Will longer-living baby boomers break the system?
Every 1 April, those of us with private health insurance hear one piece of news that we wish really was an April Fool’s Day joke – the announcement of a big increase in premiums.
This year, the hike was on average 3.9 per cent which, when grouped with medical services, was the biggest contributor to the June quarter inflation.
Australian Bureau of Statistics figures show that the Consumer Price Index (CPI) rose 0.4 per cent in the quarter. The category that increased inflation the most was health (1.9 per cent).
Retired Australians are among the biggest group with private health insurance. In YourLifeChoices’ Retirement Income and Financial Literacy Survey 2018, 71 per cent of respondents said they had private health cover. While they said the rising cost of insurance was a major burden on their budgets, they were still anxious to retain their cover.
Older Australians are heavy users of the health system. Those aged 65 and older comprise just 14 per cent of the population, according to the 2016 Census, but account for 28 per cent of the 123 million claims for GP visits in 2014–15.
In addition, of the 12.5 million specialist visits claimed through Medicare in 2014–15, 43 per cent were lodged by those aged 65 and over.
The Australian Council of Social Service (ACOSS) believes that affordable health and aged care are just as important in retirement as a decent income.
ACOSS senior adviser Peter Davidson says: “It’s vital that we avoid a two-tier healthcare system – one for the top half of the population and another for the bottom half, of the kind that has long existed in the United States and still exists in dental care in Australia.”
He says the challenge for governments is how to pay for the inevitable increases in the cost of existing healthcare programs given increasing longevity, while closing the worst gaps in services, such as dental and mental health services and the National Disability Insurance Scheme (NDIS).
“The Parliamentary Budget Office estimates that to maintain existing commitments in health, aged care and the NDIS, governments will need to spend an extra $21 billion a year by 2027,” he says.
The Australia Institute senior economist Matt Grudnoff says that low-income households traditionally spend a larger proportion of their income on essential goods, but that this principle breaks down when it comes to healthcare.
Healthcare can easily be regarded as a necessity, he says, but lower-income households view it as a non-essential category that they can cut back on because their budgets won’t stretch that far. As a result, a greater burden is placed on those who can afford to pay.
Mr Grudnoff says that in the past 30 years, the CPI has doubled whereas healthcare costs are 3.7 times higher.
He also warns of the dangers of a two-tiered system and questions the Government’s strategy.
“In recent decades, Australia has reduced its emphasis on direct government spending on specialised healthcare and has increased indirect funding of that area by subsidising private health insurance. Effectively, the Government has substituted spending on Medicare for subsidies for private health insurance.
“It might be time for the Government to consider if it is getting a big enough benefit from this strategy or if the $6.4 billion it will spend on subsidies to private health insurers next year might be better put directly into the healthcare system.
Aged Care Steps director Louise Biti recommends that senior Australians consult a financial adviser to help them plan for the potential high cost of healthcare later in life.
“Having adequate savings opens up your choices and your ability to control the level and type of care you receive,” she says.
“While we don’t know what our future holds, with some planning, we can help make our retirement a comfortable one. For example, we could ensure we have a safe and secure income in place for life. This might be pension income, lifetime income streams or drawdown strategies from other investments.”
Financial planner and founder of MyLongevity.com.au, David Williams, says that while we can’t predict how long we will live or what health issues may crop up later in life, it is possible to make informed calculations.
He has developed a free tool called SHAPE, which analyses your personal factors, current health and daily habits to give an indication of your life expectancy.
“There is no plan without a timeframe and the best timeframe is the one that you develop for yourself,” he says. “You can then have a constructive conversation with your financial adviser – just as you will have had with your medical adviser.
“Understanding more about the chapters in your longevity is a step towards taking more control of your life and achieving a more fulfilling future.”
Have you planned to retain your private insurance cover for life? Do you have an emergency fund for a health scare? Is the system a bit broken?
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