1301.0 - Year Book Australia, 2003  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2003   
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Contents >> Health >> Private health insurance

Private health insurance is offered by 44 registered health insurers, giving a voluntary option to all Australians for private funding of their hospital and ancillary health treatment. It supplements Australia's Medicare system, which provides a tax-financed public system that is available to all Australians. Depending on the type of cover purchased, private health insurance provides cover against all or part of hospital theatre and accommodation costs in either a public or private hospital, medical costs in hospital, and costs associated with a range of services not covered under Medicare including private dental services, optical, chiropractic, home nursing, ambulance and natural therapies.

The private health sector funds around one-third of all health care in Australia. A sustainable balance between the public and private health care sectors can ensure a high level of access and choice now and into the future.

Health insurance coverage

The introduction of Medicare in 1984 resulted in Australians' participation in private health insurance steadily declining. The introduction of the Federal Government 30% rebate on private health insurance in 1999, and the Government's Lifetime Health Cover policy in 2000, saw participation in private hospital cover increase dramatically, with participation rates rising from 30.6% in June 1999 to 45.8% in September 2000. Rates appear now to have stabilised with a participation rate of 44.7% as at 31 March 2002 (table 9.29).

9.29 PERSONS WITH PRIVATE HEALTH INSURANCE, Proportion of total population

Year ended 30 June
Quarter ended

June 2001
March 2002

With private hospital cover
With private ancillary cover

Source: Private Health Insurance Administration Council, 'Quarterly Statistics March 2002'.

Community rating and reinsurance

Community rating is the underlying principle of the current private health insurance system. Community rating means that people cannot be discriminated against in obtaining health insurance on the basis of health risk. It requires that in setting premiums, or paying benefits, private insurers cannot discriminate between contributors on the basis of health status, age, race, gender, sexuality, use of hospital or medical services, or general claims history.

The principle of community rating is supported by a reinsurance system within the private health insurance industry.

Reinsurance supports the principle of community rating by sharing between health insurers the hospital costs and part of the medical costs of high risk members. Insurers with a greater proportion of low risk members (generally the young) pay contributions into the reinsurance pool, while those with a greater proportion of high risk groups (the chronically ill and the aged) receive transfers from the pool.

Rebate on private health insurance premiums

In response to declining coverage of the population by private health insurance, from 1 January 1999 the Federal Government introduced a 30% Rebate (the Rebate) on premiums paid for private health insurance. All Australians eligible for Medicare and covered by a health insurance policy offered by a registered health fund are eligible for the Rebate. This initiative provides a 30% rebate on the cost of private health insurance premiums on hospital cover, ancillary cover and a combination of both. Since the Rebate is set at 30% of the actual cost of premiums, it keeps pace with any increases in individual fund or product premiums. The Rebate can be taken as a direct premium reduction, a refundable tax offset or a direct payment available from Medicare offices.

Lifetime Health Cover

Lifetime Health Cover commenced in July 2000. For people aged over 30, those wishing to take out hospital cover for the first time pay a loading of 2% on top of the policy premiums for each year they are over the age of 30. People taking out hospital cover early in their lives pay lower premiums than those taking it out later in life. This rewards membership loyalty and early joining while deterring people who join health funds knowing they will need to claim for health services in the near future, but drop their membership soon afterwards. Under Lifetime Health Cover, the premiums paid by people entering private health insurance are based on the age at which they first join and, once set, remain at that rate relative to premiums for people entering at different ages. In other respects the principle of community rating is maintained.

Recent initiatives in private health insurance

Recent initiatives include the following:
  • Expansion of 'no gap' and 'known gap' cover. The 'gap' is the difference, paid by the health fund member, between fees charged by doctors for in-hospital medical services and the combined health insurance and Medicare benefits paid for those services. Private health insurers are required to continue to offer at least one no gap or known gap product to their contributors in order to offer the 30% Rebate as a premium reduction. All private health funds meet this requirement.
  • Simplified billing. This addresses the problems of multiple bills and unforeseen out-of-pocket costs for private patients. Simplified billing encourages hospitals, doctors and health funds to work together to simplify the billing process and make sure that patients are informed about any out-of-pocket costs they may have before they go into hospital. Patients benefit by receiving only one or two bills, rather than many from various doctors, and claims from health funds and Medicare are made on the patient's behalf.
  • Other recent and planned initiatives, addressing affordability, product innovation, industry efficiency and consumer awareness, include:
      • improved consumer information on private health insurance
      • private sector trials of coordinated care, hospital in the home and early discharge programs
      • expanded private sector provision of outreach services
      • deregulation of prostheses pricing
      • implementation of new capital adequacy and solvency standards for the private health insurance industry.

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