Out-of-pocket expenses double for Australians with private health insurance

Private health insurance (PHI) plays a crucial role in the Australian health system, with over 45% of the population currently holding PHI coverage. Despite this widespread uptake, a new study has revealed that Australians with PHI spend double the share of their disposable income on out-of-pocket medical expenses compared to those without coverage.

This raises questions about whether PHI is a good financial deal for the government as it incentivises PHI uptake to contribute to the funding and sustainability of the nation’s health system.

Independent studies commissioned by the Department of Health indicate that the Federal Government is approximately $1,400 better off for each person holding private health insurance, after considering the cost of the rebate, the foregone Medicare Levy Surcharge, and the reduction in burden on the public health system.

However, out-of-pocket expenses (OOPE) creates a policy concern if it requires a high share of income, particularly among low-income individuals who face trade-offs between healthcare and other essential goods and services.

Many PHI plans for hospital care use list prices that are lower than the hospital fee, covering only part of the costs. Consequently, OOPE is typically required for private hospital care, even when PHI and Medicare cover most of the expenses.

This suggests that PHI offers only limited protection against OOPE for individuals who require hospitalisation or use more healthcare services due to chronic conditions, while potentially offering other benefits such as choice of physician and reduced waiting times.

For lower-income individuals, “Out-of-pocket expenditure presents a significant burden, and Private health insurance does not appear to mitigate this burden. We therefore argue that, from an equity perspective, out-of-pocket expenditure is a policy concern in Australia, and our results suggest that Private health insurance does not appear to help solve it,” wrote the authors.

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