ANOP Research Services Pty Ltd was commissioned by the Australian Health Insurance Association to conduct a detailed survey of the private health insurance (PHI) population regarding the federal government’s plans to means test the private health insurance rebate and associated policy changes. The AHIA wanted a reliable indication of the likely impact of the planned changes on private health insurance membership and levels of cover.
Executive Summary
This executive summary draws together the key findings of the study, and presents ANOP‟s main conclusions about the impact of the federal government‟s planned means testing of the PHI rebate.
Awareness of the rebate, its perceived importance and the Medicare Levy Surcharge (MLS)
• The overwhelming majority of privately insureds (91%) are aware of the 30% federal government rebate on the cost of their private health insurance. Importantly, awareness increases with age and it is higher (94%) among Tiers.
• The rebate is considered “very important” by 7 in 10 (71%) and “quite important” by a further 2 in 10 (22%). This 93% importance rating (higher among lower income earners) is a high figure in survey terms and it indicates the considerable reliance placed on the rebate by the privately insureds.
• Prompted awareness of the MLS is also at a very high level (83%), with the better off Tiers showing 9 in 10 awareness figures (89%).
Awareness of the government‟s planned changes
• In contrast, a very low awareness (23%) is measured regarding the government‟s plans to means test the rebate. Awareness rises to only 3 in 10 (29%) among those who will be directly impacted (i.e. the Tiers). Thus, the privately insured population is not well informed about or prepared for this significant policy change.
Impact of the government‟s planned means testing of the rebate among Tiers
• Tiers were firstly informed about how the rebate and the MLS would change for their particular income group. They were then asked what they would do about their hospital cover and extras/ancillary cover.
• For those with hospital cover, around 1 in 10 (11%) would drop hospital cover entirely and an additional 1 in 4 (24%) would downgrade. Thus, over one-third (35%) are likely to reduce their level of hospital cover.
• And for those with extras cover, the impact is even greater. Nearly 1 in 5(18%) would drop their extras cover altogether, with a further 1 in 3 (34%)likely to downgrade. Thus over half (52%) would potentially cut back on extras cover.
• “Healthier” Tiers are more likely than their “less healthy” counterparts to drop or downgrade their hospital cover (drop/downgrade hospital 36%: 32%) and their “extras” cover (drop/downgrade extras 55%: 48%).
• The impact of the government‟s planned changes will be significant in hospital cover dropout but will be even greater in the downgrading of coverage. Importantly, this study reveals that the most severe impact will occur in the general treatment sector (dental, optical, physiotherapy etc.).
Price Sensitivity
• In another measure of the effect of the government‟s planned changes to the rebate, Tiers were asked what they would be likely to do if the cost of their private health insurance went up by 15%, 30%, and 45%. These premium increases reflect the impact of the planned rebate changes within individual Tiers. When the results relevant to each Tier are combined (reaction to premium increase of 15% for Tier One, 30% for Tier Two and 45% for Tier Three), a similar impact of the planned means testing is revealed:
- Over 1 in 10 (13%) would drop hospital cover entirely, and an additional 1 in 3 (33%) would downgrade hospital cover.
- And for those with extras cover, the impact is greater. 1 in 5 (21%) would drop their extras cover altogether, with a further 1 in 3 (36%) likely to downgrade.
• Over half (56%) of privately insureds have a certain amount that they are prepared to pay each year for their private health insurance. This price sensitivity is naturally more pronounced among Non-Tiers (59%) than Tiers (47%), but nonetheless it is noteworthy that nearly half of the Tiers have a limit on what they are prepared to outlay on health insurance. These price sensitive policy holders are the ones most likely to downgrade or drop hospital and extras cover when the cost of their private health insurance increases under the planned changes to the rebate.
Potential disincentives to dropping hospital cover
• The Medicare Levy Surcharge (MLS) is a weak deterrent against dropping hospital cover:
- Only 1 in 5 (19%) of Tiers with hospital cover report that avoiding the MLS is the main reason for having hospital cover.
- Among the 87% keeping some form of hospital cover after being informed of the planned changes, only 17% linked avoiding the MLS to this decision.
- Of the 11% intending to drop hospital cover under the planned changes, only 1 in 4 (27%) of those aware of the MLS would reconsider their decision when specifically reminded that it would result in their paying the MLS.
Impact of the changes on public hospital system usage
• Among those Tiers who would drop their hospital cover regardless of the MLS, 9 in 10 (92%) believe that they would be more likely to use the public hospital system as a result.
• And among the Tiers downgrading their hospital cover, nearly 2 in 3 (62%) indicate a greater likelihood of using the public hospital system.
• A three quarters majority (75%) of all privately insureds surveyed were of the view that some people will use the public hospital system more under the government‟s planned changes. And 31% thought this would be “a lot” of extra people using public hospitals. These figures are higher among the Tiers.
Summary
There are five significant implications of the results of this study for the private health insurance industry and for the federal government:
- The privately insured population who will be directly affected by the government‟s planned changes to the private health insurance rebate is ill prepared for, and unaware of, the changes to a system it regards as vitally important.
- There is likely to be a significant drop-out from private health insurance – up to 13% in hospital cover and up to a larger 18-21% in general treatment cover, to the extent that ancillary service providers (dentists, optometrists, physiotherapists etc.) will be severely impacted.
- There will be an even bigger impact on the private health insurance industry as a result of the numbers who will downgrade their level of cover – at least 24% in hospital cover and at least 34% in general treatment cover.
- Drop-outs and downgrades are likely to be higher among the healthier groups, leaving a pool of less healthy members in the privately insured population.
- The public hospital system will be likely to feel the impact of the potential consumer drop out, with the Medicare Levy Surcharge not a strong driver to remain in private hospital insurance.
The full report is also available for download (pdf format).
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This is very important information and should be forwarded to all members of parliament.