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Private health insurance and the illusion of choice



10 February 2013

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The number of people with health insurance plummeted in the 1990s, but almost half the Australian population now has private hospital insurance and over half have ancillary or extras cover. But our research on private health insurance websites and interviews with consumers shows that messages about increased choice don't always match reality.

Both Liberal and Labor governments have been encouraging us to purchase private health insurance since 1997. They've claimed that private health insurance promotes choice for the consumer and takes pressure off the public health system.

Private health insurers urge us to choose their products so we can take responsibility for our health and have more choice in our health-care experience - including timing, hospital and specialists. And government tax penalties, higher rebates for people over the age of 30 and subsidies encourage us to finance our health-care needs through private health insurance.

But our research found that private health insurance may not increase choice in health care. In birthing and maternity care, in particular, people purchase insurance because they want choice of doctor and place of birth. But in regional locations, choice is limited. Despite participants in our research mentioning choice as the reason why they had private health insurance, all babies in our regional research site were delivered at the local public hospital.

What people were actually buying with their health insurance was what one participant called "the luxuries" and commentators have called "hotel services" - the capacity to move to a private hospital after the birth with privacy, nicer facilities and better food, as well as the perception of better care.

About a quarter of people with private health insurance use the public health system rather than the private system. This may be because the care they need is only available in the public system, or the cost.


Extras surprise

Many people are surprised at how much extra they have to pay when they use their private health insurance in hospital. By contrast, there are few, if any, additional costs in the public system. And many people don't really know what they're getting when they purchase private health insurance.

Our research into why people take out private health insurance found that people had limited awareness of what was covered in their policies and very few had increased choice if they did use it. Most often, we found that people have little knowledge about what's covered by their private health insurance. As one participant said, "I pay more attention to the details of my car insurance."

This may, in part, be because these details are confusing. While writing this piece, we did a search on the website iSelect, which is designed to assist consumers choose their health insurance, for the cost and value of private health insurance for an older couple without children. Even with these limited parameters, the search revealed a price range between $136 and $393 a month with significant variation in what was covered for both hospital and ancillary care.

Further confusion arises when one tries to compare the types of therapies that may be covered. Dental care provides an excellent example of major differences between insurers. Again, using the iSelect search, we found that the monthly ancillary premium ranged from $51 and $133 per month, the annual claim limit ranged from $500 to $1200 per person, with no clear link between the cost of the premium and the available benefits.

This also holds in the fast-growing area of complementary and alternative therapies. Our iSelect search revealed a huge variation in type of alternative therapies (such as acupuncture, naturopathy, traditional Chinese medicine) covered by the various private health insurers and the amount that could be claimed ranged from $100 to $700 per person per year.


Irrational choices

While one response to all of this may be that people should ensure they're well informed and make rational choices based on their perceived needs, our research found that the notion of choice itself is problematic. Family history was more predictive of choice of insurer than cost-benefit analyses. People were unlikely to change insurers even when concerned about the cost.

Indeed, people appear to be much more cost and value conscious when shopping for consumer products other than health insurance.

One reason for this may be that despite the rhetoric of consumer choice, Australia has a world-class public health-care system. While sometimes falling short and often getting negative publicity, the principle of a health-care system based on equity and access accords well with Australian values.

Unlike health systems where individuals must take all responsibility for their health-care costs, Australia's public health system provides a safety net that ensures we are not wholly dependent on health insurance.

But for those who do choose to pay for private health insurance, the capacity to choose their care remains unequally distributed.


Dr Kirsten Harley and Associate Professor Karen Willis are sociologists in the Faculty of Health Sciences.


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