What is the link between Medicare and private health insurance?

Medicare provides substantial health cover for everyone. Private health insurance is available for some things not covered by Medicare. Private health insurance is the major source of funds for private hospitals. These provide about 27% of hospital in-patient bed days.

What does private health insurance cover?

Cover available through private health insurance includes:

• ancillary services such as those provided by private dentists, physiotherapists, psychologists, home nurses, midwives
• aids such as spectacles and contact lenses
• choice of doctor as a private in-patient
• hospital costs for private in-patients in both public and private hospitals
• the 25 per cent “gap” cost for private medical in-patient services

People with private health insurance cover retain all their Medicare entitlements and are able to use public hospitals either as Medicare patients or private patients.

However, privately insured patients gain quicker access to elective surgery. They also benefit from the convenience of being able to plan a hospital stay at a time that suits them and the choice of specialist for in-patient care.

Health funds are allowed to negotiate special arrangements through which all costs of a hospital in-patient stay are covered including medical charges.

This involves the private health funds having contracts with private hospitals to pay fixed prices for specified elements of treatment. Doctors would undertake not to charge fees over an agreed level.

There is no private insurance for out-of-hospital medical services. These are covered by Medicare, although the patient may have to make a payment from their own pocket if the doctor does not bulk bill.

What role does the Federal Government play in private health insurance?

Because private health insurance supplements Medicare, the Federal Government continues to regulate it. Recently the Federal Government has provided a range of incentives for people to take out, or maintain membership in private health insurance. These incentives are based on the premise that an increased level of private health insurance will reduce pressures on public hospitals.

The Federal Government determines the range and types of cover that health funds may provide. Previously it has required premiums to be “community-rated”. This meant that everyone paid the same premium for the same level of cover regardless of personal factors such as medical history or age. This changed in July 2000 (see Fact Sheet 9). The Government reviews proposals by health funds to increase premium levels or to change their rules.

Since January 1999, the Federal Government has applied a rebate of 30% on all private health insurance premiums, regardless of the person’s taxable income, at an annual cost to the Federal Government of around $2.5 billion. In addition, those with private health insurance are exempt from paying the extra 1% Medicare Levy that applies to individuals with taxable incomes over $50 000 and families with taxable incomes over $100,000. These initiatives have resulted in an increase in the proportion of Australians covered by private health insurance.

Concerns about private health insurance

As Medicare provides substantial cover for health services, many Australians consider that private health insurance is not good value for money. The price of private insurance premiums has risen at a rate about four times that of inflation in recent years. Nevertheless high “gap” costs persist, which leave many privately insured patients substantially out-of-pocket. Community rating is also said to have discouraged younger and healthier people from taking out or keeping private health insurance because they pay more than their risk level warrants. This causes insurers to increase premiums for those who remain insured. Some people only take out insurance when they know they will need to use services (e.g. women planning a pregnancy) and drop it later. This means they may be receiving more than they pay in premiums, adding to costs for other members.

Emerging developments in private health insurance

The Government introduced “Lifetime Health Cover” in July 2000. Under this proposal premiums will increase according to the age of the person taking out cover, full community rating will no longer apply. People under 30 who take out and retain hospital cover will pay lower premiums throughout their lifetime compared to those who choose to take up private hospital cover when they are older.

This change makes private health insurance more complex and choices about private health insurance more complicated. Mechanisms are being put in place to streamline billing procedures, in order to reduce multiple billing following hospital treatment. Further products will be developed which eliminate or at least specify in advance out-of-pocket costs.

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