Maternity Services, the Canary in the Coal Mine

There is little doubt that the private healthcare system has been under strain for many years now. From the pre-COVID days of health insurance death spirals to the current situation where small independent and day hospitals are on the brink of closure.

Some consider this a good sign, suggesting that a sector where there is continuous fluctuation between insurer and hospital viability indicates a balanced system. They argue that as the system endures these cycles, consumers continue to access high-quality care that is materially efficient.

However, if we take a closer look, we can observe some disturbing trends and growing cracks that could be the early signs of a system pushed past the point of no return. There is no clearer example of this than the slow death of private maternity services across the country over the past decade. Private maternity services, the canary in the coal mine, should be a wake-up call to all stakeholders in the healthcare system about how bleak the future is for private health without significant and meaningful reform in legislation, behaviours, and expectations of insurers, hospital providers, and medical specialists.

At least ten private maternity services have closed in Australia in recent years. That some of these closures pre-date COVID indicates that this is not an aberration of the post-COVID world but rather a structural and systemic issue that has been exacerbated, perhaps accelerated, by the post-COVID economy. As with any significant problem, the causes behind this are complex, and no single issue can easily be blamed. That said, there are some very clear drivers that have worsened this problem and, as is often the case, some clear (if not easy) solutions that could be implemented to revive this dying part of the system.

To my mind, the three main factors driving this decline are public policy (legislation), cost, and consumer choice.

Starting with public policy, we have some very clear issues and challenges created by private health insurance legislation that are driving consumers away from holding cover for pregnancy and birth. The two leading factors are pregnancy and birth being assigned to  gold level cover and risk equalisation not covering these services.

Gold-level cover holds the highest costs for insurers, with many insurers running these products at claims ratios exceeding 100% (essentially meaning the insurer pays out more than it charges for the product, resulting in the product running at a loss). This also means that insurers continue to price these products out of the market, making them increasingly expensive for consumers. The average cost of holding gold cover for an Australian is now  $590 per month.. This means the average person will have to pay just over $7,000 to hold cover for 12 months before having a baby. For many young Australians, this is simply not affordable.

Bringing pregnancy and birth onto Silver or Bronze cover would increase the number of Australians able to afford and access the level of cover needed for private birthing services. To achieve this, however, we need to address the other legislative issue, namely risk equalisation. Currently, insurers cannot claim back from the risk pool for births, as risk equalisation only applies to patients aged over 55 years. This makes it impossible for insurers to cover pregnancy and birth at lower levels of cover without facing significant adverse selection risk (where all consumers choose that insurer due to lower prices, and the insurer ends up paying for all claims to its detriment). By allowing risk equalisation to apply to pregnancy and birth services, the government would protect insurers from this risk (to some extent) and improve consumers' access to coverage.

Turning to costs, having already touched on this in the first point about insurance coverage, the next major driver of the decline in private system use is the cost of accessing maternity services due to medical specialist fees. During my time at one of the major insurers, we noticed a worrying trend where members held gold-level cover and had upgraded to it with the intention of having a baby (we observed the upgrade occurring around 12 months before the birth, which is typical of this behaviour). However, we were seeing a growing number of these individuals giving birth at public hospitals. Investigating this through direct member surveys revealed two major drivers behind this choice. The first was cost. Many families did not understand the birth planning fees associated with access to an obstetrician, on top of the cost of the insurance. The majority of respondents listed the cost of the doctor as the major factor, with birth planning fees ranging from $5,000 to nearly $20,000 in parts of Sydney and Melbourne. This does not account for the cost of the anaesthetist if an epidural is required or if a caesarean section occurs. Some of the more memorable feedback was, "Why go private and pay the doctors this when we could go on a holiday or buy a car instead?"

This is a real and growing problem. Data from 2022 shows that  40% of woman who start antenatal care with a private obstetrician do not continue with it. As private birth numbers drop, obstetricians are increasing their fees to maintain their income. This vicious cycle results in lower birth numbers, and the cycle continues.

As before, the answers may be simple but not easy. The first is to make it mandatory for obstetricians to list their birth planning fees and make them publicly available. Some already do this, but making it transparent across the board will drive better market dynamics and competition, allowing consumers to plan the financial aspects of their care more effectively. The second is to make reporting on these fees mandatory as part of the regulatory reporting requirements to the government through health insurer data submissions (HCP data). This will allow insurers to provide similar guidance to members with transparency tools, once again empowering consumers and hopefully driving down costs.

Lastly, we should consider how these costs operate in isolation of the MBS and how insurers could contribute towards some of these costs in more dynamic funding models.

The second major factor from the survey was choice, which links heavily with the last issue we need to address.

Public offerings for maternity services have significantly improved over the last two decades. Many new public hospital maternity wards offer high-end birthing suites and postnatal wards, many with private rooms. Additionally, the public system offers more woman-centred care and birth choices, particularly midwifery-led care. As consumers have become more engaged in birth planning and choice between natural versus interventional birth pathways, the public system is seen by many as the ideal location for a natural birth approach. The reality is far more complex (selection bias being a significant factor here), and I am not necessarily endorsing this view, but it is a common consumer perspective, accentuated by cost drivers favouring public birthing.

The private sector, for several reasons, has not evolved its offering to match this. The private model of care is obstetrician-led and does not offer midwifery-led models of care. Many women now want a quick return home, yet the private model highlights the perception of staying in "hotel-like" accommodation with fillet steak served daily and respite from other bothersome children while you "bond" with your new baby. In reality, you get hospital food, have little sleep while looking after your newborn, and are in a busy hospital ward with constant interruptions for medical observations.

This is where insurers need to take a hard look at themselves. Insurers are not allowing innovation in this space to offer improved services to consumers. They place rules and requirements on hospitals (and doctors as a by-product) that prevent any form of significant innovation in maternity care. Allowing more flexibility in how funding can be applied would at least give the private sector a fighting chance against the increasing value proposition of public healthcare. As it stands, there are few opportunities for hospitals or medical providers to explore without breaching contracts with insurers and losing funding for births.

Birthing and maternity services are just the start of what is likely a more insidious structural issue for private health. While government reform will be key to enabling changes to the structure, the survival of the system will ultimately depend on how well medical specialists, private hospitals, and private health insurers can collaborate.

Given the current state of affairs, I am not overly optimistic that any of these stakeholders can even sit at the same table, let alone work together. One thing I am certain of, though, is that we have not seen the end of closures to private maternity services in Australia. In fact, the smart money is on an acceleration of these closures.