Private health insurers want to fund more out-of-hospital care. But the Productivity Commission has other ideas

Australia needs to do better at preventing health conditions from arising and worsening, according to an interim report on delivering quality care more efficiently released overnight by the Productivity Commission.

But the commission’s interim report did not mention a greater role for the private health insurance in delivering more preventive health care.

This is despite Private Healthcare Australia and Bupa wanting to provide GP-like services or fund care by specialist doctors out of hospital.

Sometimes what is excluded from a key report is as telling as what’s included.

Here’s why the Productivity Commission made the right call about private health insurers and what would have happened if they had their way.

What do health insurers want?

Currently, legislation prohibits health insurers from delivering certain types of health care outside hospital. This means they are mainly restricted to delivering care based in hospital, or what’s known as hospital-substitute care (such as hospital in the home arrangements).

But Private Healthcare Australia, which represents most Australian health funds, and one of its members Bupa submitted requests to the Productivity Commission for the government to remove these legislative barriers.

If these laws were changed, it would enable private health insurers to significantly expand their funding for out-of-hospital care, including primary care, specialist care, chronic disease management, and community-based services.

They argue that allowing private health insurers to pay for out-of-hospital care – especially preventive health and chronic disease management – would reduce the need for costly hospitalisations, and save long-term health-care costs. It’s about shifting the focus from treating illness to maintaining wellness, a goal few would disagree with.

In fact, private health insurers are already allowed to cover preventive care. Many have apps for members to track their exercise, blood pressure and sleep, for example. They already provide extras care for preventive dental care, optical, acupuncture, physiotherapy, and perhaps in the future some more complementary therapies. Members can buy hospital care, extras care, or a general plan covering both.

But the current proposal is different. Health insurers want to cover more GP-like services and specialist care. In other words, they want to be allowed to cover more of the same benefits that Medicare already covers.

Is this a good idea?

This isn’t a new debate. Private health insurers have long tried to expand their role beyond hospital care.

However, the core concern with allowing private insurers to cover more out-of-hospital care is the very real risk of driving up prices of out-of-hospital care and creating a two-tiered system.

About 45% of Australians hold private health insurance to cover hospital care.

If private insurers start paying for GP and specialist consultations too, it is highly likely doctors’ fees would rise. This is because private funds would likely offer a higher payment schedule above Medicare rebates to attract doctors to their networks. This would cause the overall costs of a consultation to rise.

Those without private health insurance, who rely solely on Medicare, would face a shrinking pool of doctors willing to bulk-bill or charge a modest gap, leading to longer wait times, fewer available appointments, and a greater struggle to access care. This would also lead to higher private health premiums as insurers pass on the cost of the higher doctor fees to members.

We already see this dynamic in our hospital system. Surgeons, for instance, earn significantly more for procedures performed in private hospitals compared to public ones. This leads them to disproportionately allocate their time to the private sector.

So people with private health insurance often skip lengthy public waiting lists for elective procedures, while public patients face prolonged delays for essential care.

This disparity doesn’t just create inequities, it strains the public system even further. To entice expensive surgeons to dedicate more time to public hospitals, public hospitals have to pay some of them well above the standard salaries set in enterprise agreements.

This practice diverts precious public resources (funds that could otherwise be used for essential equipment, beds, or more junior doctors and nurses), reduces the overall quality of care for public patients, and increases waiting times further in the public system.

Why the Productivity Commission made the right call

Allowing private health insurers to expand further would fundamentally undermine the universality of Medicare. We would risk creating a two-tiered primary health-care system, replicating the very disparities and challenges that plague our hospital sector. So the Productivity Commission made the right call to not include insurers in its recommendations.

What is needed to deliver quality care more efficiently is for the government to significantly boost investment in preventive health care. Once chronic conditions set in, they are difficult to reverse and continuously drive up costs. This is something the Productivity Commission acknowledges in its interim report.

We also need to build truly integrated care. This would deliver seamless, coordinated health services around a person’s needs, rather than around individual providers or separate parts of the system.

Imagine a future where your GP, specialists, allied health professionals, and even social support services are connected, sharing information and working together on your care plan. This crucial approach reduces duplication, improves communication, and ensures people don’t fall through the cracks of a fragmented system.

These are the types of policies that would help make Australia’s health system more efficient, and help ensure Medicare delivers what it was intended to, without unnecessary duplication and the inevitable consequences.