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Operations Of The Private Health Insurers Annual Report 2006-07

Part B

Operations Review

Detailed Benefits Review

In this section ‘benefits paid’ refers to the benefits paid by health benefits funds for hospital treatment and general treatment services. These benefits differ from benefits reported in insurers’ financial reports due to differences in definition where, for example, the financial reports include the costs of fund-owned dental and optical clinics as benefits to members.

The benefits for services described in this section are directly related to the level of membership and utilisation, which are discussed in the membership statistics and utilisation sections of this report. In addition, benefits paid are affected by the price level, or average benefits paid, of the services.

Hospital treatment benefits and general treatment benefits together comprise the total benefits paid by a health benefits fund. The total hospital treatment and general treatment benefits paid during 2006–07 was $9,080 million. These benefits were comprised of $6,687 million in hospital treatment benefits (73.6% of total benefits) and $2,393 million in general treatment benefits (26.4% of total benefits). Hospital treatment benefits increased by 9.1% over the year and general treatment benefits also increased by 7.3%.

Growth in benefits is highly correlated with growth in coverage. The dramatic increase in coverage due to the Lifetime Health Cover initiative explains the significant increase in benefits in 2000–01 and 2001–02. The rate of growth in benefits during 2002–03 and 2003–04 was much lower than that associated with the introduction of Lifetime Health Cover. However, there was still significant growth in benefits during the period 2002–03 to 2006–07 associated with an increase in benefits per policy, indicating an increasing cost of claims.

As the number of persons covered under a policy may vary, for analysis purposes it is customary to use single equivalent units (SEUs) as a standard measure. Single policies, single parent policies and policies under which two or more people are insured, none of whom is an adult, are counted as one SEU. All other categories are counted as two SEUs. Tables in this section that show benefits per person are calculated on an SEU basis. From 1 April 2007 the definition of SEUs changed. For example, single parent policies were previously counted as two SEUs. To keep a consistent data series, PHIAC has applied the new definition of SEUs to the historical calculation of SEUs.

Figure 10 charts the movement of benefits paid compared with benefits paid on an SEU basis. Total hospital treatment and general treatment benefits both increased considerably during the period 2000–01 to 2001–02 as a consequence of Lifetime Health Cover. While there has been slower growth since 2002, the growth in benefits per average SEU has still increased considerably during the period 2002–03 to 2006–07, primarily led by increases in hospital treatment benefits per SEU, which increased on average by 6.3% a year. General treatment benefits per SEU increased on average 2.2% a year over the same period.

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Figure 10. Movement in benefits paid

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Hospital treatment benefits

Hospital treatment benefits are paid by insurers for privately insured in-patients of public, private and day hospital facilities. Day hospital facilities are free-standing private hospitals that are not licensed or otherwise permitted to provide treatment that includes part of an overnight stay at the hospital. Benefits are paid for accommodation, medical services and listed prostheses.

The medical benefits paid cover the difference between the Medicare rebate and the Medicare Benefits Schedule Fee (the schedule fee), or above the schedule fee depending on the arrangement between the insurer and the medical service provider.
Before 1 April 2007, patients were automatically classified as acute patients upon admission. After 35 days they were classified as nursing home type patients (NHTP) except when a medical practitioner certified that continuing acute care was required by submitting a 3B certificate. From 1 April 2007, an NHTP in relation to a hospital is defined in the Health Insurance Act 1973 (as amended in 2007) as a patient in the hospital who has been provided with accommodation and nursing care, as an end in itself, for a continuous period exceeding 35 days.

Claims are recorded in the period they were processed, not necessarily in the period the services were rendered.

Hospital treatment benefits comprise several categories that have different impacts on total benefits. These include different categories of accommodation: public hospital, private hospital and day hospital facilities, as well as hospital-substitute accommodation. PHIAC also collects information about medical benefits paid for in-patients and benefits paid for listed prostheses. All major categories of benefits in 2006–07 showed an increase on 2005–06. The increases over the year, and the proportion of total hospital treatment benefits were:

public hospital (comprising 6.8% of total hospital benefits) increased 12.2%, or $49 million
private hospital (60.7% of total hospital benefits) increased 8.2%, or $306 million
day hospital facilities (3.0% of total hospital benefits) increased 10.8%, or $19 million
medical benefits (15.7% of total hospital benefits) increased 9.4%, or $90 million
listed prostheses (13.9% of total hospital benefits) increased 10.8%, or $90 million
total hospital treatment benefits increased 9.1%, or $555 million.

There were similar increases over all states. Detailed hospital benefits paid by type of facility by state are shown in table 23 (page 67).

Figure 11. Hospital treatment benefits by category

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Hospital treatment benefits paid per person

Benefits paid per person covered are correlated with the age of the person. After an initial cost associated with the first year of infancy, benefits drop in the 5 to 9 age group and then trend upwards, with higher costs for females during the child-bearing years. There is a rapid increase in benefits paid per person for older persons. PHIAC does not have data to explain the drop in benefits per person in the oldest age cohort but industry speculation is that these persons may be making greater use of nursing homes, for which funds do not pay benefits.