The Australian Competition and Consumer Commission has released
Information and informed decision-making in private health insurance -
A report to the Australian Senate on anti-competitive and other practices by health insurers and providers in relation to private health insurance For the period of 1 July 2013 to 30 June 2014, its 16th Private Health Insurance
report on the private health insurance industry, reflecting a requirement that the Commission report to the Senate on "any anti-competitive practices by health insurers or providers, which reduce the extent of health cover for consumers and increase their out-of-pocket medical and other expenses".
The report is described as "highlighting concerns about the impact of complex information on consumers and the market" and revealing "the increasing challenges facing consumers in choosing between a large number of policies with greater exclusions".
The ACCC draws three conclusions:
- There are market failures in the private health insurance industry which reduce consumers’ ability to compare policies and make informed choices about their future medical needs.
- Existing regulatory settings can change consumers’ incentives in purchasing health insurance. As insurers respond to market demands for affordable policies there are greater risks of unexpected out-of-pocket costs for consumers.
- Current practices by some insurers are at risk of breaching the consumer laws.
The ACCC comments
the complexity of private health insurance policies can affect consumers’ ability to make informed decisions about the policy that best suits their needs. Whether a consumer is purchasing health insurance for the first time, or reviewing and renewing a policy after many years, they have to navigate through a range of issues to make an informed decision.
Consumers may encounter significant difficulty in determining what a procedure will cost and how the relationship between their insurer and the relevant practitioner or hospital will affect this cost. It is in the interests of both consumers and industry to be as clear and transparent as possible so that consumers who are purchasing insurance can make the best decisions about their level of coverage.”
It states
While the report addresses issues specific to the reporting period, it also gives broader consideration to the enduring impact of these issues on consumers. This approach aligns with the ACCC’s 2015 Compliance and Enforcement Policy, which identifies competition and consumer issues in the health and medical sectors as a priority.
Almost one in two Australians hold a private health insurance policy for all or part of their hospital treatment costs. It represents a significant financial investment for many consumers and their families. The ACCC has previously found that the industry is characterised by information asymmetry and complexity. These findings have been replicated in this report.
Competition, complexity and consumer engagement
In general, competition delivers efficient market outcomes where consumers engage with the market and reward suppliers who deliver goods and services that meet their needs. This drives lower prices, better quality products, greater innovation and increased efficiency. However, where there is market failure, competition may not deliver the most efficient outcomes.
It appears there are a number of market failures in the private health insurance industry. In particular, imperfect and asymmetric information impede consumers’ ability to make choices that are likely in their best interests. These problems mean that consumers experience difficulty in determining the effectiveness of various policies given their uncertain future health needs, which makes it difficult for consumers to choose the appropriate level of cover. This in turn affects competition in the industry.
The complexity of the private health insurance system, and its impact on consumers, was a frequent theme of submissions to the ACCC from both consumer and industry bodies. A range of factors contribute to this complexity, including regulatory settings, the sheer number of policies available, the range of potential policy benefits and exclusions, preferred provider arrangements, policy variations and differing terminology between funds which makes comparison difficult.
When faced with such complexity consumer decision-making is affected and consumers are less inclined to review and change policies; that is, consumers become less engaged market participants. Reduced consumer engagement impacts competition, as the incentives for suppliers to offer better policies are reduced, and increases the likelihood of decreasing confidence in the perceived value of policies.
Stakeholders raised a number of concerns about industry practices that impact consumer decision-making, including:
• a lack of sufficient and comparable information before purchase
• information or terminology that is ambiguous or difficult to interpret
• inconsistent information
• difficulty locating relevant information
• consumer uncertainty about what questions to ask.
As a result, some consumers find it difficult to understand the extent of their cover, the costs they are likely to incur if they use a health service and determining who to seek information from (insurer or health provider), which can exacerbate the problem of information asymmetry.
This may be leading to disengaged consumers. The ACCC’s research indicates that consumers are engaged at the commencement of the purchasing process. However, significant numbers of consumers who contemplate changing their insurance arrangements fail to do so. The reasons for this are varied, but the research suggests that one significant reason is the complexity faced by consumers when undertaking a meaningful comparison process.
Price is a critical factor in many consumers’ decision-making, particularly as premiums are increasing with rising health care costs. The regulatory incentives alongside uncertainties about future health care needs, as well as policy complexities may drive consumers towards lower priced policies than they would otherwise prefer. While price is a legitimate means for consumer decision-making, there are concerns that some consumers are not fully considering the trade-offs between the costs and benefits of the various policies on offer. This is leading to some consumers facing detriment when they come to subsequently claim under the policy and find their procedure is not covered. This is of concern given recent reports that suggest that insurers are encouraging consumers more broadly to downgrade their cover to secure cheaper premiums. As a result, consumers are finding themselves more often without the cover they expected.
The majority of consumers surveyed as part of the quantitative research commissioned by the ACCC indicated general satisfaction with their private health insurance. However, the research highlighted that most consumers do not frequently access their private health insurance and consumer satisfaction is often based on the overall cost of the policy. For some consumers this may mean that their understanding of the relevant inclusions and exclusions of their policy will only be tested when the time comes to make a claim. This is of particular concern given our research indicates that insurers can often change the coverage of their policies or make other changes that impact the benefits available and do not always communicate changes effectively to consumers.
The submissions identified a significant disconnect between consumers’ expectations of the services and rebates they are entitled to receive under their policy, and the reality of the benefits their policy provides. Complaints to regulatory and complaint bodies about unexpected out-of-pocket expenses and ‘bill shock’ are also rising. The ACCC has also received submissions about certain conduct by insurers that may potentially breach the Australian Consumer Law (ACL). For example, some of the conduct may be at risk of misleading consumers. Such conduct has the ability to harm consumers and also competition. ...
The role of the ACCC
The ACCC is committed to increasing awareness among consumers about the protections offered by Australia’s consumer laws. We consider it is in the interests of both consumers and insurers to be as clear and transparent as possible so that consumers purchasing insurance can make informed decisions about their level of cover. It is also important that insurers do not assume that compliance with specific private health laws and regulations alone will satisfy obligations that arise under the ACL.
Current trends in the private health insurance industry warrant a closer examination of the conduct of private health insurers and health providers/practitioners. It also warrants consideration of these issues by policy makers to ensure greater transparency and decreased information asymmetry. While the ACCC has an overarching consumer protection role that encompasses the private health insurance sector, we do not have policy responsibility for many of the issues raised in this report.
In line with the ACCC’s current focus on the health and medical sector, we will be closely reviewing some practices in the health insurance industry. The ACCC will consider any issues identified in accordance with the ACCC’s Compliance and Enforcement Policy.
Some of the issues that we are currently considering include:
- bold headline claims that are heavily qualified in fine print, for example: ‘no gap’ or ‘100% cover’, when significant qualifications apply
- misleading conduct through the use of industry terms or phrases that are inconsistent with plain language or consumers’ understanding of commonly used words
- the provision of incomplete information that creates the representation that there is broader insurance cover than the consumer has
- use of complicated terms and conditions, exclusions and practices that inhibit a consumer’s capacity to make appropriate comparisons and which risk misleading consumers or exposing them to unfair claims assessments.
The ACCC recognises that a number of efforts have been made by industry and government over recent years to address these issues. However, as this report makes clear, further work to enhance consumer engagement is needed.
In response it suggests that -
there to be three key concerns arising from its research on the private health insurance industry:
- First, there are market failures due to asymmetric and imperfect information. This leads to complexity in private health insurance policies, which reduce consumers’ ability to compare policies and make informed choices. Further, consumers have limited information about their likely future health needs, which may lead to consumers underestimating their future medical needs and instead focusing on the immediate costs and benefits of private health insurance.
- Second, existing regulatory settings can change consumers’ incentives in purchasing private health insurance and drive insurers to offer products to primarily reduce consumers’ tax liabilities, rather than also focussing on consumers’ current and future medical needs (which are difficult to predict). As funds respond to market demand for affordable policies, there are increasing policy limitations and exclusions leading to higher numbers of consumers having policies with less cover than they expected. This leads to an increased risk of consumers facing unexpected out-of-pocket expenses and general dissatisfaction with the system. We accept that some consumers in purchasing private health insurance may only be seeking to reduce their tax burden and/or the risk of the LHC loading. However, they still expect basic cover from their purchase.
- Third, while health insurers may be strictly compliant with the requirements of the Private Health Insurance Act and the Code, the research has revealed examples where representations by insurers to consumers, including when entwined with policy variations, may be at risk of breaching the consumer laws.
The ACCC enforces competition and consumer law; it is for others to ensure that the regulatory settings are fit for purpose. This report shows though, that there is a market failure in the private health insurance sector and, while many attempts have been made to address this in the past, more is needed if consumers are to have the information they need to make informed choices and allow for effective competition between health insurers.
As is clear from the report, the regulation of the private health insurance sector involves a complex array of legislation and co- and self-regulation. This report has aimed to highlight consumer and stakeholder concerns with the current system; it does not provide a road map for reform (which could be approached by industry driven changes, such as through the Private Health Insurance Code or by changes to private health insurance legislation). Nevertheless, stakeholders repeatedly made a number of suggestions that should be highlighted. They include:
- Review of the SIS requirements to ensure they serve their purpose as an effective information and comparison tool, with a focus on balancing comparability and thoroughness without overwhelming consumers. Modern technology may help here.
- If reform of the SIS is to occur the ACCC would recommend that any proposed reforms be consumer tested through a pilot study before being finalised. Such a review should also look at the best means of providing the SIS to encourage consumers to read it.
- Standardisation of terminology used in promoting policies and describing levels of coverage and specific procedures. For example, standardisation around terms such as ‘known gap’ and ‘no gap’ policies, top, medium or low cover and a consistent definition of procedures such as ‘plastic and reconstructive surgery’ so it is clear what the inclusions and exclusions of policies are.
- Review of the requirements for minimum policy coverage given the growth of restrictions and exclusions.
- The functionality and promotion of www.privatehealth.gov.au. This is a valuable and independent site and the one place where all private health insurance policies can be compared. With the Commonwealth Ombudsman recently taking over responsibility for the site, an investment in improving its functionality to enable consumers to compare on factors beyond price would be beneficial. Benefits would also flow from better promotion of the site to consumers.
- Review of the triggers for requiring insurers to inform consumers about any changes that may affect their out-of-pocket expenses or choice of hospital or practitioner and how these changes are communicated. As with any changes to the SIS, the ACCC would recommend that any review should also look at the most effective ways of communicating this information and run a pilot to test effectiveness prior to making formal changes.
- Considering how consumers can more easily calculate their likely out-of-pocket expenses before committing to a policy and/or procedure. Intelligent, interactive tools should be considered to assist with this. Stakeholder submissions raised suggestions that could be explored to advance this goal, including:
- health providers/practitioners providing standardised cost estimates to consumers that include specific information such as MBS item numbers for each part of the procedure
- health providers/practitioners providing average or maximum rates for all procedures for the MBS item numbers covered
- insurers providing a detailed and easily searchable schedule of benefits and services they cover, including specific details about MBS item numbers, eligible aids/appliance, inclusions and exclusions, health practitioners eligible to provide services and referral requirements and item limits.