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Call for private health insurance review as thousands of policyholders left without cover


October 2015

One of Australia’s largest health and aged care organisations has called on the federal government to announce a review of the private health insurance industry saying it was encountering thousands of policyholders each year who are being caught short – and left out of pocket – by an unexpected lack of coverage for the care they needed.

St Vincent’s Health Australia – which operates eight private hospitals around the country, along with St Vincent’s public hospitals in Sydney and Melbourne – said confusing terminology used by the funds, and their lack of transparency, were combining to create consumer anxiety and undermine the value of private health insurance.

“The private health insurance sector has proven itself either unwilling or unable to reform itself leaving tens of thousands of Australian policyholders without the coverage they thought they had. It’s time for the Federal Government to step in and announce a review,” said St Vincent’s Health Australia’s CEO, Toby Hall.

“In years gone by you could take out private health insurance and you knew what you were getting. Now, with an explosion in confusing terminology – restrictions, exclusions, front-end deductibles – people are more than bewildered, they’re anxious.

“Meanwhile the funds engage in questionable practices such as ‘product erosion’ – changing products without members acknowledging or agreeing – which just makes them look tricky.

“To some extent, the funds are their own worst enemy. Their lack of transparency; their willingness to sell products to people that aren’t fit for purpose – leaving thousands caught short – is undermining their value in the eyes of Australians.

“That’s the worst possible result for Australian healthcare. With our public system under enormous pressure, we need a robust private health insurance system underpinning our private hospitals. If private health insurance is in trouble, then that puts the entire system under strain.

“There are 48,000 different health insurance products on the market. An estimated one million policyholders, or about 10 per cent, switch products each year largely because of the confusion.

“Across our private hospitals, our admissions staff make multiple calls every day – often encountering distress and anger at the other end of the phone – to people who think they’re covered for a procedure when they’re not. Over the course of a year, that’s thousands of calls.

“There are a large numbers of low and middle income Australians with private health insurance: over one-third of people in the 20% of lowest income households have private health insurance.

“These people are doing the right thing, they’re making financial sacrifices to afford their cover, and many of them are being let down at a time of great need. They don’t have the resources to simply cover costs out of their own pockets.

“A review also needs to take a look at the role that third party private health insurance brokers, or aggregators – like iSelect – play in driving up the cost of insurance.

“The funds are right to complain about aggregators driving up the cost of premiums – Medibank Private’s George Savvides has estimated they add $800 to the cost of a product – but if they cleaned up their own backyards, simplified their products, used consistent language and were transparent, third party brokers would offer much less value.

“The time couldn’t be more right for a review. The government has announced an extensive – and welcome – review of the Medicare Benefits Schedule (MBS). Private health insurance and the MBS go hand-in-hand. It doesn’t make sense to review one and not the other.

“The health insurance sector is also in an enormous state of flux. In just a few years we’ve gone from 70% of all private health products in Australia being offered by not-for-profits to them now being held by for-profits.

“Over that time, we believe for-profit insurers have shifted their interest towards ‘the bottom line, away from consumers’ needs. And the member-based mutual health funds – faced with cheaper products and stiffer competition from their rivals – are beginning to follow suit. We’re witnessing a race to the bottom.

“A review would help us take stock after a period of intense change.

“The number of Australians covered by private health insurance has been roughly the same for 15 years. If we’re serious about getting more people into private cover, then we need to make it more attractive to consumers. And the only way we’re going find the game-changer to do that is by reviewing the system,” said Mr Hall.

Media contact: Paul Andrews 0409 665 495