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Issue #1713      December 2, 2015

Private health insurance

Watching you

Almost every week now the government announces further steps in the destruction of Medicare and privatisation of health care. It has commissioned six reviews covering different aspects of the health system. They include a review of the private health insurance (PHI) sector.

Unlike other types of insurance, PHI is subjected to the principle of community rating. This means that a PHI fund must charge members the same premium for the same cover. Whereas travel insurance companies, for example, charge different premiums according to a person’s existing medical conditions, age and also according to the activities they are planning to do on their travels, such as skiing or riding a motorcycle. The premium is based on the likelihood that an individual will make a claim.

PHI funds are not permitted to discriminate on the basis of chronic illness or specific medical conditions (e.g. diabetes, heart disease, macular degeneration, etc). Nor can they charge different rates on the basis of gender, age, occupation (worked with toxic chemicals, asbestos, etc), lifestyle, alcohol consumption, smoking, obesity, frequency of hospitalisation or other individual characteristics.

The only exception is “life-time cover” which applies to people who join after the age of 30. They are charged an additional loading based on their age when first taking out cover. Again the loading is age-based and not varied on an individual basis.

Funds are permitted to set waiting periods before pre-existing conditions are covered for new members. Again, these waiting periods are applied uniformly. In addition a PHI fund cannot reject anyone who wishes to join.

The private health funds have been lobbying hard for the abolition of the community rating system. This would enable them to adjust premiums according to their assessed level of risk. That is, the likelihood of individual fund members making claims.

Age-based cover

Age is one important criterion for assessing risk. As reported in the Guardian (“Medicare privatisation at full tilt”, 11-11-2015, #1710), the average health fund cost per member per annum varies significantly with age:

  • $440 for 20-24 year-olds
  • $630 for 40-44 year-olds
  • $3,360 for 70-74 year-olds

The neo-rationalist bean-counters at the helm of the private funds bemoan the fact that a 74-year-old with diabetes, osteoarthritis and heart disease pays the same premium as a healthy, fit 20-year-old. Older and sicker members are being cross-subsidised by younger and healthier members. Insurance should be sharing the cost across the community – at different periods of our life we have good or bad luck and different needs.

According to their neo-liberal way of doing business PHI funds expect to make a profit out of every individual client. Cross-subsidisation is not on as far as they are concerned. Fund members are customers, sources of profit, but the government with community rating stands in the way of reaping larger profits.

Keeping this in mind, the above figures give an alarming picture of what they might charge older or chronically ill members if the community rating is abandoned. It becomes even more disturbing as the government is planning to deregulate what they can charge. At present they have to gain the authorization of the Health Minister for all increases in premiums.

Socio-economic status is another criteria which is a strong indicator of health outcomes. Funds would use occupation or postal code as a means of assessing risk.

They could make the cost so prohibitive that someone who worked with asbestos or toxic substances would only sign up for the barest of minimum of cover.

Unlike Medicare, PHI is not automatically comprehensive in cover. Members can select which items they wish to exclude from cover to reduce the cost. For example, a young person might exclude heart surgery, major eye surgery or hip and knee replacements. But they take a risk, life is full of surprises – an injury on the football field could result in a knee replacement.

The health and needs of members are of concern to the extent that they might threaten profits. The more members they can keep out of hospital the better for profits.

Watching you

Life insurer MLC is investigating the use of smart watch technology. These watches measure heart rate, sleep patterns, physical activity (distance walked or run, number of stairs climbed, etc) and calculate calories burnt.

Wearers can go online to enter their height and weight, what they eat and drink, and MLC could read this data from the watch. MLC is considering lower premiums when set activity targets are met. Weekly reports on activity automatically appear on your smart phone, tablet or other electronic device.

Big Brother at Medibank Private, BUPA, HCF are also eyeing smart watches to monitor members.

Imagine what a private health fund would do with such technology if community rating were abolished!

Funds could base premiums on the activity of members. For example, if an obese member were set a target of 10,000 steps a day and reached it a set number of days a week, their premium would be reduced. The reverse is also possible.

If this is beginning to sound far fetched, then visit Medibank Private’s website. “Collect flybuys points every day you reach 10,000 steps with a linked Fitbit wireless activity tracke,” the site says.

There are links between Coles, Medibank and flybuys. Flybuys, Coles loyalty program, offers Medibank members 10 points for every 10,000 steps. Garmin as well as Fitbit smart watches are linked to its scheme.

A Medibank member can earn triple fLybuy points for “healthy eating” when they buy fruit and vegetables at Coles. (Points are based on dollars spent.)

Fitibit and Garmin are just two of the many smart watches on the market. Others include Kogan, Samsung, Sony and Apple. They use wireless transmission to transfer data to your phone, tablet or computer. Data could then be automatically sent to the health fund. You would never know.

With the use of smart watches to monitor heart rate and activity of fund members, privacy would be the first casualty. The doctor patient-relationship would be the second. And it could prove quite dangerous if inappropriate activity targets were attempted.

At present PHI funds only provide cover for private hospitalisation and “extras” (eg physiotherapy, naturopathy, dental health, spectacles) which Medicare does not cover. But the government has plans to means test access to Medicare and extend the scope of PHI to out-of-hospital items which are now covered by Medicare.

Anyone earning above a specified threshold will be denied access to Medicare and required to take out PHI for items presently covered by Medicare. (See Guardian, “Medicare privatisation at full tilt”, 11-11-2015, #1710)

If the government succeeds in implementing its plans, the abolition of the community rating will affect in and out of hospital health services. It will open the way for the PHI funds to make bigger profits than ever and take control of patient care.

In line with the failed and costly US system, it will be the private health funds that determine whether someone can have blood tests, a colonoscopy or cataract surgery – not the doctor and patient.

Medicare is an insurance scheme.

The concept of insurance is to share risk, to share the cost across a community. Medicare is centrally funded, in part through the Medicare levy and the remainder through company and personal income tax. Personal income tax and the levy are based on a relatively progressive scale with those who can afford to contribute more paying at a higher rate.

Universal access means that no one who has the misfortune of being struck with cancer, breaking a leg or having diabetes needs to carry the full burden of the cost. At different times we all draw on Medicare. Health care is a human right, not a privilege.

Any deregulation of premiums and abandonment of community rating would result in a system in which the cost of premiums to individuals would no longer be based on ability to pay. It would be based on age, personal characteristics and likelihood of making claims. Access would ultimately depend on ability to pay, not need.

Universal access with bulk-billing should be available to everyone through Medicare. Community rating must be retained for those who have private health cover. At the same time the government should begin phasing out the $6 billion annual PHI tax rebate and redirect it to improving the public hospital system.

Next article – NSW power sell-out

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