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Private Health Insurance

Industry Commission inquiry report

This report was released by the Commonwealth Government on 23 February 1998. The report contains the findings of the inquiry into the structure and efficiency of the private health insurance industry, it's cost pressures, and the most effective means of ensuring that contributors receive the maximum benefit from the Government’s private health insurance financial incentives.

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Cover, Copyright, Signing Page, Contents, Abbreviations, Glossary, Overview, Recommendations

1   Introduction
1.1   Background
1.2   Scope of the inquiry
1.3   The inquiry process
1.4   Structure of the report

2   The Role of Private Health Insurance in Australia
2.1   Overview of the Australian health care system
2.2   Expenditure on health care
2.3   Role of private health insurance

3   The Regulatory and Institutional Environment
3.1   Community rating
3.2   Reinsurance
3.3   Registration requirements
3.4   Requirements about products
3.5   Waiting periods and transfers
3.6   Approval of rules (including premiums)
3.7   Reserves
3.8   Complaints Commissioner
3.9   Negotiation between funds, hospitals and doctors
3.10   Rebates and levy
3.11   Issues relating to Medibank Private

4   Structure and Performance of the Industry
4.1   Structure of the industry
4.2   Nature of the ‘product’
4.3   Financial performance
4.4   Product and service innovation
4.5   Governance

5   Competition in Health Insurance
5.1   Introduction
5.2   Participants’ comments on competition
5.3   How do health insurance organisations compete?
5.4   Market characteristics
5.5   Relative ease or difficulty of entry
5.6   Concluding comments

6   Users of Health Insurance
6.1   Introduction
6.2   An overview of health insurance membership
6.3   Outlook for demand
6.4   Determinants of demand

7   Why are Premiums Rising?
7.1   Introduction
7.2   Background to recent premium increases
7.3   The major cost components
7.4   The major cost drivers
7.5   Impact of changes in hospital usage
7.6   Impact of changes in hospital bed day benefits
7.7   Medical gap and prostheses
7.8   Other underlying factors
7.9   Health fund management costs
7.10   Reserves
7.11   Government policy and cost transfers
7.12   Impact of cost drivers on premiums

8   Improving Efficiency and Containing Costs
8.1   Cost containment and efficiency
8.2   Nature of the problem
8.3   Contracting arrangements
8.4   Incentives within the system
8.5   Scope for enhancing efficiency

9   The Broad Policy Context
9.1   Introduction
9.2   The broad policy context
9.3   Challenges faced by the health care system
9.4   Systemic reform options

10   Policy Options
10.1   Introduction
10.2   Community rating
10.3   Other price regulations
10.4   Product regulations
10.5   Pre-existing ailment rules
10.6   Reinsurance
10.7   Governance and conduct of health insurance funds
10.8   Reserves
10.9   Changes to deal with consumer concerns
10.10   Cost containment and efficiency strategies
10.11   Tax and rebate regime
10.12   A wider inquiry?

11   Implementation and Effects
11.1   Implementation strategies
11.2   Broad impacts
11.3   Impact on cost drivers
11.4   Impact on stakeholders
11.5   Summing up


A   Terms of reference

B   Participation in the inquiry
B.1   Research team
B.2   Submissions
B.3   Roundtable
B.4   Discussion draft
B.5   Public hearings
B.6   CEDA forum
B.7   Informal discussions and visits

C   Rating schemes
C.1   Introduction
C.2   Funded lifetime community rating
C.3   An unfunded lifetime community rating scheme
C.4   Late entry waiting periods
C.5   Bounded community rating
C.6   Medical savings accounts

D   Reinsurance
D.1   Introduction
D.2   Importance of reinsurance
D.3   The importance of reinsurance as a stabiliser
D.4   How does reinsurance work?
D.5   Types of reinsurance
D.6   Incentive effects of reinsurance
D.7   Some ‘equity’ issues
D.8   Summary of issues relating to reinsurance

E   Taxation issues
E.1   Introduction
E.2   A simple model of tax distortions: stable membership with shocks to payouts
E.3   A simple model of tax distortions: growing membership and stable benefits per member
E.4   Implications of tax distortions
E.5   Dividend imputation
E.6   Revenue impacts

F   Mandatory cover
F.1   Introduction
F.2   Special problems with psychiatric cover?
F.3   Insurance fund concerns
F.4   Provider views
F.5   Evaluation of the arguments

G   Scale economies in health insurance
G.1   Introduction
G.2   Results
G.3   Dynamic implications
G.4   Implications for technical inefficiency

H   Hit and runs

I   Health insurance costs
I.1   Cost methodology
I.2   Aggregate nominal results
I.3   Cost drivers identified in submissions to the inquiry
I.4   State data
I.5   National industry data


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