# The Future of Private Health Insurance



## Jack Aubrey (27 November 2019)

Since it was mentioned in passing on another thread, I am starting a new thread about the medium/longer term future of the Private Health Insurance (PHI) industry - from an investment and policy perspective.

I have a pretty negative view of PIH - from both a personal point of view and as an economic "mistake" inflicted on us by government.

This recent article by John Menadue sums up the case against.  He doesn't mince words.

Recent so-called "reforms" by the government have done little to alter my own views or, apparently, to generate any confidence in the longer-term future of the industry.

As an industry that would barely exist without a quite massive government subsidy, recent pleas from company executives for even greater government involvement do seem a tad desperate.  I think their proposals to move to a more "American" system of Health Insurance would be rejected outright by most Australians.

I'd like to hear other views, particularly from those who have made strategic decisions to invest in the industry.  Where do you think it is going and why does it have an upside?


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## SirRumpole (27 November 2019)

I can't comment on the investment aspects except to say that I wouldn't touch them with a barge pole, but I've had PHI for 30 years and I'm seriously considering giving it up, but with my luck, as soon as I do I'll probably need it ! The care given in the public system is very good and could be even better if the  subsidies to PHI were reduced, so the incentive to PHI is reducing.

I don't think Medibank private should have been sold, it's now just another player in a field that shows no inclination to compete apart from by how much it can put up its fees, just like the rest. IMV PHI is really in a death spiral and unless there is government intervention in some way then the industry will decline and die.


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## SirRumpole (27 November 2019)

It's always interesting to me that politicians who complain about public agencies "sucking on the public teat" don't usually mention things like Health Insurance companies or private schools.


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## Bill M (27 November 2019)

My view throughout my whole life has been, why should I buy PHI and then always be out of pocket for other expenses and the gap? Until PHI companies can get there act together and make it a no more to pay no matter what the procedure is then there is no way I will ever pay for it. Been doing this for 40 years already and I am waaaaaaaaay out in front.


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## lindsayf (27 November 2019)

We are also waaaaayyyy in front....having utilised phi to access surgical procedures for my wife (major spinal) not available in public system. ...with surgeon of our choice.  It also has provided fast access for “elective” procedure for me that would have been a serious pia to endure a long wait on a public waitlist.  Paid for itself many times over.


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## Jack Aubrey (27 November 2019)

In a private sense, we probably break even on PHI.  A couple of hospitalisations per year over the past few years and three "elective" (not really elective) surgeries between my wife and I have certainly soaked up a decade's worth of premiums. Our main "problem" is that my wife comes from a medical family and choice of surgeon is a huge deal with lots of research involved. Strangely (not so strangely) this has resulted in both of us ending up with the highest priced specialists and some truly huge out-of-pockets not covered by our PHI or medicare.  

I am not surprised that people are opting out.  Both my kids have done so despite the extra medicare levy.

Despite my scepticism about the future of the industry in Australia, I do note that two largest listed PHI companies on the ASX ( MPL and NHF) have both had a quite good year.


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## Smurf1976 (27 November 2019)

From an investment perspective I don't have any rule to specifically avoid PHI companies although I wouldn't want more than one or at most two in the portfolio. If a particular company comes to my attention though, and it ticks the boxes, well sure I'll invest in it.

My reason for caution is that essentially you're investing in a continuation of current government policy and as a concept I dislike that. Just needs whatever political circumstances to change and there goes the value of your investment. Whilst political risk applies to all businesses to some extent, there aren't many that would be more exposed than PHI companies. Banks and energy, whilst subject to intense levels of politics on an ongoing basis, do at least have businesses which stand on their own two feet as such. 

At a personal level well it's the proverbial no brainer since it's cheaper for me to have it than to pay the higher Medicare levy.

I've only been in hospital once though in the private system and the reality doesn't match the hype in my view. Still ended up on a 3 month waiting list for surgery with a specialist surgeon. That's probably better than I'd have done in the public system but it's a long way short of what's promised.


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## Sharkman (30 November 2019)

there was an article on this today
https://www.smh.com.au/business/con...t-can-be-done-to-save-it-20191128-p53f58.html

i also agree private health insurance isn't in great shape. i've been living overseas for a few years now, but in the years leading up to my departure, i was basically forced to take out private health for the same reason as Smurf - i would've had to pay more for the medicare surcharge levy than it cost me to take out mid range hospital cover.

i've only been admitted to hospital once, in my late 20s. since i had the mid range hospital cover, i thought why don't i go private, that should cover it. boy was i wrong. it covered the cost of the hospital stay, but i was out of pocket around $2K for the surgery itself (getting my inflamed appendix taken out). it was only when it was time to pay the bill that i learned how gaps and scheduled fees worked, and i realised what a joke the system is, i should've just gone public instead. my fault for not reading up on those things beforehand, but when you're in pain and fearing for your health, you're not really thinking about costs at that point!

the scheduled fee is supposed to reflect a "fair price" that a medical practitioner would reasonably charge for their services. i still remember reading the form that showed me the breakdown of costs for my treatment in absolute disbelief. it listed the scheduled fee for the anaesthetist as $45 an hour, somewhere around that for the surgeons as well (this was in the late 2000s).

you've gotta be s#$%ing me! who seriously thinks $45 an hour is fair compensation for all the years of study and training that these practitioners have to go thru, as well as maintaining their professional memberships and ongoing education, taking out indemnity/malpractice insurance etc. actually, i know who thinks that - completely out of touch government bureaucrats!

i do think the lifetime loading rule is reasonable idea, but IMHO both the medicare levy and private health premiums should be based on age, not income, with subsidies for lower to middle income households. that should help increase the number of young people willing to take it up, and leaving the lifetime loading rule in place would encourage them to take it up early in life and maintain it.

whereas the current system is going to leave young people disillusioned with the system (i know it did with me). they'll start thinking "why am i being forced to pay for something i don't need, i'm just subsidising the health care of older people, they can afford it themselves, they already got the benefits of the housing boom" etc etc. so they drop out of private health, and we start seeing things spiral downwards as described in the article above.


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## Smurf1976 (1 December 2019)

Sharkman said:


> you've gotta be s#$%ing me! who seriously thinks $45 an hour is fair compensation for all the years of study and training that these practitioners have to go thru, as well as maintaining their professional memberships and ongoing education, taking out indemnity/malpractice insurance etc. actually, i know who thinks that - completely out of touch government bureaucrats!




Thing is, it's even worse when you consider that in any employment situation the cost is substantially higher than what someone is actually paid.

I don't know what appropriate figures would be in the medical profession but if the cost of them being there is $45 an hour then that requires that their actual pay rate is somewhere in the $15 - $30 range which is rather ridiculous.


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## Sharkman (1 December 2019)

Smurf1976 said:


> Thing is, it's even worse when you consider that in any employment situation the cost is substantially higher than what someone is actually paid.
> 
> I don't know what appropriate figures would be in the medical profession but if the cost of them being there is $45 an hour then that requires that their actual pay rate is somewhere in the $15 - $30 range which is rather ridiculous.




exactly. i can't remember what the actual fee charged was, as it's been over 10 years since i had the operation, and one doesn't really remember things if they aren't shocking or surprising. but i think it was somewhere in the region of $300 - $400 an hour. maybe that's a little on the high side, i don't know, it's the only time i've ever had surgery. i do remember that the surgeon had a fair bit of grey hair, so probably in his 50s or 60s who might've been charging more than average on account of his experience.

but i wouldn't begrudge them that sort of fee at all. they've earned it. they had to have been a high achiever to get into medical school in the first place, then years of study, followed by internship at a hospital where they probably _were_ paid the equivalent of $15 - $30 an hour, then several more years of practicing full time whilst training their specialty. and they do great things, saving lives and making people's lives better, unlike most of our politicians.

so they fully deserve it, i'm not arguing against them charging that sort of fee at all. i just don't see how it's fair that i had to cover most of it. i paid about $1200 a year in insurance for nearly 10 years before i finally moved overseas, and immediately cancelled my private health, as you don't incur lifetime loading penalties whilst you're a foreign resident.

when i needed to call upon that cover, they picked up maybe $1000 in private hospital accommodation charges and practically nothing on the ridiculous scheduled fees (medicare actually pays 75% of the scheduled fee, private health only picks up the remaining 25%, and of course you, the patient, are fully responsible for the gap, which completely dwarfs the scheduled fee, no amount of private health cover will save you from that).

and i was one of the fortunate ones, i'd already been investing for many years by that point, so this unforeseen cost, whilst shocking, barely dented my finances. but others may not be so lucky when they get cheated by the system. the system is broken and it's inflicting hardships on the people it's meant to help, either by hitting them with unexpected gap fees, or by pushing them into the already overcrowded public system in an effort to avoid those gaps.


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## Smurf1976 (1 December 2019)

Sharkman said:


> i just don't see how it's fair that i had to cover most of it.



Therein lies the huge problem with it.

Even if someone does have PHI they're still better off financially by not using it.

At least with car or house insurance there's a set "excess" amount you'll pay and they cover the rest. So consumers know what a claim will cost before they've had reason to make one.


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## qldfrog (1 December 2019)

Fully agree, after nearly loosing a thumb in a home accident,i ended up paying 3k from my own pocket while having at the time the top gold  cover  hospital And others
Even physio reeducation was costing me serious out of pocket, and yet these were minimal fees, not over the roof
I since try to reduce policy cost and will head straight to the public hospital if given the choice
Phi and super are just extra taxes


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## SirRumpole (4 December 2019)

A proposal by the Grattan Institute to reform the PHI industry.

Interesting that they seem to be in cahoots with Medibank Private.

Make up your own minds on that. 

https://www.abc.net.au/news/2019-12-04/private-health-insurance/11762778


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## Jack Aubrey (4 December 2019)

SirRumpole said:


> A proposal by the Grattan Institute to reform the PHI industry.
> 
> Interesting that they seem to be in cahoots with Medibank Private.
> 
> ...




The Grattan Institute usually puts forward well considered ideas. 

The fact that "The government spends about $6 billion a year propping up the private health insurance industry through the income-tested rebate." and the fact that it will only continue to rise and rise (along with premiums), means that "something's gotta give".  Whether any Government will be prepared for the inevitable public backlash and vested interest lobbying we can only guess.

To me, this is a classic case of Government starting a scheme (the rebate mess) that has long-term structural implications and eventually leads to industry dependence.  It is similar to the current Franking Credits and Neg Gearing policies in that respect - the costs can only rise over time and people structure their affairs around the scheme.  Any attempt to wind them back gets framed as "a tax" and is easy meat for political opponents and media in search of conflict.


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## SirRumpole (4 December 2019)

Jack Aubrey said:


> To me, this is a classic case of Government starting a scheme (the rebate mess) that has long-term structural implications and eventually leads to industry dependence.  It is similar to the current Franking Credits and Neg Gearing policies in that respect - the costs can only rise over time and people structure their affairs around the scheme.  Any attempt to wind them back gets framed as "a tax" and is easy meat for political opponents and media in search of conflict.




I think that the "concessions" you have mentioned could only be wound back by a denial in Opposition that they would ever do that and a "sudden change of mind bought about by overwhelming evidence" when in government.


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## Gringotts Bank (4 December 2019)

PHI used to work well, but doesn't now.  Medicare used to work well but doesn't now.

There are lots of contributing factors, population growth and an aging population being 2 major ones.  But I blame medical researchers.  Broadly speaking, they have failed to provide solutions.  The degree of failure is absolutely astronomical.

With trillions of dollars spent, modern medical science can only *cure *a tiny handful of conditions.  It can cure bacterial infection and some viruses; it can prevent some such infections with vaccines; it has some surgeries and other interventions which are clearly life-saving.  But actual cures are extremely rare.  Consider just what sort of failure this represents when most conditions and complaints are treated at the symptom level.  Consider also what sort of pressure this places on a system when doctors are only able to continue patching symptoms instead of curing conditions outright.

At some point in history, the population became used to the idea that medical science would never really get on top of the responsibilities they were tasked with.  In the 1960's, man walked on the moon, and yet medical researchers are still messing around trying to find a cure for the common cold.  Obviously there are some brilliant exceptions, but taken as a whole, they have failed very badly.

The spotlight needs to be taken off the private funds and shone squarely on the lab geeks, the academics, the universities and Big Pharma.


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## Jack Aubrey (4 December 2019)

Gringotts Bank said:


> PHI used to work well, but doesn't now.  Medicare used to work well but doesn't now.
> 
> There are lots of contributing factors, population growth and an aging population being 2 major ones.  But I blame medical researchers.  Broadly speaking, they have failed to provide solutions.  The degree of failure is absolutely astronomical.
> 
> ...



Medical science, with the exception of vaccines, has been over-rated as a source of human progress.  Most of the gains in health and longevity (and quality of life) have come from public health measures such as clean water, clean(er) air, better food, and sewerage systems.  I agree we are now addicted to (expensive) life-extending treatments of the normal symptoms of ageing - but as soon as we extend life-spans by a couple of years, we end up "suffering" from a new "epidemic" of age-related maladies like particular cancers, heart disease , arthritis or dementia.  If you look at where the health dollar goes, it is overwhelming these diseases of age.  The research dollar is similarly weighted to finding "cures" for these quite normal conditions of an ageing body (and I say this as someone with failing eye sight and hearing, numerous "pre-cancerous" skin lesions as well as dicky knees).  

I'd love to see an unbiased cost-benefit analysis of both health care and medical research to see whether keeping us geriatrics alive for a few more years is a genuine benefit to society.  Unfortunately for most posters here, old blokes would score rather badly I think but old women, because the social and economic benefits of grandmothers have been studied, would score better.


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## Gringotts Bank (4 December 2019)

Jack Aubrey said:


> If you look at where the health dollar goes, it is overwhelming these diseases of age.




There's a clear correlation with age, but these illnesses are not caused by age.  If they were, everyone of a certain age would develop the same problems.  I can think of quite a few people in their 80's who have no health problems.  Age is just the amplification factor for accumulated psychological stress. Without the accumulation of stress, people just keep on in a relatively healthy state until one day their system stops.

Medical science is going to need to come to grips with this fact (stress causes illness), because in the US and Australia, mental illness in children is growing at unprecedented levels.  With the amplification of time, this will trasnlate into a major healthcare crisis.  The wise fools in the research labs and governing bodies are trying to get kids off drugs and make them exercise and eat better diets, which is completely the wrong approach.  Drug use, lack of exercise and poor diet are _symptoms _of mental illness.  They can't get around this symptom-level fixation.  They are causing enormous problems with such an approach.  They will do everything but admit that kids need love and attention from parents who are properly attuned to their needs.   _ https://www.cdc.gov/childrensmentalhealth/data.html_


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## Jack Aubrey (4 December 2019)

Gringotts Bank said:


> There's a clear correlation with age, but these illnesses are not caused by age.  If they were, everyone of a certain age would develop the same problems.  I can think of quite a few people in their 80's who have no health problems.  Age is just the amplification factor for accumulated psychological stress. Without the accumulation of stress, people just keep on in a relatively healthy state until one day their system stops.
> 
> Medical science is going to need to come to grips with this fact (stress causes illness), because in the US and Australia, mental illness in children is growing at unprecedented levels.  With the amplification of time, this will trasnlate into a major healthcare crisis.  The wise fools in the research labs and governing bodies are trying to get kids off drugs and make them exercise and eat better diets, which is completely the wrong approach.  Drug use, lack of exercise and poor diet are _symptoms _of mental illness.  They can't around this symptom-level fixation.  They are causing enormous problems with such an approach.     _ https://www.cdc.gov/childrensmentalhealth/data.html_



Not sure that's entirely true - although stress does play a role (eg. shift workers on average, die earlier than the rest of us). Baring accident and occupational exposure to carcinogens, genetics and lifestyle factors are huge determinants of how and when you will have a life-threatening event.  Many people are now in a position to know their risk factors and can take action if they choose.  

It is interesting that we have chosen to base PIH on the idea of cross-subsidising everyone, which is the issue the Grattan Institute tries to address, at least as far as age-risk is concerned.


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## SirRumpole (4 December 2019)

Jack Aubrey said:


> Baring accident and occupational exposure to carcinogens, genetics and lifestyle factors are huge determinants of how and when you will have a life-threatening event. Many people are now in a position to know their risk factors and can take action if they choose.





It makes me wonder why those responsible for health care do so little to reduce the lifestyle risks.

OK we have had a big anti smoking campaign (with great opposition by vested interests), but alcohol and obesity have been basically ignored. 

Alcopops tax was rejected by the LNP and a sugar/salt/fat tax (or other measures to reduce these) have not seen the light of day in this government.

Part of the ageing population syndrome have been higher health costs, surely a greater emphasis on a healthier lifestyle should be essential to reducing those costs.


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## Gringotts Bank (4 December 2019)

SirRumpole said:


> It makes me wonder why those responsible for health care do so little to reduce the lifestyle risks.
> 
> OK we have had a big anti smoking campaign (with great opposition by vested interests), but alcohol and obesity have been basically ignored.



They haven't been ignored at all.  Governments do plenty to promote healthy lifestyle, but as explained, it's a dead end.  People indulge unhealthy habits to self-medicate.  You can't just take away 'medications' (read: coping mechanisms) and not expect major repurcussions.  Why do kids risk their lives taking drugs at dance parties?  It's the very same reason an adult might use alcohol or soft drinks.

The only short term solution I can think of is one which would never be permitted.  That is, the education of wannabe parents that if they can't properly provide a loving environment for children, then they shouldn't have them.  They need to understand they may have a very hard time with their offspring if they can't create the proper environment.  Something like the 'dogs aren't just for xmas' slogan.


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## SirRumpole (4 December 2019)

Gringotts Bank said:


> They haven't been ignored at all.  Governments do plenty to promote healthy lifestyle, but as explained, it's a dead end.  People indulge unhealthy habits to self-medicate.  You can't just take away 'medications' and not expect major repurcussions.  Why do kids risk their lives taking drugs at dance parties?  It's the very same reason an adult might drink excessively.




There has been a lot of talk and some money for mental health treatment but little talk about the causes of mental illness which seems to be increasing on a per capita basis.

Unrealistic expectations of life perhaps, the idea that in a modern technological society more things will be done for us. Maybe that's the problem, too much reliance on technology and too little on individual achievement.

Who knows, I'm no psychologist.


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## qldfrog (4 December 2019)

Jack Aubrey said:


> Medical science, with the exception of vaccines, has been over-rated as a source of human progress.  Most of the gains in health and longevity (and quality of life) have come from public health measures such as clean water, clean(er) air, better food, and sewerage systems.  I agree we are now addicted to (expensive) life-extending treatments of the normal symptoms of ageing - but as soon as we extend life-spans by a couple of years, we end up "suffering" from a new "epidemic" of age-related maladies like particular cancers, heart disease , arthritis or dementia.  If you look at where the health dollar goes, it is overwhelming these diseases of age.  The research dollar is similarly weighted to finding "cures" for these quite normal conditions of an ageing body (and I say this as someone with failing eye sight and hearing, numerous "pre-cancerous" skin lesions as well as dicky knees).
> 
> I'd love to see an unbiased cost-benefit analysis of both health care and medical research to see whether keeping us geriatrics alive for a few more years is a genuine benefit to society.  Unfortunately for most posters here, old blokes would score rather badly I think but old women, because the social and economic benefits of grandmothers have been studied, would score better.



Nature has a good way to sort things up as us boys die significantly earlier than the ladies, and not only because we speed more


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## Gringotts Bank (5 December 2019)

Jack Aubrey said:


> Not sure that's entirely true



https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5137920/


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## sptrawler (5 February 2020)

Private health is in the news a lot at the moment, apparently there is a mass exodus as the premiums keep going up, I can understand that we just changed ours over from annually to monthly, $5,000 is a lot to pay in one hit.
The other half wont drop it, what is the general feeling on here?

https://www.abc.net.au/news/2020-02...vate-or-public-cancer-treatment-cost/11918342


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## dyna (5 February 2020)

Either pay the basic hospital cover or cop the tax penalty.It's as simple that,kids(Johnnie Howard's words,I think)Those youngsters under thirty,quitting in droves right now,aren't thinking far ahead are they? They'll all be sorry when they start earning a decent wage and then get hit with the extra 1% plus the killer, 10 year lifetime health cover loading.Oh well,nobody cares about smokers paying 60+ % tax and beer drinkers,40+% ...more coin for Treasury,I guess.


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## willoneau (5 February 2020)

I never joined it when it started years ago, but my folks did. when they stopped working and maybe needed it they couldn't afford it, lucky for them never needed it and they are now in their late 70's and healthy.


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## Smurf1976 (5 February 2020)

sptrawler said:


> what is the general feeling on here?



In my view PHS is the actual tax rort that Labor should have gone to the last election with a plan to scrap completely.

Stop the PHS handouts and put the money into public hospitals for everyone's benefit.

I'll admit to having PHS but I'll also acknowledge that the reason is simply tax avoidance. As a concept it's a silly one and I'm considering dropping it even though it'll cost me in tax to do so. Better to prop up Medicare, that's what funds most medical treatment anyway.


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## willoneau (5 February 2020)

I don't mind paying the tax penalty, I see it as a form of donating to charity.


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## jbocker (20 February 2020)

This is a great thread folks, I really appreciate the comments. I have a few to add but need a bit of time to compile. It was an area I had invested in (NHF). However I was not sure I was comfortable in profiting from the system as a shareholder. Got out in May last year with decent profit, and missed some further good upside. I just looked and it has had a decent slide from July Last year. Happy I went with my ethics.


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