Medibank Private executives have approved big cuts to benefits for common diagnostic tests including blood tests, x-rays and MRIs without informing policyholders.

In revelations which have taken the gloss off the company’s $5.7 billion public float, news.com has reported that, as of 1 September, the nation’s largest health insurer slashed the benefit it would pay for radiology and pathology services by up to 30 per cent by reducing cover to the level of the Medicare schedule fee.

The cuts means that, for example, the insurer will only cover $385 of the cost of a $516 CAT scan, leaving patients $131 out-of-pocket.

MP Executive Manager of Provider Networks and Integrated Care, Dr Andrew Wilson, told news.com the change was necessary because benefits for pathology and diagnostic imaging services had been growing at a rate well above that of the Medicare Benefits Schedule.

“If we continued in line with current trends, we believe it would have as adverse impact on premiums and the affordability of private health insurance,” Dr Wilson said.

But the decision, taken in the final weeks of Medibank’s operation as a government-owned entity, has drawn sharp criticism from AMA President Associate Professor Brian Owler.

A/Professor Owler said private health funds were always eager to highlight gaps between their benefits and doctor fees, but failed to own up to the out-of-pocket costs they created for their members by holding down or cutting benefits.

In a major speech to the private health insurance industry last month, the AMA President said the perception that out-of-pocket costs for medical services was increasing was “only partly true”, and that the proportion of doctors charging in accordance with health fund schedules was at an all-time high.

He said that this year 89.7 per cent of privately insured medical services were provided at no gap, and 3.2 per cent were provided under ‘known gap’ arrangements. Of the 7 per cent that do involve a gap, it is often at or below the AMA rate.

The slug to benefits, which was implemented without informing members, has fuelled concerns that the insurer will be tempted to inflict even deeper cuts now that it is a publicly traded company.

Although Medibank has made gains in reducing administration overheads, its management costs as a proportion of net asset value remain above the industry average, and the executive team is under intense pressure to realise significant improvements in financial performance.

There are concerns the insurer will hike premiums above the industry average and increase the range of policies subject to exclusions, leaving many patients unknowingly short of the coverage they need for important medical procedures.

A/Professor Owler said policy exclusions was one of the most common complaints made by patients about their health insurance, and he urged the industry to rid itself of “junk” policies.

“The AMA would prefer to see a private health insurance market that does not have exclusion insurance products,” the AMA President said. “Too often my members see patients who think they have cover, but don’t, because they purchased a cheaper product several years ago.

“Sometimes treatment is planned and surgery is booked only to be cancelled shortly beforehand because the hospital’s health fund check reveals that the patient is not covered,” he said. “It is not an unusual scenario.”

Adrian Rollins