Keeping premiums affordable requires modern healthcare

At the same time, health inflation surged 5.9 per cent this year, hitting the health sector hard. Hospitals are struggling with the rising costs of recruitment, power and food, and this flows through to health funds. Every week, private hospital groups are asking major health funds for additional funding beyond their agreed contracts, to chase inflation.

Health funds are looking at every possible way to cut costs. It is within their interest to keep their policies as affordable as possible, so they can maximise membership. But there is only so much they can do when claims are rising, their membership is ageing, and the cost of private healthcare is soaring.

Tough reforms required

Funds will continue to work with the government on finding the right premium rise for next year, but if the government wants to keep health insurance affordable to take pressure off the public system, tougher reforms are required to make our health system more efficient and sustainable.

Our regulators and health sector providers need to pull in the same direction. It is simply not possible for powerful vested interests in healthcare to demand top dollar from health funds for all goods and services, regardless of value, if we want health insurance premiums to remain affordable.

The priority should be incentivising out-of-hospital care and short-stay surgery to reduce unnecessarily expensive hospital stays for people when they could be safely cared for at home. Australia has some of the best doctors in the world, but we’re keeping people in hospitals for too long when research shows many consumers want to receive care at home, and clinicians want to be trained in more modern techniques to enable this to happen.

Our use of out-of-hospital care is in the bottom third of OECD countries. More modern techniques which are proven to be safer and more effective, such as same-day surgery, are rare in Australia due to our funding system, which still incentivises longer hospital stays.

For example, the average hospital stay for someone having joint replacement surgery in Australia is 5.4 days – double the two to three-day average in Canada, the US, UK and Scandinavia. In Australia, only 10 per cent of end-of-life care is delivered to people at home, compared with 41 per cent in the US and 56 per cent in the UK.

Reforms outlined in our report, There’s no place like home – reforming out of hospital care, would deliver $1.8 billion in savings for the Australian health system if the government pursues them.

Low-value care

The other priority should be reducing low-value care. It is estimated that up to 30 per cent of healthcare is low value because it is either ineffective, harmful or confers marginal benefit at disproportionately high cost. Common examples include unnecessary antibiotics, surgery that does more harm than good, duplication of invasive tests and futile care at the end of life.

Low-value care also includes paying too much for goods and services when lower prices are available. This is a problem in Australia where consumers pay much higher prices for medical devices and equipment due to the Commonwealth government’s Prescribed List for private healthcare.

The PL sets prices higher than international benchmarks because they are negotiated between the federal government and medical device manufacturers without input from payers such as private health insurers and the Department of Veterans’ Affairs.

Just as the Albanese government stood up to the powerful pharmacists’ lobby group this year to deliver cheaper 60-day prescription medicines for consumers, it needs to more aggressively push back on multinational med-tech companies profiting from this archaic arrangement.

Butler has said our system was designed in the 1970s and ’80s for a population with very different health needs. He is right. It was also designed in different economic conditions. We need to incentivise both the public and private health systems to deliver the best possible care to Australians when and where it is needed.

This will ultimately require reforms to reduce costs and improve quality, so our limited health budget goes further.