I mean no disrespect to my Australian hosts when I say that I've seen this all before. The details differ, but the same underlying themes emerge. And when stories are placed side by side, it can be confusing to the public.
In Australia, the government strongly encourages private health insurance coverage for a portion of the population, a policy that was designed to reduce overcrowding in the public hospitals. There are a whole series of regulations that influence both corporate and individual behavior in this arena. These rules have essentially created the private health insurance market in the country.
As noted just a few days ago, the private hospitals in the country want to assure their investors that the demand for health care services will not diminish over the next several years. They cite underlying demographic factors:
In a strident statement Ramsay's Mr Rex said the report failed to consider further utilisation growth linked to the ageing population. "Macquarie's report incorrectly concludes that the modest impact of ageing in the past means that the impact will be minimal in the future," he said. "But it is the future impact of ageing – the baby boomers moving into the 60-70 year bracket - that needs to be considered... We have not yet felt the ageing impact – it is yet to come."
Those who provide private health insurance to cover patients for these services have understandably been increasing premiums to cover the costs. Look at this chart below:
Private health care costs are rising at about 8%, mostly due to higher utilization of the health care system (both number of visits and procedures per visit) and a bit (about equal to the consumer price index) due to hospital and doctor pricing changes. So the insurers have actually been able to hold premiums increases to something a bit less than the total cost increase.
But that doesn't keep government officials from taking a strong stand against the current premium rate filings, saying they demand further review.
The insurers then respond by pointing out that part of the problem stems from the government's own policies. For example, the cost of prosthetic devices in Australia's private health care sector is dramatically above that found in other countries. Why? Because the government has made a pricing deal with equipment suppliers to keep the cost of such devices low to the public hospitals, subsidizing those facilities with higher prices to the private hospitals.
Health insurers . . . estimate that up to $800 million could be saved on prosthetics, such as hip and knee replacements, if a reference pricing system with Australian and international benchmarks was introduced.
But let's get past this local detail. Even if it is true--and worthy of attention--it can distract from our overview. There is an old joke about gravity: "It's not just a good idea. It's the law." So, too, for anti-gravity in the health care world in developed countries. Those countries face common factors that are driving up costs. I summarized these back in 2009. Number 8 doesn't apply here in Australia, but the others do to a greater or lesser extent:
1) Demographics. The huge cohort of baby boomers have now entered the age at which they are seeking hospital care. Meanwhile, their parents are living longer than ever and are coming to the hospital for both acute and chronic care.
2) Entitlement. The first cohort named above expects and demands everything for themselves, and of the insurance products they expect their employer to purchase. For their parents, they often expect extraordinary end-of-life care interventions, paid for by Medicare.
3) New stuff. See #2 above. A knee that previously would have remained sore in the past or be treated by physical therapy becomes a target for arthroscopic surgery.
4) The medical arms race. Physicians and hospitals feel compelled to buy the latest technology, even without proof of enhanced clinical efficacy.
5) Defensive medicine. Yes, the threat of malpractice law suits leads to over-testing and other extra costs.
6) Regional medical mythology. Thanks to Brent James for this insight. Local practice patterns often are just that, with no evidentiary basis.
7) Preventable harm in clinical settings leading to extended hospitalization and bodily injuries.
8) Lack of access itself. If people don't have health insurance and can't get proper early diagnostic and preventative care, they are a more expensive burden on society when they get sick.
9) The cottage industry problem. The medical profession, both in physician practices and hospitals, has failed to adopt process improvement approaches that are common in other industries, that result in redesign of work flow and systems to derive efficiency, quality, and standardization.
10) A sedentary and malnourished lifestyle for all age groups, leading to obesity and other associated physiological problems that are the precursors to major health issues.
... We can fix some of our inadequacies through legislation, but many components of our problems lie deeper in society.
P.S. While there are pro's and con's of each country's health care systems, similar cost pressures have become evident in much of the rest of the world. Perhaps this suggests that a common organism underlies our problems, homo sapiens and its curious ability to live longer and expect more.
Putting aside the political trading that will inevitably take place, from what I've seen so far, Australia could do a lot by investing in changes to numbers 6, 7, and 9, above--and likely number 10. Places around the world that have done so have been able to counteract at least part of the anti-gravity tendency of societally driven health care cost increases.