Mental health matters for private health insurance

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The recent Private Health Insurance (PHI) reform providing a psychiatric waiting period exemption will give PHI customers greater peace of mind knowing that they can upgrade and receive immediate private psychiatric care, without being thousands of dollars out-of-pocket. Here, Andrew Matthews and Brendan Pon outline the implications of this reform, and how it sits within the broader need to address growing mental ill-health treatment in Australia. 

Mental illness is an important health issue in Australia with no segment of society immune. It affects people of all ages, gender, cultural backgrounds, socio-economic level and geographic region, whether directly or indirectly. Indications are 1 in 5 Australians experiences a common mental health disorder and almost half (45%) at some point in their lifetime (Australian Institute of Health and Welfare statistics).

Today is R U OK? DAY. Staying connected and having meaningful conversations is something we can all do.

Australians experience a wide range of mental health conditions with common conditions such as phobias, panic attacks and depression through to what can be serious disorders and illnesses like psychosis, schizophrenia, self-harm, personality disorders and nervous breakdowns. In perspective, the statistics on suicide indicate death by self-harm is greater than those for the road toll.  Early intervention can improve lives but is not yet an incentive in our systems.

The objective of this article is to examine the current and emerging challenges for PHI in response to growing needs in mental health. The article covers:

  • the role of private health insurance;
  • recent reforms; and
  • the implications for customers and Australians.

We conclude with a summary of the challenges faced and the competencies needed to address emerging issues. 

The role of PHI in treating mental health in Australia

Hospital treatment of mental health issues is provided in major hospitals’ psychiatric units or specialised psychiatric hospitals – private and public. Non-hospital treatment is provided by a range of health professionals - GP’s, psychiatrists, psychologists, counsellors, nurses, community health workers and social workers – in community health centres, clinics and private practices.

More than $8.5bn pa is spent on mental health services in Australia (AIHW). Treatment in public hospitals is covered by State Governments, with no out-of-pocket costs to individuals.  Treatment in private hospitals is paid by the patient or their PHI if they have cover. However, public hospital psychiatric beds are limited and generally only allocated to people at serious risk to themselves or others.

About half of Australians buy PHI for hospital cover. A mental health condition is one of only a very few conditions that, by law, cannot be excluded from a PHI policy.

Today is R U OK? Day. If you notice someone who might be struggling - start a conversation.

Hospital policies cover the cost of hospital accommodation (overnight or day only) and a proportion of the medical fees while admitted to hospital. Extras policies may cover part of the cost of psychology services or counselling outside of hospital, but not psychiatry or other Medicare-funded services. While insurers cannot exclude mental health cover, they can offer partial or restricted cover, with partial benefits for a limitation period of up to two years, or where the benefit is only sufficient to cover treatment as a private patient in a public hospital.

An initial admission at a private psychiatric hospital typical typically costs around $10K, spanning 2-3 weeks. There are also subsequent follow-up out-patient treatments. Of those that have a first admission over 60% of patients have a second hospital admission.

Until recently, PHI customers were only able to access full cover private psychiatric treatment if they were on a top tier hospital insurance product. This left customers on lower hospital covers the unsatisfactory options of:

  • Receiving ‘minimum benefits’ and be thousands of dollars out of pocket; or
  • Foregoing treatment.

Some might upgrade to a top tier cover and wait the two month waiting period to access treatment.  However, the nature of mental illness often means that there is narrow window of opportunity for people to be treated. If missed, the result could be a worsened condition requiring longer treatment … or the ultimate human cost.

In the Actuaries Institute Green Paper Mental Health and Insurance, it was estimated PHI funds spend approximately 6% ($540 million) of national expenditure on mental health-related services. Health insurers estimate they cover 90% of day admissions for mental health care, and 50% of all mental health hospital admissions.

Recent PHI Reforms – Psychiatric waiting period waiver

On 13 October 2017, the Minister for Health, announced a series of reforms to PHI. One item of reform gave PHI customers a one-off psychiatric waiting period waiver. This allowed customers to upgrade their insurance and immediately access full cover private psychiatric treatment without serving a waiting period.

The mental health waiting period exemption was given effect through the Private Health Insurance (Complying Product) Amendment (Psychiatric Care) Rules 2018 on 1 April 2018.  The once per lifetime waiting period exemption triggers when all three following events occur:

  • Customer transfers to a product providing higher psychiatric benefits than the old product;
  • Customer is admitted for psychiatric treatment within two months following the transfer; and
  • Customer elects to utilise the once-off exemption and receive higher benefits for that admission.

As part of the record management and portability between insurers, health insurers will include information on use of the psychiatric waiver exemption on Transfer Certificates. Insurers will continue to have discretion to waive psychiatric care waiting periods, including for customers who have already used the exemption. 

Implications for customers and Australians

The recent PHI reform providing a psychiatric waiting period exemption will give PHI customers greater peace of mind knowing that they can upgrade and receive immediate private psychiatric care, without being thousands of dollars out-of-pocket.  This is especially relevant for individuals that are struggling with living costs, allowing them to retain PHI on lower levels of hospital cover. This will strengthen the relevance of PHI and serve as another reason for Australians to join or keep their cover.

More important is the positive impact on the lives of PHI customers, who can access immediate psychiatric treatment to assist their recovery, maybe even save their lives.  The psychiatric treatment options for Australians are:

  • Use the public system;
  • Self-fund (expensive with even initial treatments costing around $10,000 +); or
  • Buy PHI with ‘Gold’ cover that provides most treatments being over $2,000 per annum and more basic cover at around $1,300 plus per annum for individuals.

PHI is community rated, meaning that insurers cannot set premiums based on age or health status, cannot decline cover, cannot put special conditions or exclusions on an individual policy and policyholders can change insurers without having to re-serve waiting periods.

Like other insurance, PHI is underpinned by risk pooling. Insurers collect premiums from many individuals and pay out claims to those that need to make claims over the same period. If this balance is somehow distorted, for example by escalating frequency or cost of claims, the viability of the insurance product may be jeopardised and consumers’ access to cover may be affected. While there is a ‘risk equalisation pool’ in PHI to share the high cost arising from older members, it does not mitigate the anti-selection risks in relation to younger chronic mental health sufferers.  And given it is a system of cost sharing among PHIs, it does not address the issue of funding the need for increased care services for mental health needs.

Conclusions:

Mental health matters.  There remain challenges facing mental health services and the role of PHI. Australia’s health and insurance systems have not yet adequately responded to the burden of mental health disorders.  Potential considerations include: 

  • Coverage Availability - The top cover or ‘Gold’ policies in the market include mental health cover without restricted benefits or benefit limitation periods, while lower cost policies usually have restrictions. The recent reforms offer a waiting period waiver meaning those with basic policies can upgrade if they unexpectedly require treatment for mental health issues.
  • Data and Analytics – There is a role for insurers to collaborate to strengthen information systems, evidence and research for mental health.
  • Community rating - These rules make it difficult for an insurer to offer better benefits than competitors or than the public system for mental health conditions. Because many of the conditions are chronic or recurring, more generous inpatient psychiatric benefits often see clusters of transfers from other insurers, based on particular hospitals or practices recommending to their patients that they switch.
  • Sustainable Financing – With pressure to lower premiums there is reduced incentive to serve and attract patients with chronic mental health conditions and consequently incurring high costs from psychiatric hospital claims. What is needed is consumer choice and development of more durable health financing models for optimum care and cost efficiency.

These issues with mental health conditions in PHI are part of the current debates about affordability and value. Getting help should not be seen as “a sign of weakness” but “a sign of strength” - true for individuals and also for our health and insurance systems.  At stake are the services we need for the mental health of the nation and the successful response of our mixed public and private healthcare system.

The topic of mental health features at the General Insurance Seminar (GIS) 2018 with a focus on actuaries and insurers making a positive contribution to reducing the mortality, morbidity and disability for persons with mental disorders.

CPD Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.

About the authors

Andrew Matthews

Andrew is the Chief Actuary for Medibank Private. His team’s work is to bring together technical and human endeavor that creates conditions for informed opinion, exploring options and supporting performance.

Brendan Pon

Brendan is a senior member of Medibank Actuarial Services team with responsibilities including product pricing and design, financial modelling and forecasting and business policy. He is a Fellow of the Actuaries Institute with almost 20 year experience across health insurance, life insurance and wealth management. He’s passionate about connecting analysis and insights to decisions improving the health and well being of all Australians.

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