The vast majority of those having extras health insurance cover are shamelessly ripped off by health funds. Policies broadly fall into three classifications, being:
- Hospital cover which, dependent on policy, may or may not include major items like hip surgery or obstetrics.
- Extras cover, which provides support for dental treatment, being 50% of payments, optical and, in most policies, a smattering of physiotherapy, chiropractic and podiatry services. However, there are usually a lot of exclusions and items are rationed.
- Bundled policies of hospital and extras cover.
Health funds make their big profit margins on extras cover because of their ability to ration benefits to members. They make far lower margins on hospital cover because of their inability to ration hospitalisation.
- 500,000 health insurance policies were cancelled or downgraded last year, according to Consumer Health Forum.
- Approximately one in four health fund members have had claims rejected, according to Consumer Health Forum. One in five don’t know what their policies cover, and only one in four find it relatively easy to compare policies. Overall only half of those insured think their policies adequately cover their needs.
- For those who insure to avoid paying the Medicare surcharge, hospital cover alone will achieve this and is the more rational choice because it covers the big ticket items, like hip replacement and heart surgery, but be careful to read what your particular policy covers and what it doesn’t.
- According to the President of the ADA, extras policies pay out only 78 cents in the dollar in benefits. Since funds’ average administrative costs are 8.5 cents per dollar, this leaves 13.5 cents in the dollar as pure profit to the health fund on this form of insurance.
- The big three ‘for profit’ insurers are Bupa, Medibank Private and nib. Bupa remits its profits to its British parent, while Medibank Private (including its subsidiary AHM) and nib are public companies required to pay dividends to shareholders. Other funds use profits on extras tables to top up the reserves backing their hospital insurance policies.
- Health insurance advertising dwells heavily on extras cover, because that’s the most profitable for the health funds, and therefore the least beneficial to policy holders.
- Health funds do not select dentists on the basis of their training, experience, quality of facilities or ability to provide a wide range of treatments. They select purely on cost to the fund. In practice, highly skilled proprietors of good practices who attract the largest followings of patients are the least likely to be preferred providers to health funds.
- In 2015 health funds increased their premiums by an average of 6.18%, which is far greater than the rate of inflation.
- Consumer group Choice spokesman Tom Godfrey has indicated that people would be better off keeping extras premiums in the bank and personally paying bills for extras such as dental treatment and spectacles.
- Private Health Insurance Administration Council (PHIAC) CEO Shaun Garth was quoted in the Advertiser 30/3/2015 as saying extras cover was an irrational purchase and ‘probably doesn’t make sense’. However, funds ‘spend a lot of money advertising it’.
- Consumer Health Forum CEO Leanne Wells has called for ‘junk’ policies to be weeded out, and has pointed out that there are now 48,000 health policy options on the market. See the Australian 8 January 2016 and the Age 8 January 2016.
- Health Minister Sussan Ley was quoted in the Australian Financial Review of 29 October 2015 as saying that health insurance policies which exclude certain procedures often surprise patients who have paid for increasingly expensive cover and are a waste of money and need to be fixed.
- The Medibank Private Ltd prospectus offer to potential shareholders prior to that company’s listing on the stock market showed that 96% of hospital related expenses are covered, but on average only 52% of extras cover expenses are paid out.
The Overall Conclusion
Hospital cover is usually a rational choice for those who would otherwise pay the Medicare surcharge, but for the vast majority of fund members, extras cover is a blatant rip-off.
Long-term, the best value for most will be in insuring with one of the smaller mutual funds and limiting insurance cover to hospital only cover. Certainly if you have got good teeth and good eyesight, extras cover makes no sense at all. It’s also important to check whether you are paying for something that is not needed, for example women who are past the child-bearing phase of their life sometimes find they are still paying for obstetrics cover.
My wife and I have hospital insurance cover only through a mutual fund.
The above summary concerning private health insurance may be useful for dentists to copy to patients.
Recent events concerning some of the larger funds diverting patients to practices owned by the fund or, alternatively, cutting/freezing rebates in cities dominated by a large fund demonstrate the threat to all dentists. However, as health funds shamelessly ration benefits to patients in order to make exorbitant profits from extras cover, in the long term their activities are in neither patient nor dentists’ interests.
There has been too much hand-wringing by various ADA state and federal branches, who have had a tendency to excuse inaction on the grounds that some members are preferred providers. This ignores the fact that many dentists were coerced into being preferred providers by the health funds, and in some instances the arrangement is itself being broken by a major health fund diverting patients to practices owned by the fund or practices which, for some reason, the fund prefers.
Surely it is time for the ADA to speak with a much stronger voice. It could start by preparing a list of small publicly available mutual health funds and saying something along the lines of ‘We don’t support extras health insurance, but if you feel you must have it, then these are the funds we recommend.’
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Lessons to dentists from the surgeons’ revolt against Peter Smedley & health funds
Back in 2002, surgeons in Mayne Healthcare’s 53 private hospitals revolted against the management style of CEO Peter Smedley. Smedley, whose early corporate career had been in Shell, regarded hospital staff as akin to service station attendants. He also made the disastrous mistakes of:
Assuming that health funds provided patients to private hospitals, when in fact it was the surgeons, most of whom had operating sessions in more than one hospital, whose staff arranged the hospital booking for operations.
Upsetting the surgeons by petty penny-pinching decisions and treating them with the disdain that he may have shown to petrol station attendants in his days at Shell. For example, hospitals used to provide a sandwich lunch with tea or coffee for surgeons who could, on completing one operating procedure, leave the theatre, take off their gloves, have a sandwich and liquid refreshments, scrub their hands and be back in theatre in about 15 minutes. Smedley’s dictate that he wasn’t going to provide sandwich lunches for highly paid surgeons saw the surgeons leave the hospital and go down the street for lunch, leaving the operating theatre empty for an hour.
As a result the surgeons revolted and maximised the operations they performed in non Mayne Healthcare hospitals. Smedley was blind to the impact of his decisions until on being presented with the monthly financial results in February 2001 he saw, to his horror, that bed occupancy and operating theatre usage had plummeted across the entire hospital network, and it was running at a loss.
Having alienated the only group who could have turned the situation around, Smedley was forced to leave the company and subsequently Mayne Healthcare’s hospital network was sold to a new owner.
The fact was that patients were always going to follow their surgeon’s direction as to where they would be operated on. These days, to a significant degree, both private hospital networks and surgeons refuse to be dictated to by health funds.
Smedley’s marketing blindness was also shown in his adoption of the red dot as Mayne Healthcare’s logo. At that time there were still hordes of World War II veterans receiving treatment in hospitals, and they knew the red dot as the symbol on Japanese aircraft.
Dentists’ wWeapons against Health Funds
Dentists are not in as strong a position as were the surgeons, but those dentists with good personal communication skills who can successfully communicate with patients at chairside experience high retention and personal referral rates.
A major reason that dentists detest health funds is that they damage the reputation of the dental profession through regular comments along the lines of ‘Your dentist is expensive. You would have a smaller gap fee if you went to one of our preferred providers.’ The health fund staff who make these comments have probably never been to any of the practices they criticise, and they have no idea of their comparative quality.
Why is Synstrat interested in this topic?
Synstrat has many dentist and dental specialist clients who are affected by the predations of health funds. Obviously we invite dentists who are not clients to consider utilising our accounting, business advice, financial services and practice valuation services, including advice on purchasing practices, purchase and sale of dental associateships and other matters.
Don’t practice in the dark
For those who enjoy our accounting services, they are augmented by regular practice performance benchmarking comparison of their practice.
If you are interested in any of the above and not sure who to speak to, speak to Jenny O’Brien, Graham Middleton or David Collins. If you need cost effective life insurance solutions, speak to Cameron Darnley. Cameron can also provide financial services advice as can Graham Middleton and Roger Armitage.