The Australian Competition and Consumer Commission (ACCC) has released its 16th report to the Australian Senate on competition and consumer issues in the private health insurance industry for the period 1 July 2013 to 30 June 2014.
As in previous reports, the ACCC has found that Australia’s private health insurance industry is characterised by market failures due to asymmetric and imperfect information, as well as significant complexity:
Almost one in two Australians hold a private health insurance policy for all or part of their hospital treatment costs.1 It represents a significant financial investment for many consumers and their families…
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…
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…
Key observations
Our findings have led to three primary observations:
• First, there are market failures in the private health insurance industry due to asymmetric and imperfect information. This, and its effect on competition, leads to complexities in private health insurance policies, which reduce consumers’ ability to compare policies and make informed choices about their future medical needs.
• 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. As funds respond to market demand for affordable policies, there are increasing policy limitations and exclusions leading to an increased risk of unexpected out-of-pocket expenses and general dissatisfaction with the system.
• Third, the research has revealed examples where representations by insurers to consumers, including when entwined with policy changes, may be at risk of breaching consumer laws…
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.
Given that this is the 16th time that the ACCC has produced such a report, we can safely assume that the issues raised above will be ignored by Australia’s policy makers.
