4102.0 - Australian Social Trends, 2001

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Contents >> Health >> Health Expenditure: Private health insurance

Health Expenditure: Private health insurance

Between March and September 2000, the proportion of Australians with private health insurance increased from 32% to 46%, reversing the long-term decline of the last two decades.

Private health insurance in Australia has its origins in the activities of the non profit ‘self-help’ financial organisations, friendly societies and mutual funds, which pre-dated much government welfare provision. While in the nineteenth century some friendly societies contracted doctors, more modern forms of health insurance date from the 1930s, with the establishment of hospital and medical funds. Members, often drawn from a workplace or local community, made small weekly contributions to the funds in return for hospital treatment or doctor consultations should the need arise. For much of their history, the activities of health funds have been highly regulated by government.

Since the introduction of Medicare in 1984, Australian residents have had access to free treatment in public hospitals, and received refunds towards the cost of doctor consultations and some other medical expenses. This has reduced the role of private health insurance. However, it is still considered important for the maintenance of a viable private hospital system, which can take some of the burden from the public hospital system, while providing consumers with greater choice.¹ Health funds also offer cover towards the cost of various ancillary health services not covered by Medicare.

Private health insurance cover
Both administrative data and ABS survey data are available on the numbers and characteristics of people who have private health insurance.

The Private Health Insurance Administration Council (PHIAC) is an independent statutory authority which regulates the private health insurance industry in accordance with the National Health Act 1953. It publishes statistics on private health insurance, based on membership statistics supplied to it by health funds.

The Australian Bureau of Statistics has conducted surveys of private health insurance since 1979, with the most recent conducted in 1998.

Health funds offer hospital, combined ancillary and hospital, and ancillary coverage. In this article, statistics on people covered by hospital insurance include those with either hospital-only or combined coverage, and for ancillary insurance include people with either ancillary-only or combined coverage.

Hospital insurance covers part or all of the cost of accommodation, theatre costs and in-hospital medical expenses, for those treated as a private patient in either a public or private hospital.

Ancillary insurance covers part of the costs of supportive health services such as dental and optical services, and physiotherapy.

Trends since 1984
In the early 1980s, prior to the introduction of Medicare, between 55% and 68% of the population was covered by private health insurance. Although some decrease in membership of health funds was to be expected after 1984, the sustained decline which followed caused concern about the industry’s viability. The proportion covered by hospital insurance fell to 48% in June 1985 and there was then a sustained decline in coverage until December 1998, when the proportion of the population covered by hospital insurance reached a low of 30%.

Information on ancillary insurance coverage is available on a quarterly basis from 1990 only. A similar trend occurred for this type of insurance, with the level of coverage declining from 40% to 31% between June 1989 and December 1998.

In the late 1990s, new arrangements to encourage health fund membership were put in place. From 1 January 1999, a universal 30% rebate on health insurance premiums replaced a means-tested subsidy which had been in place since July 1997. Over 1999 there was a gradual upturn in coverage, with the proportion of the population covered reaching 32% for hospital insurance and 33% for ancillary insurance in the March quarter of 2000.

From July 2000, arrangements were made for the introduction of ‘Lifetime Health Cover’ whereby premiums would be structured according to the age of the contributor on joining, with an amnesty on increased charges for those who joined before July. The decline in membership was dramatically reversed as these changes came into effect. Over the June quarter 2000, there was a leap in coverage taking those with hospital cover to 43% and those with ancillary cover to 39%. This continued in the September quarter 2000, resulting in hospital coverage of 46% and ancillary coverage of 41%. The September quarter increase appears to have occurred largely because the deadline to avoid higher premiums was extended two weeks into July. Although there were an additional 415,200 people aged 30 years and over covered by private health insurance in September compared with June, only 11,300 people were paying higher premiums due to Lifetime Health Cover arrangements. The timing of the largest increases in coverage in the June quarter 2000, and early July, suggests that the Lifetime Health Cover arrangements and an associated advertising campaign were a major influence on people’s decision to take out insurance.

Coverage has remained stable since the September quarter 2000, with the proportion covered by hospital insurance remaining above 45% and the proportion covered by ancillary remaining above 40% for the December 2000 and March 2001 quarters.

PROPORTION OF THE POPULATION WITH PRIVATE HEALTH INSURANCE

(a) PHIAC quarterly data on ancillary insurance, tabulated separately from hospital insurance, are available from 1990. Includes ambulance-only policies.

Source: Private Health Insurance Administration Council, Quarterly coverage statistics, March 1984-March 2001.

Selected recent changes affecting private health insurance
The Private Health Insurance Incentive Scheme (PHIIS) (July 1997) introduced:

a government-funded reduction in the cost of health insurance premiums for people whose incomes were below a certain level (taken as a reduced premium or as a tax rebate); and

an additional Medicare levy of 1% applied to those without private health insurance if their incomes were above a certain level.

Hospital Purchaser Provider Agreements (April 1998) enabled health funds to negotiate to pay hospitals above the Medicare Benefits Schedule fee where the hospital had a Practitioner Agreement for in-hospital medical services. This enabled simplified billing, and elimination of out-of-pocket expenses for the patient.

The Federal Government 30% Rebate (January 1999) is a universal rebate on private health insurance premiums, funded by the government, to be taken by health fund members as a reduced premium or as a tax rebate. This replaced the means-tested PHIIS rebate.

No-gap or known gap products (July 2000) were introduced by the Federal Government to encourage health funds to offer one or more policies which either involved no out-of-pocket expenses or provided a statement to members of what the out-of-pocket expenses would be. Funds were not permitted to offer the 30% rebate as a premium reduction unless they implemented these changes.

Lifetime Health Cover (July 2000) required health funds to charge members different premiums based on the age they first took out hospital cover, with an amnesty on increased charges for those who joined before 1 July 2000 (later extended to 15 July).

Reasons for and against insuring
Some of the factors influencing health fund membership are indicated by the reasons people give for their health insurance status. In June 1998, when coverage was close to its lowest, the reason given by 66% of people for not having health insurance related to the cost. The next most common reasons related to people being in good health or having no dependents (15%), followed by reasons relating to insurance not being good value for money (13%).

The most common reason given for having private health insurance related to the security, protection and peace of mind it provided (47%), followed by reasons related to access and choice, such as choice of doctor (25%), shorter waiting times or concern over hospital waiting lists (23%) and being treated as a private patient (20%).

SELECTED REASONS GIVEN FOR PRIVATE HEALTH INSURANCE STATUS, JUNE 1998


	%

Reasons for not being insured(a)
Can’t afford it/too expensive	66
In good health/have no dependents	15
Medicare cover sufficient	14
Lack of value for money/not worth it	13
Have health care card	11
Total without health insurance(b)	100

Reasons for being insured(c)	%
Security/protection/peace of mind	47
Choice of doctor	25
Shorter waiting times/concern over hospital waiting lists	23
Allows treatment as a private patient	20
Always had it/parents had it/condition of job	22
To obtain ancillary benefits	18
Total with health insurance(b)	100

(a) Given by those without insurance; more than one reason could be given.
(b) Includes other reasons.
(c) Given by those with insurance; more than one reason could be given.

Source: Health Insurance Survey, 1998 (ABS cat. no. 4335.0).

Characteristics of people insured
Over the 1990s, ABS surveys have found that: women are more likely to be covered by private health insurance than men; coverage is highest among the middle-aged; and an increase in the likelihood of being insured is associated with higher income. In addition, people with government health care cards, most of which are means-tested and which make health care more affordable and accessible, are less likely to have some kind of health insurance than others. These factors are interrelated: average incomes are highest among the middle-aged, for example. People on low incomes, the elderly and one-parent families are more likely to be covered by health care cards than are others.

In June 1998, 34% of women and 32% of men (aged 15 years and over) were covered by hospital insurance. For ancillary insurance the difference was also slight: 31% of women were covered, compared with 29% of men.

The proportion of the population covered by hospital insurance was lowest among those aged 15-24 years (25%) and was highest for those aged 45-54 years (43%). The proportion covered in each age group over 54 years was progressively lower, falling to 35% among those aged 75 years and over. A broadly similar pattern was observed for ancillary insurance, although there was a greater fall-off in coverage in the older age groups for this type of insurance. The proportion of those aged 75 years and over with ancillary insurance (22%) was the lowest of any age group.

PROPORTION OF THE POPULATION WITH PRIVATE HEALTH INSURANCE, JUNE 1998
Age group	Income group(a)

Source: Health Insurance Survey, 1998 (ABS cat. no. 4335.0).	(a) Aged 15 years and over. Source: Health Insurance Survey, 1998 (ABS cat. no. 4335.0).

In June 1998, cost was the most common reason given for not having private health insurance. During 1998-99 the average amount paid per year for hospital insurance was $601 for an individual, and for ancillary cover was $239.² Accordingly, people were less likely to have private health insurance, the lower their family (‘contributor unit’) income. Of contributor units in the lowest income range ($20,000 or less), 17% were covered. The proportion increased with increased income to 73% of those in the highest range ($100,000 or more). This pattern was also observed for ancillary insurance, with the proportion covered ranging from 13% to 62%.

Of couples with dependent children, 38% had hospital insurance, as did 37% of couples without dependent children. Single people followed (27%), while lone parents and their dependent children were the least likely to have private hospital insurance (12%). The same ranking was observed for ancillary insurance.

There were some differences between types of contributor unit in the relative uptake of ancillary insurance and hospital insurance. Contributor units which included dependent children were as likely to have ancillary cover as to have hospital cover. In contrast, ancillary cover was less common than hospital cover among singles (23% had ancillary insurance) and couples without children (29%).

In June 1998, just over a third of the population aged 15 years and over were covered by a government health care card of some kind. People covered by these cards were less likely to have private health insurance than those not covered (22% compared with 46%).³

PROPORTION OF THE POPULATION WITH PRIVATE HEALTH INSURANCE, BY TYPE OF CONTRIBUTOR UNIT, JUNE 1998

Source: Health Insurance Survey, 1998 (ABS cat. no. 4335.0).

Contributor units
Health funds are permitted to offer membership packages tailored to different family types. These are:

singles;

couples (without children);

families (couple and dependent children); and

one-parent families (one parent and children).

In accordance with the membership options, ABS Private Health Insurance Surveys have collated data on the basis of contributor units. Contributor units are families, individuals, or groups of members of families defined by their private health insurance arrangements. The term is applied to both those with and without private health insurance, which makes it possible to estimate the likelihood of the different types of contributor unit having insurance. If couples (with or without children) included in the survey had different health insurance arrangements, they were split into different contributor units. If they had joint arrangements or neither was covered they were treated as one contributor unit.

Age of new members
During the period when the membership of health funds was declining, a particular concern was that funds would develop a top-heavy age structure, as membership was declining faster in younger age groups than in older age groups. As older age groups tend to make heavier use of health services, this would have implications for the financial viability of the health funds.

The changes to the age pattern of coverage which occurred between the March and September quarters of 2000 went some way to reversing this trend. Although coverage increased in every age group, the greatest increases occurred among people aged from 30-49 years, for whom the incentive to join a fund was greatest under Lifetime Health Cover arrangements. The 72% increase in the number of 30-34 year olds covered was the greatest proportional increase of any five-year age group. There were also relatively high increases in coverage of children aged under 15 years (ranging from 50% to 58%), reflecting the large number of parents taking out coverage for their families.

PROPORTION OF THE POPULATION WITH HOSPITAL INSURANCE, MARCH AND SEPTEMBER QUARTERS, 2000

(a) Proportion of the population of each age group covered by hospital insurance. (PHIAC data on the age pattern of ancillary insurance is not available.)

Source: Private Health Insurance Administration Council, Membership and Coverage Statistics, <URL:www.phiac.gov.au/phiac/stats/MemCovIndex.htm> (Accessed 9 March 2001).

Endnotes
1 Department of Health and Aged Care, 1999 Occasional Papers, Health Financing Series volume 1, no 4, Private Health Insurance (Submission to Community Affairs Legislation Committee regarding the 30% rebate on private health insurance) <URL:http//health.gov.au/pubs> (Accessed 7 January 2001).

2 Australian Bureau of Statistics 1998, Health Insurance Survey, 1998, cat. no. 4335.0, ABS, Canberra.

3 Private Health Insurance Administration Council 2001, Membership, Coverage and Financial Statistics <URL:www.phiac.gov.au/phiac/stats/MemCovIndex.htm> and <URL:www.phiac.gov.au/phiac/circs_pubs/OldAnnRpt/1999T2to8.xls> (Accessed 9 March 2001).