Medibank CEO Craig Drummond says Labor's proposed two per cent cap on premium increases for two years will be "challenging" given the rising cost of healthcare.
In a speech to the Australian Private Hospitals Association's national congress in Melbourne, Mr Drummond said the policy will not change the fact the cost of healthcare is rising, having risen at an average annual rate of 4.5 per cent over the past decade.
Labor has proposed the cap along with a Productivity Commission inquiry into the private health sector.
"While we want to reduce costs for our customers, the ALP’s policy does not address the rising costs within the system," said Mr Drummond.
Mr Drummond said people need to be "realistic" about the policy's impact on private health insurers and the wider system.
"There will be some tough calls to make on all sides, but I want to be clear that we understand the importance of working together on these challenges."
He said Medibank is focused on productivity improvements, including the delivery of $60 million in savings by next year, with another round of reductions likely.
"But affordability problems cannot be solved by insurers alone. There is much more to do and we must come together as the private health sector to tackle some of these challenges – this is a joint responsibility," he said.
Mr Drummond said further reforms are required. These would be in addition to those already announced by the federal government, including policies to simplify private health insurance and reduce premiums for younger Australians.
He called for further action on increasing the transparency of out-of-pocket costs and the quality of service providers.
"The number of customers who say that these are a key reason for dropping their private health insurance has more than tripled over the past five years, with out-of-pocket expenses currently in excess of $30 billion p.a or $1,200 per capita, which means Australia has the seventh highest per capita out-of-pocket expenses in the world," said Mr Drummond.
He continued, "If treatment costs and quality data are more readily and universally available, Australians will be able to make more informed choices about their healthcare and this is a good thing," adding Medibank had also started sharing patient feedback with hospitals.
This has "already led to good results," he said, "...with one hospital group changing the way they employ and roster nurses after hearing customers had concerns about nurse communication and responsiveness."
Mr Drummond also highlighted the impact of Australia's aging population and the rising incidence of chronic disease.
"...one in every two Australians has a chronic disease. This accounts for approximately $45 billion or 36% of the total health budget. Unless more is done to prevent and manage chronic disease, these costs will swamp the public and private health systems."
"We need new solutions," he said, recommending alternative care pathways, such as ambulatory centres, day hospitals, specialist centres and home-based care.
"Finally, we also need to be smarter about healthcare spending. And if we are seriously considering reform then surely, we must address the Productivity Commission’s estimate that 10% of healthcare spending either has no effect, causes harm or it is not worth its cost. We await the Government committee’s MBS Review findings.
"There is also more work to do on prostheses. Moving to a new system of procurement with international reference pricing would save customers around $500 million a year. The prostheses reform to date has delivered $50 million in savings, and we passed every cent onto customers, resulting in our lowest premium increase in 18 years."