Government health spending reveals truth about rising costs

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There has been a significant political and policy focus on the affordability of private health insurance but the reality is premiums are rising at around the same rate as spending in other areas.

The HealthDispatch analysis reveals that since 2013 private health insurance premiums have risen at an average annual rate of just over 5 per cent.

This is broadly comparable to total federal government spending on health, which over the same period has risen at an average annual rate of 4.7 per cent, with spending on Medicare rising at an average rate of 4.4 per cent.

The standout has been federal government funding to the states and territories for public hospitals - it has risen at an average annual rate of 8 per cent.

Rising private health insurance premiums, which in 2019 actually recorded their lowest ever growth rate in almost two decades, reflect rising demand for health care and the associated costs.

This has been confirmed by the prudential regulator. In a speech last year to a Members Health event in Sydney, APRA executive board member, Geoff Summerhayes, said it is important the debate over the affordability of private health insurance be "informed and correctly focused".

"The underlying cost of Australia’s health system is the ailment; rising insurance premiums are just a symptom. Specifically, the fundamental forces pushing premiums up are higher claims costs experienced by insurers, through such factors as a greater uptake of medical services among policyholders and the rising cost of treatments and procedures," he said.

The rising cost of private health insurance premiums has been compounded by a raft of reforms to what was once the 30 per cent rebate. The reforms have included means-testing and a lower level of annual indexation - to inflation rather than the increase in premium.

The effect has been that the federal government's contribution to consumer premiums is in steady decline, meaning consumers actually pay more as a result of a deliberate change in government policy.

In 2013-14, the rebate paid to consumers represented 30 per cent of the $19.3 billion paid to private health insurers in the form of premiums - this has steadily declined in recent years, to 27.9 per cent in 2014-15, 26 per cent in 2015-16, 25.6 per cent in 2016-17 and 25 per cent in 2017-18.