The rigid tiering of gold, silver and bronze basic levels of health insurance has made building a sustainable model for affordable top hospital cover “very difficult”, with warnings it could threaten the existence of the health insurance sector. “The trouble is that gold contains the cover for mental health and for maternity care, and if we can’t offer an affordable solution to those things, why would anyone under the age of 50 have private health insurance?” said Rachel David, CEO of representative body Private Healthcare Australia, describing the flight from top hospital cover as an “existential threat”.
For the first time in many years there were now fewer people with gold cover than silver added, David added, noting this year’s federal budget had brought more pain with the elimination of a chunk of a health insurance rebate for over-65s.
The government modelled a total of 44,000 people would drop their health insurance, she said, whereas Private Healthcare Australia estimated 53,000 would drop their cover and 200,000 would downgrade their policies. Many of these people would wind up on public hospital waiting lists, David told the Australian Financial Review insurance summit in Sydney last month.
Affordability has become a crunch issue for health insurance, said Damien Bruce, CEO of Calvary Health Care, which operates a number of hospitals, residential care facilities, independent living retirement villages and services for 20,000 home care clients.
“Health has almost gone from a non-discretionary to a semi-discretionary category,” he added, saying that Calvary was now considering integrating its hospital network with its aged care facilities and services. “I think demographics and consumer expectations are taking us to a much more integrated view of how health and aged care need to come together,” he explained.
Now in the process of potentially purchasing 16 Healthscope hospitals, Calvary had a lot of faith in the resilience of the hospital sector, Bruce added, noting that the hospitals of the future would be different, with increased use of automation and robots and a mix of specialties.
He believes there is now a substantial profit imbalance between health insurance providers on one side and hospitals, clinics and medical services. “We started pre-COVID and the profit pool share between payers and providers was roughly 50-50,” he said. “Today it’s 85-15.”
HBF chief executive Lachlan Henderson said the finance issues were well known in the sector – “I think insurers are paying more than historically, but we can’t cover every cost increase.”
Health insurance, he added, was in a transition period, caught between funding legacy models of care and finding a balance so “good hospital operators are sustainable into the future and can continue to invest in the things that they need to, including technology”.
At the same time, labour costs were soaring. Sue Williams, chief executive of not-for-profit private Melbourne-based health service Cabrini Health, said current labour costs were unsustainable in the long term.
By way of example, she said the Victorian government – with an election looming later this year – had approved a 28.5 per cent pay increase over three years for public sector nurses, who deserve to be well paid. “And we have to match it,” she added, saying a serious discussion about labour substitution was needed.
The conversation might determine the nature of essential tasks for nurses and whether cheaper labour or automation could take on some of that work.
Cabrini Health was already examining back-of-house services (which might include all the non-patient facing elements, such as billing and human resources) to determine where bots could be used, and a range of front-of-house work was also on the table, Williams added.
Health funds were now responding to a consumer need by investing in care facilities, Rachel David said. Medibank, for instance, had a direct financial and operational interest in a hospital in Kew, Victoria, which provides hip replacement care with no gap funding required.
Williams said problems arise with health funds providing care when they “cherry-pick” the easy patients and leave the more complex patients the hospitals will lose money on.