The healthcare burden no one is talking about

Australians are some of the longest living people in the world. With those longer lives, the financial burden of chronic disease is growing, making life insurance just as important as private health insurance.

Yet, a large number of Australians remain underinsured – PPS Mutual estimate there are about 14.3 million underinsured for trauma insurance and 3.4 million underinsured for income protection insurance.

While Australians benefit from one of the world’s leading public health systems, the financial burden of healthcare is increasing as costs rise. This burden is increasingly being borne by individuals and includes direct financial out-of-pocket costs paid by individuals for the diagnosis, treatment, and management of their conditions, as well as indirect costs in the form of potential lost earnings from employment.

In real terms, the average cost of out of hospital services and medications have increased 50 per cent in the last 10 years, according to a new report from PPS Mutual, Reducing the trauma: the personal cost of
critical health conditions today.

For those who choose to pursue treatment as a private patient, these out-of-pocket costs can often be much higher. Out-of-pocket costs for professionally employed private patients can be anything from two to ten times higher than those having the same condition being treated publicly.

There is a common misconception that private health insurance will cover all costs associated with treating and recovering from a trauma, but this is a myth. The sharp increase in healthcare costs and ‘gaps’ involved in the cost of healthcare are often not fully covered by private insurance; private health cover will only cover so much of a private hospital’s or practitioner’s fees, which are uncapped.

Life insurance can help to meet the burden of out-of-pocket healthcare expenses and open greater treatment choices. In the same way that private health insurance gives patients the choice of whether to go the public or private route in their treatment, life insurance also gives people greater choice and flexibility on treatment for disease.

Life insurance also gives Australians the luxury of choice; the insured can afford to get life changing treatment sooner and pay for expensive medication, if required. Those who suffer illness can spend more time recuperating fully after treatment, allowing them to lead fuller, healthier lives. Without life insurance, treatment may take longer, and it can cost more.

Take heart disease, for example, which was the leading cause of death in 2021. Out-of-pocket expenses and lost income after suffering coronary heart disease (CHD) can be huge. In 2020, there were approximately 155 coronary events every day among people 25 and over. In 2020-21, CHD was the principal diagnosis in 160,000 hospitalisations and more people died of heart attacks than any other disease. The average hospital stay was four to five days.

While the Heart Foundation suggests people can return to desk jobs four to six weeks after leaving hospital, this may be in a reduced capacity. For 34 per cent of those people who suffer a serious heart attack, and 10 per cent of those suffering a lower-level heart attack, they will not return to the same level of work within the first two years. The potential income loss for professionals is $35,000, equal to seven weeks of lost income at $5,000 initially, then those people may experience reduced ongoing earnings if working at a lower capacity,
according to the Reducing the Trauma report. For higher income earners, the losses can be much greater.

Another type of cardiovascular disease – stroke – is a leading cause of disability in Australia and can also result in huge out-of-pocket expenses. The impact of stroke can range from difficulties with balance, fatigue, and concentration, to long term functional impairment including movement and sensations, speech, eating, vision, and cognitive ability. Around 27,000 Australians suffer strokes for the first time each year, and survivors lose an average of 3.8 full time weeks of work each year due to lasting impacts of stroke. Around one quarter of stroke survivors are unable to return to work.

The potential income loss for professionals is $50,000 – or 10-weeks of lost income of $5,000 and $19,000 ongoing, according to the Reducing the Trauma report. It is important to note that high-earning professionals will generally suffer a greater financial impact for any given health trauma, relative to the overall population.

There are three drivers of this:

• First, high earning professionals will almost always be treated as private patients. The out-of-pocket costs for private patients can be anything from two to ten times higher than those having the same condition treated publicly.
• Second, high earning professionals will generally suffer a ‘postcode multiplier’, that is, they will often pay more for procedures performed in more affluent areas.
• Third, the income lost through time off work is substantially higher for professionals, meaning some absences can leave sufferers forgoing tens or even hundreds of thousands of dollars.

The bottom line is that as well regarded as our public health system is, most patients will incur some sort of out-of-pocket cost. And for those who choose to pursue treatment as a private patient, these out-of-pocket costs can often be much higher.

Healthcare inflation is regularly outstripping official inflation. With the ageing of the population and the rising incidence of chronic disease, rising healthcare costs have understandably become one of the biggest economic challenges of the times.

The safest option for professionally employed Australians is to insure against these costs.

Michael Pillemer is chief executive of PPS Mutual.