Private Health and Insurance

Abstract

There are 657 licensed private hospitals in Australia, 300 offer acute or psychiatric care and these hospitals discharged over 3.7 million patients in 2020–21. Those patients stayed a total of 9.2 million bed days. Nearly half a million patients attended one of the 20 private emergency departments.

With over 34,000 thousand beds, private hospitals account for a third of all acute hospital beds in Australia. Private hospitals tend to be in major cities and attract patients from higher socio-economic demographics than public hospitals.

Private hospitals treat patients with a selective range of services—treating just 18% of infections, 26% of respiratory conditions and 22% of obstetric cases. On the other hand, they provided 73% of eye procedures and 69% of surgery associated with musculoskeletal disorders.

Private hospitals are increasingly owned by large groups—either for profit or not-for-profit. Ramsay owns or operates 72 of the private hospitals in Australia, and Healthscope operates 41.

Medical staff who work in private hospitals are predominantly visiting medical staff while those in public hospitals tend to be salaried. Their engagement is governed by the hospital by-laws. Specialists admit patients under their care and direct the treatment and discharge of their patients.

With the ageing population, increasing numbers of specialists and tightening funding for public hospitals, the acute private hospital sector is expected to expand faster than the population growth rate.

There are 37 private health insurance funds in Australia; however, the industry is highly regulated. Five health funds control 80% of the market.

Insurers offer two types of product—Hospital Treatment and General Treatment or a combination of the two. Hospital Treatment contributes to the cost of in-hospital treatment while General Treatment funds community bases services that are not eligible for Medicare payments.

The Government has introduced a range of mechanisms to maintain the health insurance participation rate, with the proportion of the population with hospital coverage sitting at 44.9% in 2020. These mechanisms include the Medicare Levy Surcharge, Australian Government Rebate and the Lifetime Health Cover loading.

The Private Health Insurance Act 2007 requires health insurance products that are offered to “Medicare eligible” persons to be “compliant”. Criteria for compliance include community rating—which requires the fund to offer the same product at the same price to members or potential members irrespective of age, gender or health risk. Complying products that cover hospital treatment must always include cover for psychiatric, rehabilitation and palliative care. Health Insurance products are required to be classified as Basic, Bronze, Silver, or Gold—depending on the range of services that are covered.

All health funds participate in the Risk Equalisation scheme that creates a pool of funds which are then redistributed based on the claiming patterns and member profile. This enables smaller funds to better manage the risk of an ageing population and meet the cost of high-cost claims.

In contributing towards private specialists’ in-hospital costs the insurer usually first submits the doctor’s claim to Medicare for consideration and payment of the Medicare portion. The health insurer then pays the gap between what Medicare has paid and 100% of the Medicare Benefits Schedule (MBS) schedule fee. The insurer may also pay an additional amount towards the in-hospital medical costs according to any arrangement the fund may have with the specialist.

Health insurers face a range of pressures, particularly from the ageing population, rising health costs, members downgrading their cover and switching between funds.

A key change in focus for health insurers has been the recent emphasis on quality rather than a single-minded focus on cost. As insurers move towards a focus on quality and value-based purchasing, they are increasing expecting hospitals to meet the costs of preventable adverse events and avoidable readmissions.

Health funds have been diversifying into funding and providing home-based services. At least one fund has recently invested in private hospital ownership.