In 2011, at the height of the campaign against the Gillard government’s proposed means-testing of the private health insurance rebate, consultants Deloitte released a report with dire predictions for the future of the industry. It claimed the new legislation would lead to 2.8 million Australians dropping their private health insurance over the next five years, with 554,000 going in the first year alone.

Nine months after the implementation of the means test, the data is in. Were the fears founded?

First, some background. From July 1 last year the government’s changes to the private health insurance rebate came into effect. Singles earning over $84,000 (or double that for couples or families) were no longer eligible for the complete minimum 30% refund on health insurance premiums, and were instead divided into three tiers based on income.

Treasury estimated the change would have a minimal effect, with at most 25,000 customers dropping their policies (more than 12.5 million Australians currently have some form of private health cover). The insurance lobby claimed that any changes would have serious consequences for policy-holders and the industry in general. Their primary ammunition was this Deloitte report, based on an ANOP Research/Newspoll survey of 2000 households with private health insurance.

Its main finding was that means-testing would result in up to 2.8 million Australians dropping their general treatment insurance over the first five years. It also claimed 1.6 million would abandon their private hospital cover, and up to half of all policy-holders (around 5.7 million people) would downgrade their coverage.

The report also estimated that this mass departure would cause formerly private hospital patients to flood the public health system, costing the government an estimated $3.8 billion dollars. Queensland Health Minister Laurence Springborg said he anticipated Queensland’s hospitals would become increasingly overloaded.

Based on these figures, The Sydney Morning Herald wrote that the legislation would cause an “exodus” from private health insurance providers. The Australian quoted ANOP Research chairman Rod Cameron, who said “very significant percentages are going to drop or downgrade for hospital and even bigger numbers in terms of dropping … their extras cover”. Even a year after its release, News.com.au used the report in “Fear of mass exit from private health if rebate cut“.

But according to the Private Health Insurance Administrative Council, the real picture one year on is nothing like the prediction. In fact, it’s pretty much business as usual.

Rather than half a million people cancelling their general treatment policies, private health insurance providers have grown by 251,000 in the first three quarters of the year. Instead of 175,000 dropping their private hospital cover, a net 182,000 new people signed up.

Shaun Gath, CEO of the Private Health Insurance Administration Council, says despite the changes to the rebate it’s business as usual in the health insurance sector. “We never accepted that [Deloitte’s figures] were likely to be the case,” he told Crikey. “The growth has been normal to a little bit better than normal. We like that rate of growth; it’s good but not fast enough to put pressure on the system.”

With the number of Australians in private health insurance growing steadily, predictions of a rush on public-funded hospitals are unlikely to eventuate. The number of Queenslanders with private health insurance grew by 51,000 over the last nine months.

The report’s final prediction of Australians downgrading their health insurance is more difficult to test. Given its complicated nature, what would or would not be considered a “downgrade” is subjective. PHIAC doesn’t have any statistics on the subject and Gath considers the matter a “judgement call”.

“One man’s downgrading is another man’s rational consumer choice,” he said. “People are entitled to move their type of cover up and down over their lives. It’s not a sort of language that I want to embrace. It seems to denigrate the choices of consumers.”

Deloitte and Private Healthcare Australia were contacted for this piece but weren’t able to respond by deadline. Regardless, we’re rating this one a load of rubbish.

Peter Fray

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