Sector speaks out against premium cap

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The private health sector continues to speak out against Labor's planned two-year two per cent cap on premiums.

Labor leader Bill Shorten announced the cap with shadow health minister Catherine King. They also announced a future Labor government would commission a Productivity Commission review into affordability. 

According to Members Health Fund Alliance, which represents not-for-profit mutual health insurers, "While it may be well intentioned, Labor’s proposal to set a 2% cap on health insurance premiums fails to address the core underlying drivers of health inflation."

"An arbitrary cap on health insurance premiums could inadvertently drive health funds into financial difficulty- damaging consumer competition and choice, destroying jobs in small regional communities where many health funds are headquartered and leaving consumers without health cover. That would not be in anyone’s interests," it said.

Medibank CEO Craig Drummond described Labor's announcement as "political rhetoric".

"Placing a cap on premiums will not change the issues that exist in the health system," he said. "Each year Australians grow older and sicker and as a result health costs are growing at nearly 7% per annum.

"The challenge is making the Australian health sector sustainable. And to do that requires real reforms.

"We know our customers are doing it tough, and that’s why we’ve been working hard to deliver better value and more affordable products for our customers."

He continued, "The affordability of private health insurance is critical to the sustainability of Australia’s health system.  And that’s why we need real and sustainable reform, which is essential to tackling the issue of affordability."

According to Michael Roff, CEO of the Australian Private Hospitals Association (APHA), "Short term gain may result in long term pain for Australians who put their private health insurance to use if the Australian Labor Party’s plan to cap premium increases was to be realised."

Mr Roff said, while he could see the superficial appeal in a two percent cap for two years, it would likely result in increased gap fees.

“With the number of health fund payouts increasing each year, limiting the amount of premium revenue they can collect may lead to pressures that force funds to limit benefit payments.

“The easiest way for funds to do this would be to cut the amount they spend on medical 'no-gaps' schemes. Gap cover arrangements are already under pressure and while the Labor plan claims to deliver $143 in savings for an individual, the removal of gap-cover could easily see this amount more than offset by out-of-pocket costs for doctors’ bills,” he said.

The winners under the Labor plan would be those who did not use their insurance, he added, while those who need hospital care would likely be worse off.

“If Bill Shorten is looking to pull a rabbit out of a hat on private health insurance costs and deliver real and sustainable savings for health fund members, he could start looking at the $1.5 billion public hospitals rip out of the system each year by 'harvesting' privately insured patients who are entitled to free treatment in the public system," added Mr Roff.

The Consumers Health Forum strongly backed the proposed Productivity Commission inquiry. It described the proposed two-year 2 per cent cap on premiums as a 'complicated matter' requiring "regulatory changes in order to enforce". It said it "supports any steps to improve health insurance affordability."