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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.
Health insurance coverage
Participation in private health insurance showed a steady decline from the introduction of Medicare in 1984. In 1999-2000, participation in private hospital cover increased dramatically to 43% in June 2000, as a result of the introduction of the Federal Government 30% Rebate on private health insurance, and the Government’s Lifetime Health Cover policy. At 31 March 2001 the participation rate was 45.1% (table 9.32)
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 and medical costs of high risk members admitted to hospital. 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, introduced in July 2000, allows health funds to charge different premiums based on a person's age when they first take out hospital cover. 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 premium paid by people entering private health insurance is based on the age at which they first join and, once set, remains at that rate relative to premiums for people entering at different ages. In other respects the principle of community rating is maintained.
Recent initiatives include the following: