The Conversation recently ran this analysis of the draft report of the Federal Government’s Competition Policy Review headed by Professor Ian Harper.
In it, Elizabeth Savage, Professor of Health Economics at University of Technology Sydney, said there were two significant changes to the private health insurance industry that are likely to have an impact on both consumers and the sector.
The first is the removal of regulation that requires ministerial approval for increases in private health insurance premiums, which is tied to evidence of increased cost structures, and its replacement by a “price monitoring scheme”. This will allow increases in insurance premiums only to be subject to competitors’ behaviour in what is a highly concentrated industry. (Top four companies have 75% of policy revenues; the top two – Medibank Private and BUPA – have 56% of the market.)
Small companies would likely follow the price lead of big insurers such as Medibank Private, and there may be more mergers as the big companies become stronger, further increasing their market power. The change would likely mean consumers will face higher premiums and the cost of private health subsidies to the government will increase. A positive side effect for the government may be an increase the revenue it raises from the planned privatisation of Medibank Private.
In the post below, Federal Opposition Shadow Ministers Catherine King and Andrew Leigh warn that the Government should not see its power over private health premiums as just another piece of ‘red tape’ to be abolished.
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Catherine King & Andrew Leigh write:
One of the hardest things to do in politics is to stand up for the many against the few. Where the gain is diffuse, but the cost is concentrated, policymakers have to be strong to get the right outcome.
That, in a nutshell, is why it took decades before governments grasped the nettle on tariff cuts and competition policy. In both cases, it took Labor Governments to recognise that consumer interest needs to be put first.
Which brings us to the case of private health insurance. Today, 55 percent of Australians have health insurance. To contain costs and ensure fairness, Labor means-tested the private health insurance rebate, leading Tony Abbott to predict in 2011 that ‘1.6 million people will drop out of private health insurance’. He was wrong. More Australians now have health insurance than ever before.
But we need to keep downward pressure on health insurance costs. With just five health insurers holding 83 per cent of the market, private health is a relatively concentrated market. While some people change insurers each year, inertia and a fear of waiting periods tend to keep people with the same private health provider. For a single person with the most basic level of cover, the average premium is around $1746 a year – a considerable amount for middle-income households.
Since 2007, health insurers wanting to raise premiums have had to seek approval from the Minister for Health. Under Labor Health Ministers Nicola Roxon and Tanya Plibersek, this was no tick-and-flick exercise. Insurers typically found that their first fee request was denied, and that they then had to go back to the minister with more justification. From 2007 to 2013 premiums increased on average by 5.35 percent.
All that changed in 2013, with the election of the Abbott Government. Despite hectoring Australians about ‘cost of living’ issues, Coalition Health Minister Peter Dutton approved fee increases by the insurers with lightning speed. Average premiums rose by 6.2 percent – the largest increase since 2005, when Mr Abbott was Health Minister. (Indeed, the premium increases permitted by Health Minister Abbott were astonishing: 7.6 percent in 2004, and 8 percent in 2005.)
Today, the Abbott Government seems to regard its power over private health premiums as just another piece of ‘red tape’ to be abolished. Indeed, there have been strong suggestions that the government is planning to relinquish its power over premiums.
In our view, this would be a mistake. The Health Minister’s power to review premiums reflects the fact that private health insurance is different from other goods and services. The government uses a carrot-and-stick approach to raise coverage rates: subsidising premiums for most families, and using the Lifetime Health Cover rules to strongly encourage over-30s to buy private health cover. Having encouraged people to buy private health insurance, we believe the government has a responsibility to make sure that it isn’t overpriced.
In addition to this, private health insurance is already a concentrated market, and the government has offered no evidence that selling Medibank Private will put downward pressure on premiums.
In the hands of a consumer-focused health minister, the power to veto premium increases is a useful tool. Rather than moving to get rid of his veto power, Minister Dutton should stand up for families. Because a good health minister governs for the many, not the few.
Catherine King is the Shadow Health Minister. Andrew Leigh is the Shadow Assistant Treasurer and Shadow Minister for Competition.