The good news for Medibank and NIB is that they are not paying out as much for these kinds of procedures as they have budgeted for. And it has helped drive the profit margins of the two health insurers to record highs in the December half year.
“Private health insurance (PHI) was in our view never designed to reward shareholders with almost 10¢ of every dollar of policyholder premium,” said UBS analyst James Coghill of Medibank’s strong half-year performance.
It’s not a very convenient fact, given the industry is still losing members year after year as premiums increase at twice the level of pay rises, and the proportion of Australians with private health insurance coverage has declined to a decade low.
And then there is Labor’s brutal proposal to cap premiums at 2 per cent for two years while the Productivity Commission conducts a root and branch review of the health sector.
Medibank was discreet in its mention last month of the “continuing benign claims environment”.
Hospital admissions as a portion of its member base grew by an anaemic 1.1 per cent compared to the prior December half, which had increased just 0.8 per cent from the same period in 2017.
Statistics from the Australian Institute of Health and Welfare show that the number of elective admissions involving surgery in private hospitals – a good proxy for private elective surgery – increased 1.8 per cent between 2012-13 and 2016-17.
Mr Fitzgibbon described the issue as a two-edged sword. “It’s obvious in this environment of low growth in discretionary spending that’s impacting membership participation, but it’s also impacting utilisation.”
One health fund member with a recent experience with elective surgery described the view from the other side of this double-edged sword. She is one of many patients looking at the rising out-of-pocket costs for surgery and questioning the need for private health insurance.
The Melbourne woman, who did not wish to be named, described her experience after eye problems just before Christmas last year.
“I was finding it difficult to see and read and do my job,” she says.
Using her private health insurance, she was told that surgery to fix the problem could be arranged within 48 hours. The proposed surgeon then ran through his bill.
She faced $4500 in out-of-pocket expenses plus the cost of the anaesthetist, which “depending on who we get on the day” could range from $500 to $1200 in further costs for her.
“That’s outrageous, it’s the same procedure, but they can apparently nominate what they charge as well.”
She started having second thoughts and talked to colleagues within the health industry about her options. Luckily, the eye condition was serious enough to make the public health system an option.
After a five-week wait she got her operation and her only expense was $34 for eye drops.
She is now mulling over whether it is worth keeping her private health insurance at all.
“It’s actually useless, there’s no point in having it,” she says.
Fitzgibbon’s solution for his golfing buddy gives a clear perspective of what the private health insurers see as the problem, and the solution: The medical professionals who charge exorbitant fees.
The options for his friend involved either finding a new surgeon with lower fees, or a new insurer who could bridge the fee gap with this surgeon.
Fitzgibbon’s golfing buddy used his health insurer to find a new surgeon and is finally getting the surgery done.
“It highlights for me the increased role we have to play … in introducing competition, helping our members find doctors who will accept our medigap payment and avoid this huge out-of-pocket,” Fitzgibbon says.
Not everyone agrees that the medical professionals are the sole source of the problem.
“I think everyone has to take responsibility around the bill shock which continues to go on,” said Kirsten Pilatti, the chief executive of Breast Cancer Network Australia. “The private health insurers certainly have a responsibility to be providing clearer information around what they will and won’t cover.”
There was certainly little love for the health insurers from their brethren at the Australian Private Hospital Association (APHA) over this issue. On Valentine’s Day, a press release noted the steady decline in private health insurance hospital coverage and the fact that 56 per cent of policies exclude services.
“Those exclusions then mean Australians aren’t covered for services they need, and they are paying for a policy that won’t deliver the benefits they need,” said APHA chief executive Michael Roff.
This is no trivial matter for breast cancer patients, says Pilatti.
While the public system is quick and effective at dealing with the cancer, breast reconstruction is another matter.
As with other elective surgeries, cancer survivors are left with either a long wait in the public system, or the financial lottery offered by private health insurance. If they are lucky enough to get onto a wait list, the wait is a minimum 365 days, but for public patients in Far North Queensland the wait list for reconstructive surgery has been up to five years.
And for those with private health insurance, the financial costs can be ruinous.
“For some women it has been more than $20,000 in out-of-pocket costs, and for other women the surgeon has given a no-gap fee,” says Pilatti.
Her crucial tip is that women who shop around tend to get a better deal, “that’s why we encourage our members to get a second opinion.”
But this isn’t the way it should be, she says.
“This system should not rely on consumers having to do the work. This system should rely on private health insurers, the government and health professionals working together to actually be delivering the best possible care for the best price for a consumer.”
Yet even the most cynical private health insurance members, like our Melbourne eye surgery recipient, second-guess themselves as to whether their policy might just pay off at some stage.
“I am relatively healthy but I do have issues with my hip and my knee needs replacing, which are the two very things which are on the public health list for years,” she says. “And that’s my only reason to second-guess should I stay in it or not.”
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.