Australia's private health insurance industry: structure, competition, regulation and role in a less than 'ideal world'

Australia’s private health insurance funds have been prominent participants in the nation’s health system for 60 years. Yet there is relatively little public awareness of the distinctive origins of the health funds, the uncharacteristic organisational nature of these commercial enterprises and the peculiarly regulated nature of their industry. The conventional corporate responsibility to shareholders was, until recently, completely irrelevant, and remains marginal to the sector. However, their purported answerability to contributors, styled as ‘members’, was always doubtful for most health funds. After a long period of remarkable stability in the sector, despite significant shifts in health funding policy, recent years have brought notable changes, with mergers, acquisitions and exits from the industry. The research is based on the detailed study of the private health funds, covering their history, organisational character and industry structure. It argues that the funds have always been divorced from the disciplines of the competitive market and generally have operated complacently within a system of comprehensive regulation and generous subsidy. The prospect of the private health funds enjoying an expanded role under a form of ‘social insurance’, as suggested by the National Health and Hospitals Reform Commission, is not supported. What is known about the topic? Government policies promoting private health insurance have long been the subject of public debate and have received considerable academic analysis. The health funds have a high profile in the media and with the public, reflecting the extent of private health insurance coverage. What does this paper add? There is relatively little awareness of the unique nature of the private health insurance industry. This paper highlights the distinctive organisational origins of the health funds, the recent changes to the structure of the sector which have complicated their corporate identities and the complex role they play in an extraordinarily regulated private health insurance industry. What are the implications for practitioners? Awareness of the nature of the sector should take us beyond perennial concerns about premium rises and the level of private health insurance coverage to better appreciate the diverse nature of the industry, the constraints under which the funds operate and the potential they may have to deliver ‘social insurance’.