Private Health Insurance – Is it good value?
Does ancillary (general) health insurance represent good value for patients?
The evidence indicates otherwise:
• Health funds don’t break down their financial reports to PHIAC to indicate the revenue and expenses gained from their hospital cover operations versus their non hospital cover operations. Is this because doing so would reveal to the public that ancillary cover provides big profits for the insurers, whereas hospital coverage is far less profitable?
• The Medibank Private prospectus avoided giving a breakdown of the two forms of health insurance, yet this information would have been most beneficial to potential investors. It would have given them a clear indication as to the risks faced of policy holders of either form lapsing their membership.
• The Medibank Private prospectus did, at figure 2.8 on page 26, indicate that whereas 96% of hospital fees were covered, 48% of extras services were paid by patients out of pocket. This table provides evidence as to why most health fund members will be better off discontinuing their ancillary cover and retaining only hospital cover. Sensible people would make any last dental or optical claims before discontinuation.
Recycling members’ money Total health fund management expenses are 8.5% of health fund revenues in the year to 30 June 2014 or $1.7 billion. Members are paying dearly to have their money recycled, and having a proportion of it siphoned off to fund profits or investment reserves. The public needs to see a proper accounting of their ancillary funds by value of benefits paid, administrative cost and profit siphoned to fund reserves or payable to fund owners.
Is it time to take a stance?
The ADA will do dentists and patients a service if they can have PHIAC data thoroughly examined by an impeccable third party source, such as one of the major accounting groups, and publish a report on the cost effectiveness of ancillary cover for fund members. The potential impact of 20,000 dentists, dental specialists and dental auxiliaries, plus their dental assistants, all distributing truthful information to a large number of patients, is significant. The ADA could also provide such an objective report to the financial journalists who hand out money-saving tips to readers.
We predict analysis would reveal that a large majority of health fund members will be better off without ancillary cover, and paying their own dental, optical, physio and chiropractic expenses.
Why insure for minor items anyway?
In other forms of insurance we insure for catastrophes. The major breadwinner’s life may be insured in order that a surviving spouse and children, following a fatal accident, can have the mortgage paid out and enjoy a reasonable lifestyle subsequently. Third party vehicle insurance is compulsory for registered motor vehicles, as serious injuries and fatalities occur in motor vehicle accidents. However, if we are driving a substantially depreciated motor vehicle, comprehensive insurance may not be justified by the vehicle’s worth. We might elect to do without and suffer the risk of having our bomb written off.
Hospital insurance cover ensures that where the fund member has a major need, such as hip surgery or heart surgery, they can go to the front of the queue and have the surgery done by their choice of surgeon in a private hospital, and enjoy a private room rather than enduring considerable ongoing pain while on an indeterminate waiting list for an operation in a public hospital.
However, most hospital fund members are able to afford emergency dental treatment without health fund cover and can dispense with ancillary cover. Those who cannot afford emergency dental treatment probably aren’t fund members anyway! So it begs the question as to why have it?
Health fund advertising
Why is health fund advertising aimed at ancillary cover rather than hospital cover? In the absence of any other explanation, it suggests that the health funds receive much more benefit out of signing up new ancillary fund members than they do from hospital cover members.
In respect of hospital cover, the funds effectively underwrite each other’s risk under the community rating principle, with those funds with lower payout ratios having to make payments to the funds with higher payout ratios in respect of hospital cover. Therefore they choose not to advertise hospital cover to any significant extent compared with ancillary cover. The advertising direction indicates the direction of profit. This being so, the fact that health funds achieve high profit margins on ancillary cover is a good reason why well informed patients would be better off dispensing with ancillary cover altogether, but possibly elect to retain hospital cover for major operations.
American circus entrepreneur Phineas T Barnum famously observed that ‘there is a sucker born every minute’. Phineas knew that the public would pay to view a two-headed lady or the Indian rope trick performed. Phineas’s suckers knew that they were viewing illusions. They just couldn’t figure out how the tricks were done. Health fund advertising of ancillary cover appears to be deliberately confusing in order to create an illusion of there being greater benefit than is likely to be the case.
Importance to dentistry
There can be little doubt that the health funds seek to gain tighter control over dental providers. As dental benefits amount to 50% of ancillary cover, dentists are the vital providers, being far more important than physiotherapists, chiropractors or optometrists.
The stronger the grip of health funds on the dental profession, the greater will be their ability to make large profit margins from ancillary insurance and the more likely it is that benefits to patients will continue to be rationed while payments to dentists will fall further behind inflation.
Those dentists forced into preferred provider arrangements are likely to experience continued encroachment of the health funds over their practices.