. I thank everyone who has made a submission to this inquiry. This is a public hearing, and a Hansard transcript of the proceedings is being made. The audio and video of this public hearing are also being broadcast via the internet.

Before the committee starts taking evidence, I remind everyone that, in giving evidence to the committee, witnesses are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to the committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to the committee. The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in private. If you are a witness today and you intend to request to give evidence in private, please speak to the secretariat staff. Throughout today's hearing, the committee will be telecommuting via video link. I am advised that this is a first for a Senate committee, so I thank everyone for their patience as we trial this new approach.

We commence today with community representatives. I welcome representatives from the Consumers Health Forum of Australia and the National Rural Health Alliance and, via teleconference, representatives from CHOICE. Could you all please confirm that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you.

Ms Root : Yes.

Ms Day : Yes.

Mr Diamond : Yes.

Mr Kirkland : Yes.

CHAIR: We have your submissions. I now invite you to make a short opening statement, and then we will ask you some questions. Ms Root, would you like to go first?

Ms Root : Thank you for the opportunity to appear before the committee today. Before I go into the issues, I need to declare that our chair, Tony Lawson, is on the Private Health Ministerial Advisory Committee, and I have attended some of the meetings as his proxy. That is just a disclaimer.

Private health insurance is a critical part of our hybrid public-private health system, and its sustainability is inextricably linked with the sustainability of the private health system. Government supports and regulates the industry because of its importance. For us, as the consumer voice, there is a balancing act between the interests of consumers who have private health insurance and the interests of taxpayers who subsidise the private health system through the tax rebate on premiums and the exemption from the Medicare levy surcharge. The taxpayers who do not have private health insurance are providing financial support for those that do and, as such, are entitled to know what they get for their money and to see the value of the health system as a whole.

In looking at the legislation before us, CHF has looked for value for insurance holders and for the taxpayers. Value for consumers is not just price, although the level of premiums does impact on people's willingness to buy the product and stay in. Value also includes what people think they will get out of it. They want access to the private health system when and where they need it. We know, from many surveys we've undertaken, that consumers value choice of doctor and hospital and not having to go onto a public waiting list. The key value for taxpayers is that the private system takes some of the burden off the public health system. To do that, private health insurance products need to be structured in a way that ensures people use them. It is little or no value to the taxpayers who do not have private health insurance for people to have a private health insurance product simply to avoid the Medicare levy surcharge.

We also know, from our surveys, that people do not understand private health insurance. They often don't know what they are covered for and have no idea that they may have significant out-of-pocket costs. So we want the reforms to address the complexity issue, to make it easier for people to shop around for the best value and to understand exactly what they are and aren't covered for. The product categorisation into basic, bronze, silver and gold, flagged in the legislation and outlined in the rules, was designed to make it simpler for people to see what they are covered for and to compare products.

You've seen our submission, so I'm not going to go into all the points that are in that, but I just want to make two key points. The first is that, in our submission, we stress the fact that the rules which underpin the legislation were critical. As always, we believe the devil is in the detail. The exposure draft of the rules was released for comment after we put our submission in. We have responded in detail to that draft and would be happy to answer questions on those as well as the legislation. We would also be happy to provide a copy of our response on the exposure draft of the rules if the committee would find that helpful.

The second issue that I think we need to address is the proposal in schedule 2 of the main bill before us for discounted policies for younger people. We have recommended that this not be supported. I note that this has been portrayed by some other stakeholders as CHF being opposed to affordable private health insurance for younger people. CHF wants everybody to have affordable private health insurance that gives them access to the private health system. However, we have always supported the community rating system for private health, which is designed to make all products available at the same price to everyone, regardless of age, gender, where they live or pre-existing conditions. This is what makes health insurance so different from other insurances. The shift to exclusionary products as a way of keeping premiums affordable has led to an erosion of community rating and to people doing their own risk rating and taking a risk, basically, on not needing certain procedures.

We do understand the need to get more younger, healthier people into the private health insurance pool, to keep premiums down for everybody. As the latest figures from APRA show, the largest decline in people covered by PHI was in the age group 25 to 29. It was down 5.3 per cent. This should be a concern to all of us. However, as I've said, we see the provision of discounted premiums as undermining community rating and so we just don't support it.

We're also concerned when we look at the rules that underpin this legislation on the discounts for younger people. They seem to completely give the insurer the option about who they will offer the discounts to, and on which products, so they don't have to offer the discounts to everybody in the age range and they don't have to offer it on all the products. An insurer would be able to offer a discount on ambulance-only policies to only 25-year-olds, as an extreme example. We're concerned that young people may well risk-rate themselves and only take out the very minimum of products in the basic table. This would do nothing to take pressure off the public system. If there is a desire to move away from the community rating principle, then we believe there should be a full and transparent discussion about that, rather than the proposed approach which chips away at the edges.

The last point that I'd like to make is that it is important that the impact of this package of reforms is evaluated. We would like to see a commitment to a full evaluation to see whether the desired effect of improving value for consumers and for taxpayers has been realised. CHF will continue to call for a Productivity Commission inquiry into private health insurance, as we believe these reforms do not address all the issues, particularly those around the contribution of private health insurance to the broader health system and the value proposition for taxpayers. Thank you.

CHAIR: Thank you very much. Mr Kirkland, were you going to make the opening statement for CHOICE?

Mr Kirkland : Yes, thank you. We appreciate the opportunity to present to the committee today. CHOICE is, of course, Australia's largest consumer organisation. We are not for profit, we're entirely independent and we exist to advance the interests of consumers. We play a unique role in the private health insurance market in the sense that we believe we're the only service—besides the government website—that offers comprehensive comparison across the private health insurance market. Most other comparison services, if not all of them, offer results that are based on the commissions they receive from health insurers, whereas we offer a complete view of the market. We've been doing that for many years and we have a fairly detailed view of how the market works from a consumer perspective.

We regularly survey consumers about cost-of-living concerns. Health and medical costs, including out-of-pocket expenses and private health insurance, are one of the major concerns that consumers report. In our March 2018 survey, 77 per cent of people were concerned about the cost of private health insurance, making it the second-largest concern after electricity costs. It's risen up the rankings. Several years ago, private health insurance wouldn't have been No. 2, and I think this highlights the fact that this is a rising concern for many Australians.

While costs are increasing, people don't believe that the value of private health insurance is increasing at a similar rate. Only 31 per cent of private health insurance holders that we surveyed in January this year believed that they were receiving good value for money, while 28 per cent believed that the policies they held were poor value for money.

We commend the government's interest in addressing the issues associated with private health insurance, and we recognise that there are some measures in this bill, such as offering travel and accommodation benefits to regional Australians, which should address some of the inequities that those consumers face where private health services and benefits are either restricted or non-existent. We also support strengthening the powers of the Private Health Insurance Ombudsman.

We are, however, concerned that the proposed reforms will not address issues in relation to price, value and complexity, and that they'll fall short of delivering real and meaningful change to the millions of Australians who have private health insurance. We have two main concerns with this package of measures. One is age based discounts, which have already been highlighted by CHF. We believe that these won't work because they'll fail to address the problem that a growing number of young Australians perceive private health insurance to deliver poor value for money. Our other concern is around the information provision components. Information is really essential so that people can understand what they're covered for and can compare policies side by side. The problem with these proposed reforms is that they'll allow insurers to provide a private health information statement only on request, and there's no requirement for this information to be standardised. So those reforms are really going to do nothing to reduce confusion; if anything, they may well add to it.

In summary, we think there are a few components of this legislation that are worth considering, and others that will fail to deliver on the objective. This really highlights that there's a need for a much broader look at what's happening in private health insurance in order to restore public trust in what is a broken market.

CHAIR: Thank you very much. Mr Diamond.

Mr Diamond : Thanks for the opportunity to contribute to the legislative review process. The National Rural Health Alliance is the peak body for rural and remote health. It is an organisation that has 35 member organisations, and it has the interests of seven million people that live in rural, regional and remote Australia as its primary focus. Approximately 45 per cent of people living in rural, regional and remote Australia have some form of private health insurance. While this is a relatively high level of participation, and whilst that may indicate an equivalent level of satisfaction with private health insurance, it is clear that this is not supported by the level of access to services available to them. People in rural and remote areas have less access to privately provided allied and primary healthcare services, private hospitals and oral health services; less choice in doctors; and less access to gap-free medical and allied health services. All of this would make sense if country people were healthier than their metropolitan counterparts, but that's clearly not the case. People in rural and remote areas bear a higher burden of disease, are exposed to greater health risks and have higher rates of cardiovascular disease, diabetes and chronic disease. People are more likely to come in contact with the health system later, and more frequently require an acute admission to hospital as a result.

Our submission last year to the Senate Community Affairs References Committee—not this committee—on private health insurance and out-of-pocket costs raised five areas of focus for consideration and subsequent legislative reform: firstly, expansion of the range of benefits to non-hospital based services for privately insured people in rural and remote areas; secondly, inclusion of transport and accommodation costs as a health fund requirement; thirdly, continued access to public hospital services as a private patient; fourthly, based on geographic remoteness, progressive reductions in the financial incentives and penalties applying to the cost of private health insurance for country people; and, finally, introduction of viability supplements to encourage more private fund investment in health service provision in country areas.

The outcome of that inquiry commended the advice provided by the alliance to the committee. However, it's clear that only one measure has found its way into the bill—that relating to transport and accommodation. I'd like to make the following points. It is noted that this provision allows for private health insurance funds to include transport and accommodation costs as a claimable item associated with admission to hospital, rather than the current arrangement where this is not linked to a hospital admission. This is a very positive development, and we welcome that development. It will enable people from country areas to be admitted to a hospital away from their home location, and enable the costs of travel and accommodation associated with that admission, including for their families, to be subsidised.

We are, though, concerned that this provision makes it entirely optional for the funds to make this facility available to its members. It's not a mandatory requirement; it's merely an allowance that's been enabled, for the funds to offer as they see fit. The alliance is firmly of the view that, to be effective, all health funds must be required to make the cover available within the categorised system of benefits. We would argue that it should be included in the basic level of cover. This would recognise the poor value that health insurance presents to people in country areas, as has already been referred to by CHOICE, and it would go some small way towards redressing that imbalance. Thank you.

CHAIR: Thank you very much, Mr Diamond. Thank you, all, very much for your opening statements. Just to start off, Mr Diamond, you talked about the bad value of private health insurance for people in rural and regional Australia, but that doesn't necessarily tally with the 45 per cent uptake in the bush. Can you talk us through what you think is going on there. If people truly considered it bad value, would they be taking it out in such numbers? What's your sense of why those two things don't match up?

Mr Diamond : That's a good question. I think most people consider it an insurance product and an item of last resort. Being able to choose a preferred provider in the event of the worst-case scenario puts a floor under their exposure. For instance, if they required a hospital admission at a major regional centre or in a metropolitan area, they would feel that they'd have an additional set of choices available to them involving their care that they otherwise wouldn't have.

So it's very much a worse-case type scenario rather than something that's seen as being contributory, as it should be, to maintaining their health by being able to access privately funded and rebatable allied health services, for instance, in rural communities.

CHAIR: So, in terms of your position on the travel and accommodation benefits, you would like to see them as being a core part of all policies. Is that correct?

Mr Diamond : Yes, that's correct.

CHAIR: Have you considered how that may affect premiums, though?

Mr Diamond : We already maintain that the premium that country people pay is exactly the same as what their metropolitan counterparts pay. On the other side, in terms of the services that are available to them that they can readily access, they are so much more limited. What we're suggesting here is that, to make this a mandated requirement, at least that's one small step to redressing that imbalance that already exists.

CHAIR: Is there any statistical evidence to show how much people in regional areas are utilising their private health insurance in dollar terms compared to urban based Australians?

Mr Diamond : I attempted to actually get that information prior to today's hearing and made an approach to the relevant private health insurance industry association, but I wasn't able to get that information prior to today.

CHAIR: Do we know if it exists? Is it just that it is commercial in confidence? What's the reason you can't get it?

Mr Diamond : I've only just recently asked for it, so it would be unfair of me to draw conclusions in relation to why it's not available or if it is available.

CHAIR: Do you think it exists?

Mr Diamond : I would have thought it would exist, yes.

CHAIR: But probably within each fund.

Mr Diamond : Yes.

Senator PRATT: I might commence by asking Mr Alan Kirkland from CHOICE a couple of questions. Mr Kirkland, the main thrust of CHOICE's submission appears to be that the government changes fall short. What is the assessment of why that's the case? What sorts of measures should government be adopting to deliver real choice and savings to consumers?

Mr Kirkland : CHOICE wasn't part of the ministerial advisory committee that came up with this passage of reforms, so it's hard for us to comment on why particular measures have been advanced and not others. What we would say is that this reflects an approach that's involved in looking at particular aspects of the system rather than looking at the system as a whole. We couldn't actually tell you what reforms are needed because we think that a real root-and-branch approach is required. We need to go right back to first principles in terms of what the objectives of private health insurance are and how they map against the objectives of the overall health system. We would say those objectives should be aligned around ensuring that Australians have equitable access to good quality health care. It's impossible to answer the question at the moment of whether private health insurance is helping the system to deliver on that objective and, if not, what changes are required in order to make sure that it can.

But there are some problems that we see in the system that would need to be considered as part of a much broader review—for example, complexity. One of the reasons that we invest really, really heavily in helping people to compare private health insurance policies is that it's a really complex task. We ask people to complete quite a detailed questionnaire about their health needs and their status and how they think that may change in the future in order for us to then search through thousands of policies electronically and give them back a range of options. But, even then, that requires a significant investment from us and it's still quite complex for people to interpret the results that we're able to present. The market is complex and there's an enormous variation in policies. That means that it's really difficult for people to compare policies.

Another problem we would say is that there's considerable confusion around the financial incentives that the government uses to encourage people to take out private health insurance. We think there's considerable risk that a number of people have extras insurance thinking that that is necessary in order to avoid the disincentives or take advantage of the incentives. That means many people are taking out insurance that they don't, in fact, need. There's considerable confusion about the interaction between extras and hospital insurance.

One of the issues that feeds into that complexity and confusion is a really poor approach to information provision, which does link to some of the measures in this legislation. We don't have a way of requiring private health insurers to provide information in a form that's been tested with consumers, to see whether they understand the information that's been presented and are able to use it to compare different policies. We need a much stronger approach to information disclosure that is grounded in evidence and consumer testing so that if we're going to make requirements or change the requirements that apply to private health insurers we're confident they'll work, in terms of helping consumers to navigate markets. We don't understand that as being part of this current approach to reform.

They're just a few areas where we think the current package falls short. In resolving what the answers are to those problems, we think we need a much deeper review grounded in really strong economic analysis around how the system is working against the objectives we set for the system.

Senator PRATT: Thank you, that's very helpful. In the context of that, you've argued the dropping of the age based premium discounts for hospital cover. Why aren't young Australians taking up private health insurance? I'm sure that's probably attached to some of the systemic issues you mentioned before. Do you think this will drive young people with a discount towards private health insurance? And is that a good thing? Is private health insurance a product that works for young people today?

Mr Kirkland : I don't know why young people are not taking out or are leaving private health insurance. We say there are two problems. The core one is of value. People don't perceive value in the product, and that is very much linked to some of the concerns I've just outlined. There are people who are taking out bundled hospital and extras policies, thinking that's what they need. They perceive they get very poor value from their extras insurance and if they're in good health they never use their hospital insurance. So there is, in general, a sense that private health insurance does not deliver value, and that's aggravated for young people.

There is another issue, though, which is people taking out private health insurance, or those who are staying in the system, but taking out policies that are worthless. These are policies we describe as junk policies. They've been created by private health insurers to take advantage of the market created by the financial incentives that the government puts in place. These are policies, for example, that might only cover you for accident and ambulance, with all other services being excluded or only covered in a public hospital. They might be public hospital policies that only provide cover in a public hospital. What they provide is the ability to choose your own doctor, but you still have to join the public hospital waiting list. So the sort of cover they provide is so minimal that's it's incredibly unlikely you would ever take it out. In effect, we're using these financial incentives to push people into private health insurance, and many of them are taking out these policies that have been designed by health insurers to take advantage of that very system and deliver absolutely no value to the consumer. Yet both the consumer and the taxpayer are paying for those policies.

They're some of the key problems with young people. Will premium discounts for young people help? No. We've set out some of the figures in our submission. The reduction in premium, depending on the age of the person and the sort of policy they're on, could be as little as $2.25 per month. That's not likely to be a price signal that's going to have an influence on levels of uptake in the system. We see that as a problem.

There are further problems, as we outlined briefly. There's no thought been given to portability of policy or mobility within the system. Based on the information produced by the department, a policyholder will only retain the age based discount if they remain on the same policy to aged 41. As CHF highlighted, provision of discounts is voluntary anyway, so there's going to be a lot of confusion over that. If you move to a new insurer when you're still within the age band where discounts can apply, it's up to the new insurer to work out whether they'll honour your age based discount. What this is going to do, if people end up in a discounted policy, is give an extra reason not to switch, which, in effect, entrenches all the problems with limited competition in the health insurance market. It will make it easier for health insurers to retain young people who are on low-value policies, because they'll be less likely to switch.

Senator PRATT: Thank you, that is very helpful. A number of the submissions—I think Ms Root and CHOICE—raised concerns about large excesses undermining the primary intent of health insurance, which is to take pressure off the public system. Is there a real risk of that in the increased maximum of voluntary excess levels in this legislation? Excess levels are perhaps already driving people out of the private system and into the public one despite the fact that they hold private health insurance.

Mr Kirkland : In general we think there is a role for excesses in the system, and we often advise people to consider adopting a higher excess as a way of spreading the cost and adopting a lower cost for a policy on the basis that you will pay more if you need to draw upon it. But we are concerned about the level of increase in the maximum excesses that are allowed. It is the sort of change that needs to be really carefully modelled, and grounded in some strong consumer research. We are concerned that, if you do see a lot of policies allowing maximum excesses of $750 and a number of people taking them out, when it comes to the point where somebody is facing hospital admission they may not be able to face that up-front cost. So you will end up with people who have been paying for hospital cover for many years who then aren't able to use it at the point when they most need it. It will fail to deliver on that objective of reducing pressure on the public hospital system, and it will also further entrench that sense that private health insurance is of very poor value—something you pay for and never get anything back. There may be space to increase maximum excesses, but it would need to be approached with much more careful and rigorous research and modelling. We would not support the changes at this stage.

Ms Root : CHF has a slightly different view on that. Consumers are used to paying excesses and building excesses into their insurance products. Everybody can pick their excess for their car insurance, their house insurance and their travel insurance, so people are used to excesses. When we did our survey of out-of-pocket costs earlier this year, most of the commentary around the excess was that the only out-of-pocket cost people had was their excess, and they didn't complain about the excess. Excesses are a way for people to manage their premiums and still have the product. I would agree with Alan that it needs to be clear what the excess is; it may act as a disincentive to use the product for some, but they need to think that through at the time they take out the policy. As CHOICE has said, information about what you are actually paying for and what you get is the critical issue here in the value proposition for people.

Senator PRATT: There are a range of excesses that you might be charged other than your hospital excess. That might be the excess from seeing a specialist or the access from an MRI—because you don't have access to a Medicare rebated MRI. There are a range of excesses that get built in—

Senator SIEWERT: Ms Root, you have been given evidence at other inquiries in the past around a range of excesses. I'm having difficulty understanding your comment that that is the only access people say they have paid. That is certainly not the evidence this committee has had.

Ms Root : A lot of people do have other out-of-pocket costs that are to do with the fee the doctor charges, particularly the ones you have mentioned such as seeing your specialist. When we asked people in our survey, they didn't distinguish between the excess that they knew about which was part of their policy, the $500, and other out-of-pocket costs. Some people only had the excess. Those who only had the excess were quite happy with paying that excess because they knew about it. Others had many out-of-pocket costs. The whole issue of the value of private health insurance and out-of-pocket costs is a debate that isn't covered in this legislation, and it is caught up with people not understanding what their private health insurance is for. For example, private health insurance can't cover the provision of a specialist service in a doctor's rooms; it only covers you if you are actually an inpatient in a hospital. There is a lot of confusion. People think it means they are covered for everything for a private visit—seeing the specialist, having the procedure and going back to the specialist afterwards. They think it covers the whole lot—and it doesn't. Under the legislation, it is only allowed to cover the inpatient component. So there is a lot of misunderstanding about what private health insurance is and isn't. We are of the belief that, if many people understood what it didn't cover, some would pull out, some would not see it as worthwhile. That was certainly the feedback we got from our survey about out-of-pocket costs. People had no idea. They thought that, if they were covered, it would cover everything. They were quite surprised to have doctor's fees that were higher than their insurance paid for.

Senator PRATT: Thank you, that is very helpful. Mr Kirkland, could you comment on the same issue. To what extent are gaps, as opposed to excesses, and misunderstandings about that, affecting people's attitudes to private health insurance?

Mr Kirkland : We don't have any research on how people's understanding of health insurance excesses versus other out-of-pocket costs differ. But what I would say is that the whole problem of out-of-pocket costs across the system is one of the key problems that feeds into the sense of a lack of value in private health insurance. I would agree with what Ms Root has said about the confusion about what is covered and what isn't. I think it is very hard for most consumers, who may only deal with the hospital system a few times in their life if they are in good health, to understand and remember what is covered and what isn't and what is a hospital service and what is not an in-hospital service. Out-of-pocket costs are, in general, an enormous concern for consumers. We have done a lot of research that shows it is very hard to find out what they are going to be up-front. Consumers also have very little power to make decisions between providers based on out-of-pocket costs. They are generally given a referral to a specialist. They are highly dependent on the advice of their GP for that. Being able to shop around in the market for specialist services just isn't the reality for most consumers—and even less so in many rural and regional areas, where you have a limited range of specialists in a particular area. In general, there is confusion about out-of-pocket costs, about what is covered and what isn't. There is a shock factor because people aren't told about them up-front. These factors are really powerful forces in undermining any sense of value in the system, and it is undermining public trust in the private health insurance system.

Ms Day : The private health insurance information statement that is being proposed in the rules doesn't clearly provide any information on out-of-pocket costs. The example provided on the department's website glosses over the excess that would need to be paid, and there isn't a specific area where you can see what you might have to pay for out-of-pocket costs. We have put forward a suggestion in terms of how that could be improved; you would have a section on the private health information statement that clearly pulls out out-of-pocket costs so that people can more clearly identify what costs they might be exposed to later down the track.

CHAIR: I just want to make sure we are being very clear about out-of-pocket costs versus insurance excesses. I think people do understand insurance excess reasonably well because they deal with it across a number of insurance products whereas out-of-pocket costs—which is not covered by this legislation but is being looked at by the out-of-pocket costs committee—is something quite separate. I accept that we can hear a wide range of issues in this inquiry, but we are focused on excesses. Mr Kirkland, CHOICE's position is that the excess increase was too large?

Mr Kirkland : In essence, we can't actually give you an answer on that because we think it is a change that would need to be subject to much more detailed modelling and research—ideally with the opportunity for organisations such as ours to be involved in that process and to comment on it. We think that sort of change needs to be approached with caution and that more work would need to be done before we can be confident that allowing an increase to $750 is a wise thing.

Senator SIEWERT: Mr Kirkland, have you spoken to the department—or are you aware whether anybody else has—about access to that modelling? Have you ascertained whether the modelling has been done but is just not available?

Mr Kirkland : We are not sure. We haven't seen any information on that modelling. The absence of any reference to it makes us think there hasn't been any done. But I would certainly encourage you to press the department on that issue. I am not aware of information that has been released on it.

Senator SIEWERT: And you haven't asked the department for the modelling, if it exists, or asked them to do it?

Mr Kirkland : We haven't talked to them about the modelling.

CHAIR: CHOICE has a wide ambit. It looks at various types of insurance products. How would a $750 excess compare across the various insurance markets such as automotive insurance and house insurance?

Mr Kirkland : I would have to take that on notice, but we would be happy to come back to you with some information on that.

CHAIR: Thank you.

Senator PRATT: Mr Diamond, in terms of rural Australians being able to take up and maintain private health insurance, are there any amendments that should be made to this bill that would address these concerns? Do any of the changes in this bill address those concerns?

Mr Diamond : In relation to transport and accommodation, that is where we think that would make a significant improvement. As has already been said, it is not quite the same rate. I think the uptake of private health insurance generally, of all categories, for Australia's population as a whole is a bit over the 50 per cent mark. For people in rural, regional and remote areas 45 per cent is a very high rate. As I have indicated, I think it is more an issue about them, in their worst-case scenario, being required to be admitted to a regional or metropolitan teaching hospital. That involvement, for a healthy person, would be perhaps once or twice in their lifetime for the period that they are insured. They are entering a service system that they are unfamiliar with. In terms of the people they are referred to, they have no familiarity with the environments. They are outside their comfort zone in terms of their own local community and maybe their regional centre community that they most often have contact with. From that point of view, that gives people at least an avenue where they believe they would be able to access choice in those sorts of environments. That needs to be preserved.

We believe the transport and accommodation requirement should be mandated. It should be a requirement of all funds. The value proposition for country people, in terms of that safety net that is being provided there in terms of worst-case scenario, is otherwise a very poor value proposition. They have restricted access to private services generally. They are not a big user of private health services because they are just not available. If they are admitted to a local public hospital—and I know this was raised as a debating point—we would argue that being able to declare their private status is a very important issue to preserve in the current arrangements. Having been a manager of country hospitals and regional hospitals for most of my working life, I know that the ability to provide a service to someone who is privately insured is a very important criterion, a very important thing, for a small local community hospital to remain viable. To preserve the fabric of that public service within those towns is very important. So that is another important issue we believe should be preserved.

We can't emphasise enough the importance of this issue about transport and accommodation not being an optional product for the insurers to actually incorporate within their policies. It should be mandated. There is no competitive market that operates in country areas. It would be a great advantage for country people to have that surety, if admitted to a regional centre hospital or a major teaching hospital, that transport and accommodation costs could be claimed against their fund.

Senator PRATT: You were talking about the importance of private patients to the public hospitals in regional areas. Can I ask you to describe what you think the differential is in terms of use of private policies in a regional setting, noting there are perhaps fewer specialists available in a private setting than in a public setting. Is that a disincentive for people to use private health insurance? How do you characterise that gap in access between public and private services in regional areas? For example, there would be very little point in living in remote Kimberley and Western Australia and having private health insurance for mental health issues, because all it would do is get you shipped off to Perth without local services.

Mr Diamond : As you just pointed out in relation to mental health, the range of services that are locally accessible and that are private in rural areas and certainly in remote areas is just not available. I mean, those services don't exist. What we've got is a sort of a cart-before-the-horse issue because most allied health professions, for instance, are not covered by private health insurance arrangements. What that means is for allied health practitioners in the private setting to be encouraged to actually work in these areas, they actually require a full-time job. That may be an amalgam of some public appointment at a local public hospital and an appointment at an aged-care facility with a non-government organisation, and also the ability to provide services that are subsidised through private health insurance. Those sorts of things aggregate to create a full-time position which then would have a positive impact on the distribution of the allied health workforce in rural and remote areas. The current situation is that we have a dearth of allied health professions. The more remote you go, the more dramatic the decrease in the extent to which they're represented and accessible. These things impact people's choice about private health insurance and to what extent they perceive they are receiving value from it. I would have thought there's an encouragement there for the private health insurance industry to look at how they can actually contribute more to the provision of health care for those people in rural areas where clearly their products are not accessible or not relevant to maintaining people's health outside a hospital setting.

Senator PRATT: So what do we actually need to do to make private health insurance better value and better meet the needs of rural and regional Australians?

Mr Diamond : Increase the range of services that are claimable or rebatable through private health insurance. The funds should actually look seriously at what services, particularly primary healthcare services, should be made available in rural and remote areas and encourage that to contribute more to the portfolio of services that people can have access to. We recommended in the previous submission that it's certainly preferable for the product range to be expanded, particularly for people in rural and remote areas, rather than reducing the cost of the premium for private health insurance. We would much rather see a contribution from the private health insurers encouraging practitioners to move to and locate themselves in rural and remote areas and offer their services. We would prefer the private health insurance component to be more of a contributor to addressing the workforce shortfall that we see out there at the moment. So I think that's certainly an area of improvement.

But again I would emphasise that the transport and accommodation cost provision is very important for country people. Service access is the biggest single issue, as far as health care is concerned, that country people will tell you about. That's what they're concerned about: access to health services. They're very much aware that either they access the local public hospital or they have to travel hundreds of kilometres by some means or other to access the next biggest hospital services and, in a lot of cases, allied health and community based services as well. The dislocation that occurs with families, removal from communities, inpatient admissions in a remote location and the impact that has on the family unit all need to be recognised as part of that transport and accommodation provision, which we think should be mandatory as part of the private health insurance policies.

Senator SIEWERT: We've been pursuing a lot of the areas that I wanted to ask questions about, so I'll try to make my questions just on the other areas. I want to ask Mr Kirkland an overarching question. You made some comments around this earlier, but I want to ask specifically: do you think taxpayers are getting value for money out of the PHI rebate as it stands?

Mr Kirkland : I really wish we were in a position to answer that question. What we find astonishing about private health insurance is that we've had a long-term commitment to subsidising this enormous market through the rebate. We also in effect help to create a large market through the financial incentives through the tax system, yet we have no way of measuring whether that is actually delivering value. We can't really answer the question about whether it is delivering on some of the original objectives that were articulated when the current system was introduced. We can't answer the question of what other benefits might be provided to the public or individuals as a result of that public expenditure. That is why we think there is a need for a much bigger, deeper, very economically robust analysis of whether we have these policy settings right. It's hard to imagine any other area of public expenditure where you have the same number of Australians contributing from their own pockets, with significant public expenditure and subsidies backing that up, without us having clear data on what we're getting in return.

Senator SIEWERT: I have a follow-on question. I want to ask both Mr Diamond and Ms Root: do you share Mr Kirkland's opinion about basically not being able to define whether the country is getting value out of the PHI rebate?

Ms Root : Yes, CHF does. That's why we think there needs to be a Productivity Commission inquiry, which is a transparent process where all parties could put their views. It would have a robust approach to looking at what the value proposition is and whether it's being met.

Mr Diamond : The view of the alliance in relation to the need for a Productivity Commission inquiry is the same as the CHF's.

Senator SIEWERT: Thank you. Can I go back to you, Mr Kirkland—in fact, to all of you. In that case, how do we know whether this package of amendments will improve the situation and represents value for money if we can't answer the question around the value of the PHI? Are we going to do more harm? How do we tell whether we are going to or not?

Ms Root : I think the package will make things a bit easier for consumers. The product categorisation and some of the other measures will make it easier for consumers to understand what they're buying. So, from an individual consumer's perspective, some of the measures in the reforms will make things better. Whether it makes it better for the overall health system, we don't know, but we certainly think moving to bronze, silver and gold and to basic, where products are defined, makes it clearer to people what they are and aren't covered for, and we would hope that that simplification will help people see that. One of the big issues, as Mr Kirkland said, is people often don't know what they're covered for, so it comes as a complete surprise that they've paid for something and then they're not covered for what they want to use it for. So I think that will help, and I think some of the information provision measures may help. That's why we're saying we think there needs to be a review—as a minimum, an evaluation of the impact of these reforms in two years—to see whether they have achieved anything or whether they've had any unintended consequences, and I think that's our concern.

Senator SIEWERT: Mr Diamond and Mr Kirkland, have you got anything to add on top of that?

Mr Diamond : Establishing some consistency and commonality in the product range—the categorisation aspect—I think will be a useful benefit for people in rural and remote areas. Essentially, it's about increased transparency about what is actually included in each product that you're buying, so I think that can only benefit people's level of understanding about what they're paying and what they anticipate in return. That explains the value proposition. From a rural and remote point of view, you've got a yawning gap between what services are actually able to be accessed by country people compared to those their metropolitan counterparts can access, and that issue will remain until such time as we address some of the essential issues around how the private health insurance market works in rural areas. To expect it to be a competitive market and to expect things like transport and accommodation to be optional features when health funds make decisions about whether to offer them or not is just not realistic. It doesn't appreciate the real issues for country people.

Mr Kirkland : From CHOICE's perspective, I guess one of the issues is that we're looking at a small part of what might be a larger package of reforms, so it's hard to assess them on their own. Also, there are some risks that this could make it worse. Just to go back to some of the points we made earlier, we think that the age-based discount for young people is poorly configured. Things like not being able to move and take your discount with you could make the situation worse for young people, in terms of being locked into low-value policies, creating extra barriers for switching. In regard to the information provision requirements, there is not a requirement to have this information sent to all consumers, nor is there a requirement to have it developed in a standardised way, and the proposals have not been subject to rigorous consumer testing to ensure that they'll have the desired effect, so there is actually a real risk that we will add confusion in the system, which means that it's then easier for people to be trapped in poorer-value policies, which then means that public expenditure on the system is poorly directed.

Senator SIEWERT: Can I just be clear from all of you that you don't support the age-discounting proposition?

Ms Root : Yes, that's true for us at CHF.

Mr Kirkland : That's correct for CHOICE as well.

Mr Diamond : Yes, that's correct for the alliance as well.

Senator SIEWERT: So my understanding from you all is that those amendments—that schedule—should be removed.

Ms Root : Yes.

Senator SIEWERT: Schedule 2 should be removed.

Mr Kirkland : That's CHOICE's view.

Senator SIEWERT: Thank you.

CHAIR: It being close to wind-up time, we'll leave it there. Thank you all very much for your participation today. We'll move on to the Australian Healthcare and Hospitals Association and the Australian Medical Association. I understand both are in the room in Canberra. So we'll just do a changeover and keep going.