2016 is gearing up to be a year of health care reforms that will shake up the nation’s funding and hospital system. Recent reports suggest that Health Minister Sussan Ley will conduct a comprehensive review of the private health system, including making amendments to the way premiums are calculated.
Each year, the Australian Government spends close to $6 billion on the Private Health Insurance Rebate. With just over half of the Australian population having some form of private health coverage, it begs the question of whether our health spend is effective at incentivising good behaviours, rather than just subsidising and protecting those who make unhealthy choices.
As it currently stands, health insurance premiums are unaffected by your age, gender, health status or other risk factors. Within what is called the community rated system, healthy individuals ultimately subsidise the treatment and claims of those who are unhealthy.
At face value, this system appears somewhat unfair, and considering the risk premium that comes attached to a community rated product, it’s no wonder that Australians pay more health insurance when compared to other countries.
For our distant neighbours in the United States, the story of private health is a slightly different. Though the American public healthcare system does not begin to compare with our own system, their private health care policies generally take less of a blanket approach to risk factoring and pricing.
Some personal and lifestyle factors such as smoking status and age do play a role in determining the value of a premium in the US. This is in itself, seems like a more authentic take on private health insurance – premiums are essentially an indication of how likely you are to make a claim and therefore should accurately reflect the individual policyholder’s direct lifestyle choices that may lead to illness.
The crux of this debate however, lies in the comparison we so often hear with car insurance. Drivers who do not make at fault claims are rewarded for their good behaviour with ongoing no-claim discounts and bonuses. Therefore, why should responsible individuals who take care of their health be forced to pay the same price as a policyholder who makes poor health decisions?
For now, it remains to be seen as to whether health care reforms will address this issue. What are your thoughts on smokers paying more?