Private health insurance funds like NIB are complaining about high specialist fees. But these very same funds are major contributors to the problem. And it is a problem. In the last 30 years we have seen a dramatic increase in specialist fees.
A major contributor to this increase in specialist fees is the ‘gap insurance’ that private health insurance firms offer. Gap insurance effectively underwrites specialist’s ability to increase fees and weakens Medicare’s ability to cap fees. In the AFR today, NIB gives two examples of how this is done. For prostatectomy (surgical removal of prostate) the Medicare Benefit Schedule Price is $1,939, but with gap insurance NIB offers to cover this up to $2,941. For knee replacements, the Medicare Benefit Schedule Price is $1,318, but with gap insurance NIB offers to cover this up to $2,014.
But that is not the end of the story by any means.
The growth of private health insurance makes it more difficult for Medicare to control fees. Instead of the Medicare Benefit Schedule Price capping fees, the Medicare price is just the first stepping stone to higher fees. Whilst NIB will pay up to $2,941 for a prostatectomy, compared with the $1,935 in the Medicare Benefit Schedule, the AMA has a recommended fee of $4,465. And on top of that AMA recommended price, NIB tells us that some surgeons are charging another $6,000. Yet we have a Royal Commission on Trade Union behaviour!
NIB reveals the same pattern for knee reconstructions. The Medicare Benefit Schedule Price is $1,318 but that is ratcheted up to $2,014 through NIB gap insurance. And then it goes up to $3,960 to the AMA recommended fee. To top this off, NIB advises that some surgeons are charging between $4,500 and $5,500.
There are many reasons why health costs are rising. Private health insurance companies like NIB and specialists are major contributors.
The ‘market’ that economists talk about does not work in the health sector. Providers, doctors and hospitals, have the power to set prices as the above figures show.
With the ‘market’ not working there are really only two ways for governments to avoid price and fee gouging. The first is through price control. That is largely the way that Japan keeps its healthcare costs down. But that approach is unlikely in Australia given our constitution and political situation.
The second is to have a single public payer to counter the power of providers. That is generally what countries with successful health schemes do.
Medicare was designed as a single payer. But its power has been diluted by the growth of private health insurance with gap insurance. We are steadily moving down the disastrous US path. And the Australian taxpayer is paying $11 b. p.a. to subsidise these destructive private health insurance funds.
We should have no sympathy for NIB, BUPA and Medibank Pte about rising costs. They are major contributors to the problem. And they get bundles of money from taxpayers despite the damage they do.