Private or Public? The declining growth in the use of private healthcare in Australia

Author: Professor Anthony Scott, The University of Melbourne.

As more Australians drop private health insurance and face financial hardship, private hospital use has slowed, with some evidence of doctors working more in the public system and increased public hospital waiting times. These trends raise policy questions about the balance of investment across public and private healthcare to promote better value and more accessible healthcare.

Australia has seen a steady decline in private health insurance (PHI) membership since June 2015, with the proportion of Australians with private health insurance falling from 47.4% to 43.6% in March 2020. Increasing premiums and out-of-pocket medical costs in an era of low wage growth have been cited as reasons for increasingly unaffordable private healthcare. Since the private hospital sector relies heavily on funding from PHI, our research explores how the decline in insurance membership has affected the Australian private hospital sector.

The growth in number of private hospital separations using private health insurance has slowed from 6.5% per year between 2010/11 and 2015/16 to 1.9% between 2015/16 and 2018/19. The fall in growth has affected most surgical procedures. Surgical procedures related to diseases and disorders of the female reproductive system exhibited the largest fall in growth, from 2.9% per year on average between 2012/13 and 2015/16 to -2.2% per year between 2015/16 and 2018/19. For smaller day hospitals, surgical procedures related to diseases and disorders of the digestive system grew by 3.5% per year before 2015/16 and this fell to growth of -5.3% per year since then.

The decline in growth of private hospital use correlates with falls in profitability of the private hospital sector. Growth in profits of private hospitals fell from an average of 15.5% per year between 2012/13 and 2015/16 to 5.6% between 2015/16 and 2016/17. In addition, share prices of private for-profit hospital operators fell after 2016, as did investment in capital infrastructure, and the number of new private hospitals. There is also evidence that non-GP specialists are working more in public hospitals and less in private hospitals.

There is no parallel increased growth in public hospital use since 2015/16, but some increase in elective surgery waiting times for public hospitals. Median elective surgery waiting times, having been stable at 36 days for several years, and started to increase from 37 days in 2015/16 to 41 days in 2018/19.

COVID-19 will likely accelerate the slowing of growth in private hospital use, as people remain less likely to use health care and as the recession further widens the gap between wage growth and growth in out-of-pocket medical expenses. Policy responses to date have focused largely on trying to improve consumer’s perceived value of private healthcare and private health insurance through improving information for consumers. However, there is no evidence that this is having an effect, and there remains no published information on quality to inform consumer choice.

Is the decline in growth in the use of private healthcare temporary or a more permanent market correction? If the former, it would be a mistake to introduce any significant reforms at this stage. If the latter, then reform depends on how best to improve efficiency and equity in healthcare through changing the balance of government investment between public and private healthcare.

For more details, see the accompanying Melbourne Institute Research Insight and Working Paper