The ACCC has released its 16th report to the Australian Senate on competition and consumer issues in the private health insurance industry for the period 1 July 2013 to 30 June 2014. The ACCC has previously found that the industry is characterised by information asymmetry and complexity. These findings have been replicated in this report. The ACCC has an obligation to provide an annual report on competition and consumer issues within the private health insurance industry under an Australian Senate order. However, seems that not much follows from such reviews!
The private health insurance industry is an important component of the Australian health care system. The number of people with private health insurance has been growing steadily, with year on year average increases of 2.5 per cent over the last 10 years. At the end of 2013–14, 47.2 per cent of the population was covered for hospital treatment and 55.2 per cent was covered by general treatment policies, commonly referred to as ‘extras’ cover. Health insurers generate revenue from the sale of health insurance policies as well as through the investment of premium reserves. Currently there are over 20 000 private health insurance policies on offer to consumers in Australia. Over the next five years, industry revenue and profit are forecast to grow at a compound annual rate of 6.4 per cent to reach $28.8 billion. Annual revenue in 2014-15 is estimated at $21.1bn and returning $1.5bn in profit. There are 34 businesses providing health care insurance.
Their main findings were:
First, there are market failures due to asymmetric and imperfect information. This leads to complexity in private health insurance policies, which reduce consumers’ ability to compare policies and make informed choices. Further, consumers have limited information about their likely future health needs, which may lead to consumers underestimating their future medical needs and instead focusing on the immediate costs and benefits of private health insurance.
Second, existing regulatory settings can change consumers’ incentives in purchasing private health insurance and drive insurers to offer products to primarily reduce consumers’ tax liabilities, rather than also focussing on consumers’ current and future medical needs (which are difficult to predict). As funds respond to market demand for affordable policies, there are increasing policy limitations and exclusions leading to higher numbers of consumers having policies with less cover than they expected. This leads to an increased risk of consumers facing unexpected out-of-pocket expenses and general dissatisfaction with the system. We accept that some consumers in purchasing private health insurance may only be seeking to reduce their tax burden and/or the risk of the LHC loading. However, they still expect basic
cover from their purchase.
Third, while health insurers may be strictly compliant with the requirements of the Private Health Insurance Act and the Code, the research has revealed examples where representations by insurers to consumers, including when entwined with policy variations, may be at risk of breaching the consumer laws.
There were some interesting consumer insights:
Consumers’ understanding of policy benefits and exclusions will vary depending on the complexity of the information provided and their familiarity with the health system and their health needs. Where insurers provide information that is overwhelming, incomplete or complex, it is less likely that consumers will be able to exercise informed choices to purchase cover that is appropriate to their needs and circumstances. In turn, these consumers are more likely to face unknown or hidden costs of private services that are not covered in full by their insurance. There are a range of factors in the private health sector that increase complexity for consumers, including:
- regulatory settings, providing participation incentives and government rebates that vary depending on age and income
- policy exclusions, excesses, co-payments and waivers
- preferred provider arrangements
- the rewards and benefits being offered by larger insurers if certain conditions are met.
Adding to the complexity is the sheer number of options available, and that each insurer has different terminology and ways of presenting information, which makes comparisons difficult. Policies can contain a mix of levies, surcharges and rebates. Sometimes the specific details are hidden or obscured in lengthy and complex policy documents that are not easily accessible to consumers. In addition, private health insurance contracts allow for the insurer to unilaterally vary a consumer’s policy terms, conditions and exclusions (subject to private health insurance legislation). This means that even where a consumer spends considerable effort in understanding the policies on offer in order to make an informed choice, that effort may become redundant if an insurer subsequently decreases the cover provided. Under the ACL, provisions that allow such unilateral variations may constitute unfair contract terms (subject to a number of exemptions), particularly if the term is not transparent and causes consumer detriment.
The mix of levies, combined with a tendency by funds to change their policies over time, make it difficult for even astute consumers to judge the true cost and value of their private health insurance.
Most consumers with private health insurance will access some of their benefits at some point. The quantitative research found that while 30 per cent of consumers rarely access their benefits, 43 per cent sometimes do and 18 per cent do so frequently. Eight per cent had not yet accessed their private health insurance. The quantitative research also indicates that consumers who regularly use their private health insurance are more likely to feel informed about their health insurance, and confident they have received all they expected in terms of their rebate or claim. However, the data further discloses
that one quarter of consumers who have accessed their benefits have experienced at least one occasion where their expectations were not met, largely because they were dissatisfied with the claim amount or believed they were covered for something that they were not.
The quantitative research found that just under two thirds of all respondents have had private health insurance for 10 or more years. However, only 14 per cent of respondents had changed insurers, despite 48 per cent having thought about changing insurer and some taking steps to do so without completing the transaction. For respondents who have changed insurer or contemplated it, the most reported reason was that the premium was too expensive (57 per cent), followed by dissatisfaction with claim amount and policy benefits and exclusions (both 6 per cent). Respondents who have thought about changing private health insurers but have not done so, reported that their main reason for not changing was that they have not found an insurer that meets their needs (21 per cent), whilst 12 per cent considered that the process of changing is too difficult.
