![There is great debate in the healthcare industry over who is to blame for price increases.](http://web.archive.org./web/20170917162359/http://www.afr.com/content/dam/images/g/w/t/a/x/g/image.related.afrArticleLead.620x350.gy23qi.png/1503537963293.jpg)
The peak body for the private health insurance industry, Private Healthcare Australia (PHA), has been warning that private health insurance is heading towards being unaffordable for many Australians. It says as many as one in five policy holders might leave the insurance pool in five to six years.
PHA says one big concern is out of pocket costs and specialist gaps – the difference between what a procedure costs and what Medicare or an insurer pays. This claim is both misleading and mischievous. Increases in out of pocket costs cannot and should not be blamed on doctors and other health professionals in the system.
The government and some private health insurers have not indexed benefits to match the increase in costs of providing a service for several years.
![AMA president Michael Gannon.](http://web.archive.org./web/20170917162359/http://www.afr.com/content/dam/images/g/p/o/x/s/n/image.imgtype.afrArticleInline.620x0.png/1483497901190.jpg)
But it is actually the complicated nature and thousands of variations in private health insurance policies that creates the problem, and contributes to out of pocket costs.
The medical profession has worked hard and sacrificed income to maintain the high levels of no-gap and known‑gap fees for our patients – 88.1 per cent of in-hospital services are provided with no out of pocket cost to the patient. A further 6.9 per cent are provided with a known gap of less than $500.
Time to ban junk policies
So while excessive fee-setting by a very small number of doctors is a problem in terms of affordability for patients and, if you like, the reputation of the medical profession, it is completely disingenuous for the funds to blame their problems on doctors' fees.
Medical services are only 16 per cent of total benefits paid by insurers. They are not the cause of significant increases in premiums or affordability concerns.
![Terry Barnes, principal of Cormorant Policy Advice.](http://web.archive.org./web/20170917162359/http://www.afr.com/content/dam/images/g/y/2/5/5/q/image.imgtype.afrArticleInline.620x0.png/1503451607051.jpg)
The insurers – and their peak body – must look at the content and value of their products to give consumers confidence that they will be covered when they get sick.
There are a bewildering number of policy options available to patients, at least as many as 20,000. Some policies are designed to do no more than avoid the tax penalty if you don't have health insurance. Others offer nothing more than treatment in a public hospital, which is the same as being uninsured. These are junk policies. They should be banned.
The government must fix the issues with private health insurance soon or further risk the viability of sectors of the private health system.
The reality is that health costs increase year on year. Health CPI outstrips real CPI every year.
Still too many unhealthy Aussies
Australia has seen an explosion in the rate of obesity in the past 40 years. Obese patients are more likely to get sick. They are more likely to have complications from any treatments.
Australia and Australians have a problem with alcohol. This drives increasing health costs.
We are world leaders in tobacco control, but lamentably 12 per cent of adults still undertake a behaviour daily that will kill more than half of them, and substantially reduce the quality of life of the rest.
Not a week goes by without a case being made for PBS listing of medications, which typically cost in the tens of thousands of dollars for an individual treatment course.
We all celebrate the latest knee prosthesis, micro-invasive surgical technique or drug-eliciting stent. They are very expensive.
The costs in the health system should be regarded as investments. We must look for things that are good value for money.
Fund hospitals better
That is why we will never tire of reminding governments of the importance of good public health policy, other preventive measures, and the spectacular value for money that Australia's world-class general practice workforce represents.
But it is inevitable that people will end up in hospital. Many will go to public hospitals, which must be better funded. Others will go to private hospitals and use their insurance. These patients need to know their insurance will cover their treatment, and they must be fully aware of any out of pocket costs before their procedure.
This public-private balance is the strength of the Australian system. Nearly 70 per cent of elective surgery occurs in private hospitals. The public system would collapse overnight without the support the private system affords universal healthcare.
We cannot go down the path of US-style managed care. We must ensure that patients can choose the right doctor and right hospital for their care. The insurer should not control healthcare provision.
The Australian community – its taxpayers, citizens, patients – all need a healthy private healthcare sector. The funds, the hospitals, the doctors, the dentists, all need to play their part.
But the community deserves an honest intelligent debate about where we go with private health insurance affordability, without finger pointing – especially when the funds have got this one so horribly wrong.
Dr Michael Gannon is president of the Australian Medical Association
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The Australian Medical Association once again is on the warpath against private health insurance. Its national president, medical specialist Michael Gannon, wants "junk" private health insurance policies, those containing too many exclusions and inclusions, made illegal.
This latest salvo comes as protracted negotiations with health minister Greg Hunt about private health insurance reform come to a head. The AMA insists specialists are vastly undervalued for what they do, and out of pocket costs are really the fault of nasty insurers short-changing our wonderful saints in white coats. Running a Bentley or Maserati isn't cheap, you know.
But the AMA is all spin and no substance. Policy restrictions and exclusions, and premiums rising well above the consumer price index year after year, occur because insurers are forced to manage the cost of paying for provider services under control as best they legally can. The real reason the AMA regularly boots insurers is to distract political attention from patient bill shock.
If doctors reject the generous benefits insurers offer, private health insurance is only obliged to cover the gap between the Medicare benefit and schedule fee. While nine out of 10 insured medical services are "no gap" or "known gap", when greedy doctors charge patients what they can get away with, those out of pocket charges per service can be hundreds, often even thousands of dollars. And simply paying extra-top dollar is no guarantee the doctor's service is any better.
Bill shock shame
Bill shock can really sting. In its submission to a current Senate inquiry, insurer nib highlighted data showing that while most specialists accepted their benefits, patients' out of pocket costs in 2016 often ranged above $2500 and as high as a whopping $13,500. One very prominent surgeon, who regularly figures in insurer lists of bill shock shame (but cannot be named), gives even the College of Surgeons palpitations.
The AMA sees it differently. For them, if a surgeon, anaesthetist or other specialist charges a patient gap, it means the combined Medicare and insurer benefit is inadequate, so punters should shop around for an insurer that pays doctors well – as judged by the doctors themselves.
Unpopular with the public, insurers are convenient whipping boys. Meanwhile, the AMA refuses to admit that bill shock cowboys, by their avarice and inflated self-worth, damage not only their profession's reputation, but the whole private health choice when public hospitals are under more pressure than ever.
While the AMA wants Hunt to target private health insurance policies, the Turnbull government can better use legislation and its payer monopsony to combat specialist gouging. This should include four things.
Four crucial reforms
First, money talks, and the federal government is the predominant payer for medical services through Medicare and private health insurance rebates. It also over-generously subsidises doctors' premiums for their medical indemnity insurance, not to mention specialist training. The government can impose conditions on specialists' access to Medicare provider numbers and indemnity subsidies. To keep their access to taxpayer support, specialists charging out of pocket fees must commit to keeping them under a mandatory cap linked to the Medicare schedule fee.
Second, remove the Extended Medicare Safety Net, a price-inflating Howard-era measure giving specialists incentive to overcharge. Gouging specialists shouldn't be able to tell you "don't worry, the safety net will cover you", or structure their bills to have one for Medicare and the insurer and an extra one just for you.
Third, refer the fee-advising practices of the AMA, and specialists' industrial organisations such as the Australian Society of Anaesthetists, to the Australian Consumer and Competition Commission. If they want to advise members on fee-setting for Medicare-rebated services, these bodies should seek ACCC authorisations as commercial organisations.
Fourth, sunlight is the best disinfectant. Lately, Trip Advisor-style sites publishing patient reviews, such as the Whitecoat website of insurers nib, Bupa and HBF, have sprung up. The AMA hates these with a passion, because they provide reliable consumer information about doctors to patients in a way doctors themselves don't control.
Such sites, however, aren't enough to give consumers comprehensive information about the specialist, surgical and hospital services they buy. For a start, the government should compel the AMA to publish its secret schedule of recommended fees. Similar for the anaesthetists' notorious Relative Value Guide. Moreover, insurers should be legally able to advise their members not just on what a doctor charges, but also their track records, success and complication rates. They have masses of provider performance data: they should be allowed to share with their members professionally-moderated clinical information redressing the provider-patient information asymmetry and power imbalance.
All common-sense stuff, but all would be resisted by the AMA. However, instead of trying to skewer insurers, physician heal thyself. If the AMA really wants to do something for privately-insured medical consumers, it must confront the relatively few rogue doctors whose greed blots their colleagues' caring reputation.
Terry Barnes was an adviser to two Howard government health ministers and is principal at Cormorant Policy Advice.
AFR Contributor