Mr Summerhayes said “all key policy and regulatory settings should be up for discussion”, including the “ongoing viability” of the community rating rules, which prevent insurers from adjusting premiums based on a person’s age or health status.
The review should be “led by appropriate qualified experts” and involve “all key stakeholders”, he said in a written speech to be delivered at the Members Health Directors Professional Development Program in Sydney on Tuesday.
Mr Summerhayes said insurers’ ability to stay profitable and “comfortably” meet their obligation to pay out claims was at risk, calling for “major structural and policy reforms”.
If current trends of rising costs and falling membership – particularly among younger, healthier Australians – continued, he warned “only three private health insurers will still have a sustainable business model by 2022” and 184,000 fewer Australians will have hospital cover in 2025.
It comes as insurers prepare to hike premiums by an average 2.92 per cent in April, a smaller rise than the government-approved increases over recent years, which have ranged from 3.25 to 6.2 per cent, after Health Minister Greg Hunt rejected insurers’ requests for increases of 3.5 per cent.
Despite Mr Hunt’s effort to keep a lid on premium increases – including through a deal with medical device manufacturers to lower prices for costly items like knee and hip replacements – Mr Summerhayes said more needed to be done to reduce insurers’ costs.
“The role of private health insurance in mental health needs to be looked at, as well as the rules around out-of-hospital treatment, and the management of chronic health conditions,” he said.
He said the review should also examine “the way prices are set between [private health insurers] and medical providers” along with “what services can be covered” and “the way premiums are set”.
Prices charged to insurers for medical devices used in private hospitals are set by the federal government through the Prostheses List, costing millions of dollars more than they do in public hospitals.
Mr Summerhayes said the review should also examine the risk equalisation pool, which transfers funds from insurers with lower-than-average claims costs to those with higher-than-average claims
He recounted a meeting with executives from one of the tech giants, which wanted to partner with insurers to track members’ movements and incentivise healthier lifestyles.
“The idea was that it would lead to fewer claims for insurers, and lower premiums for customers – a win-win,” he said.
“Their plans were well advanced, they’d done their due diligence and were very excited about the potential opportunities in this area.
“I can still remember the aghast looks on their faces when we informed them about the risk equalisation pool. It was as though we’d launched a surface-to-air missile through their
business case, as they realised there was no real incentive for insurers to perform better;
any efficiency gains would be shared among poorer performing insurers.”
APRA had “no formal position” on the risk equalisation pool”, he said, saying there were “potential downsides” to scrapping it.
Changing the community rating rules to lower premiums for younger, healthier policyholders “would inevitably push up premiums for older, sicker members”, Mr Summerhayes said.
“These are complex issues and there are no easy answers.”
Private Healthcare Australia chief executive Rachel David rejected calls for an inquiry into health insurance, saying the problems facing the industry were “well documented” and the only solution was to “forensically address waste in the system”, including further lowering medical device prices, and boost government subsidies.
Insurers want the government to restore the private health insurance rebate to 30 per cent for members aged under 30 years, which Mr Hunt has promised once the government attains a “sustainable surplus”.
Members Health Fund Alliance chief executive Matthew Koce, representing 27 not-for-profit health funds, rejected the suggestion that smaller insurers were not viable.
“All the funds I represent have been around since the 1990s, when participation was at 30 per cent,” Mr Koce said.
“They can run on very low margins as they don’t have to worry about making big profits for shareholders.”
Dana is health and industrial relations reporter for The Sydney Morning Herald and The Age.