AMA Warns Changes to Private Health Insurance Could See People Abandoned By Insurers

A doctor speaks with a patient during triage at the St George Hospital in Sydney, Australia, on May 15, 2020. Lisa Maree Williams/Getty Images

The Australian Medical Association (AMA) has warned that proposed changes to private health insurance (PHI) could leave Australians abandoned by insurers, placing more burden on the already struggling public health system.

This comes as the federal government is seeking to make the most significant reforms to PHI in over a decade, including looking at ways to incentivise lifetime health cover and the use of risk equalisation.

Risk equalisation (RE) essentially means that funds from insurers with lower-than-average claim costs are transferred to those with higher average claim costs. It is argued because PHI is community rated, with everyone of the same policies paying the same premiums irrespective of expected claim costs, that this supports the community rating better.

Under the current Australian health care system, PHI operates under community rating with guaranteed acceptance. This means that health insurers may not deny coverage or charge higher premiums for an individual who may be expected to claim more based on their health status or needs.

This is backed through an age-based retrospective risk equalisation, where a subset of the claim costs of PHI customers over the age of 55 are pooled and spread across all customers.

However, the AMA has warned the federal government against using risk equalisation to make PHI more affordable for Australians.

In a statement, the AMA said that while risk equalisation may help insurers minimise costs, it will do so by creating a system that may reduce patient choice and the clinical autonomy of doctors.

“As such, the AMA does not support a move to prospective risk equalisation, and especially as we do not believe there are appropriate safeguards protecting patients in place,” the AMA said.

In its submission to the government (pdf), the peak Australian medical body said they were also concerned that the proposed use of risk equalisation would increase pressure on contracts with hospitals reducing diversity and choice, especially in outer metropolitan and rural areas, and incentivise health insurers to create lower cost options for patient care that do not deliver better clinical outcomes.

They are also worried that the policy would increase pressure on medical practitioners to enter into contracts with PHIs that have set targets for medical practitioners to meet the insurer’s fiscal objectives, which can limit clinical autonomy and undermine patient outcomes.

Australians with Chronic or Complex Health Histories Could Be Excluded

The AMA also noted it could lead PHIs to seek out and collect data on Australians, generating a data arms race so they can ensure their customer base could achieve a lower-than-expected claims cost.

“Sadly, this may include putting exclusionary criteria on programs that only allow low-risk members to claim or exclude more expensive treatment options that may be more clinically appropriate or desirable for a patient,” the AMA said.

“This will be effective at lowering premiums but at the expense of patients in higher dependency or higher risk categories. The insurers will not see any negative from driving away higher-cost patients as such a move to another provider will further lower costs for the insurer over time.”

Government Report Calls For Change

However, the report into risk equalisation commissioned by the federal government from Finity Consulting (pdf) argues that the current PHI system incentivises risk selection, which is resulting in inefficient healthcare insurance for Australians with specific healthcare needs as they are unprofitable to PHI.

The report argues that Australia should adopt a hybrid RE system that redistributes PHI revenues on the basis of age, sex and other policyholder characteristics (a form of risk adjustment).

Citing countries like the Netherlands, Switzerland, Ireland, and the United States’ use of ‘risk adjustment’—where RE payments are based on expected claims costs rather than actual claims costs— they argue that this would stop PHI from selecting clients based on risk, “while (largely) maintaining incentives for efficiency.”