New report proposes 'partial risk rating'

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A new paper from the Actuaries Institute says better integration between Australia's private and public systems could enhance healthcare without any need for radical changes.

The report - Private Health and Health Care Financing, Learning from the World - says “Australia’s health care system compares favourably to other developed countries”.

“Nonetheless there are areas for improvement. Australia’s high out-of-pocket expenses and health cost growth suggests a need to review the health system to ensure sustainability for future generations.”

The authors of the paper are: Josefa Henriquez, former advisor, the Ministry of Health, Chile; Andrew Matthews, Chief Actuary at Medibank and Associate Professor at Monash University; Dr Francesco Paolucci, Professor of Health Economics at the University of Newcastle and the University of Bologna School of Economics and Management; and, Adam Stolz, Deputy Chief Actuary at Medibank.

The authors examined health systems in 12 comparable countries, where Australia rates second in overall performance rankings, after the UK and ahead of the Netherlands. It says out-of-pocket costs for healthcare are high in Australia, at about 17 per cent of total national healthcare costs.

The paper suggests the federal government should consider the adoption of new premium price setting, risk equalisation and financing structures, including a system of 'partial risk-rating'.

According to the report, "The intention of community rating is to ensure all members of health funds pay similar premiums for the same cover, regardless of personal circumstances. Funds then use risk equalisation to spread the risk of higher claims either from chronically ill or older members.

"Funds with young, relatively healthy members with fewer claims pool funds that are then shared with insurers whose members are older or have a higher risk profile. In addition, the government subsidises premiums via an income-based rebate. Another approach would allow partial risk rating, with some support from the government."

The authors say this would make Australia’s health system more affordable and equitable.

"It allows a more deliberate distinction as to which risks are shared and which are out-of-pocket costs. A risk-based rebate can be calculated on factors that include age, gender, health conditions, and co-morbidities. An individual’s contribution could be capped at a community rating level, and where extra services are provided by the private sector, funding would be available. If services move from private to public, the funding follows the risk."