July 23, 2014

Managing the rising cost of an ageing population

In 40 years, about a quarter of Australia’s population will be over 65. Michael Bassingthwaighte, CEO of Peoplecare, explains how a closer relationship between private health funds and GPs could improve patient wellbeing and manage increasing costs.

In the early 1970s, just 8 percent of Australia’s population was 65 or over. By 2002, this had grown to 13 percent, and according to the government’s 2010 Intergenerational Report, it’s likely to double to around 25 percent over the next 40 years. Already, ageing is adding about 2 percent per annum to the cost base of private healthcare.

Generally, as you get older, you consume more services, says Michael Bassingthwaighte, Chief Executive Officer of private health fund Peoplecare. “For us, there’s a two-pronged effect in that new technology and treatments have broadened the spectrum of people receiving a service. For example, 10 years ago, joint replacement surgery was largely limited to people in their sixties and seventies. Now it’s common in people aged between 45 and 80.”

Controlling costs

To manage costs effectively, Bassingthwaighte believes private health funds should understand how the various services are being used. “That means maintaining good relationships with providers such as private hospitals and prosthetic suppliers,” he says.

They may also see benefits in recruiting younger members, as well as the ageing population. While recruiting younger members poses an ongoing challenge, given they’re often healthy and feel they don’t need health insurance, Peoplecare have seen success in increasing the number of younger policyholders over the past three years.

Forging links with primary healthcare

Most private health funds are now involved in what’s commonly called ‘broader health cover’.

“Certainly the big funds have some self-management programs for chronic conditions and, even as a relatively small insurer, we have access to a range of them,” says Bassingthwaighte. “We’re also getting involved in more targeted activities – like looking closely at customers who consume high volumes of services to see how we can provide more effective support.”

There’s currently a lack of engagement with general practitioners (GPs) which poses a significant challenge for private health insurers, too.

“I think it’s very important that we find a way of accessing the data held by GPs which would be beneficial to both insurers and members,” says Bassingthwaighte. “By identifying those at high risk much earlier, we could investigate ways of working with their GP to help them avoid being admitted to hospital.”

Sharing the risk

Over the past couple of years, both the Labor and Coalition governments have recognised the advantage of extending the role of the private sector beyond hospital walls.

“Risk equalisation* shares the cost of older policyholders and the most expensive claims across all health insurers, so that no fund is more at risk than another,” says Bassingthwaighte. “Recently the law has been changed to allow some services provided outside of hospital to be included in that cost-sharing arrangement. This is important because it means there’s less incentive to keep people in hospital when they could be treated just as effectively elsewhere.”

As the population continues to age and healthcare costs continue to rise, it’ll be increasingly important for the community to extract the best possible value from every dollar. And identifying people who’d be better off with treatment options out of hospital will be a necessary part of the solution.

*The process by which money is re-distributed from those insurers paying less than average benefits to those insurers paying higher than average benefits, as to compensate for insurers inability to risk rate premiums.