Private Healthcare Australia says the latest reform proposal from the Grattan Institute is not workable and will only add upward pressure to private health insurance premiums.
In its latest report, Grattan argues for the removal of community rating for people aged under 55.
Under the longstanding community rating policy, private health insurance premiums are not risk-rated based on age or medical condition. The policy also means insurers cannot discriminate against people based on health status or claims history.
Chief executive Dr Rachel David said maintaining a system of community rating does pose challenges for Australia’s health system. However, she said it is also one of the features that helps ensure Australia maintains its international reputation for fairness in healthcare.
“Community rating underpins Australia’s private health insurance regulations and changes to a risk rated system would severely destabilise premiums for older Australians and threaten the future of fair and equitable healthcare," said Dr David.
"Generational transfer of risk would mean a lot of Australians would have a very uncertain future. Risk rating would also make PHI unaffordable for young people with chronic health conditions, particularly those requiring ongoing mental health care.
“Community rating, however, facilitates affordable access to private health care for all Australians. It means everyone pays the same premium regardless of whether they're sick or well. If you have a number of chronic conditions, you pay the same premium as someone who's completely healthy."
Dr David said the main challenge with community rating is the cross-subsidy from younger to older people. The increasing claims rate of older people is putting more pressure on younger people to support the system.
She continued, “There’s no question we have to address the very significant demographic challenges that are being faced by health funds as the baby boom population reaches what we call the age of ‘peak surgery’ and are having more procedures and more hospital admissions than ever before.
"This coupled with expectations to live longer and better lives means the generations behind the baby boomers are finding it hard to keep up with the premium increases that are going towards funding this.
“We need to adjust policy levers to incentivise younger people to take out PHI and we have given the government a number of options to consider including restoring the 30% PHI rebate for those under 40 years of age."
Dr David said Grattan's proposal to remove the PHI rebate from extras cover would only price more young Australians out of private health insurance.
“The means-tested rebate is a proven way to promote participation and keep private cover more affordable for all Australians. Providing subsidies to private health insurance is the most cost-effective way for the Australian Government to support the growth in hospital and health services over the coming decades.
“Subsidies for private health insurance-funded services cost the Commonwealth Budget around 30 cents in the dollar. The alternative, providing more services in public hospitals, would cost the Commonwealth Budget 45 cents in the dollar.
“Both major political parties have previously accepted the critical role the PHI rebate plays in maintaining balance in our mixed private public health system and ensuring its sustainability into the future.
“Health funds understand affordability is a major concern for members and are working with the government to keep premiums are low as possible. PHA will continue to advocate for reforms that reduce the costs of healthcare and ensure the sustainability of our mixed health system,” added Dr David.