Will health fund rationalisation lead to significant premium reductions?

Abstract

It has been suggested that rationalisation of health funds will generate significant albeit unquantified cost savings andthus hold or reduce health fund premiums. 2001-2 Private Health Industry Administration Council (PHIAC) datahas been used to analyse these suggestions. Payments by funds for clinical services will not vary after fundrationalisation. The savings after rationalisation will arise from reductions in management expenses, which form10.9% of total fund expenditure. A number of rationalisation scenarios are considered. The highest theoreticalindustry wide saving found in any plausible scenario is 2.5%, and it is uncertain whether this level of saving couldbe achieved in practice. If a one off saving of this order were achieved, it would have no medium and long term impacton fund premiums increases given funds are facing cost increases of 4% to 5% per annum due to demographic changesand age standardised utilization increases. It is suggested discussions on fund amalgamation divert attention from themajor factors increasing fund costs, which are substantially beyond fund control.