The Cost to Care

The Cost to Care and the Problem of Living in the Lucky Country

Australia – as the saying goes – is a lucky country. Our standard of living, our climate, and our Health Care and Social Security systems are often enviable when compared with international comparisons. This has meant that for many of us the, 'she’ll be right' approach to life in Australia has left us exposed to the harsh reality that life doesn't always work out the way we expect.

Who pays the real Cost of Healthcare in Australia?

Notwithstanding the contributions of Medicare and Private Health Insurance coverage, the individual is often left with a ‘gap’ between the amount covered and the total cost of the medical services. In 2015/16 the total health expenditure in Australia was $170.4 Billion.

The cost breakdown is split between the following:

• The Government pays about $120 Billion a year
• Private Heath Care Insurance pays about $18 Billion a year
• Individuals, families, and carers pay the remaining $30 Billion every year.

The growing cost burden of Medical & Pharmaceutical treatments

The rising cost of serious healthcare is a growing risk — for Individuals and Families.

Australian individuals, their families, and their carers are footing the bill for about $30 Billion a year in gap payment for healthcare. While this is a direct cost, it doesn't take into account the additional indirect costs of serious illness – like lost income as a family member takes time off work to care for sick loved ones, drives them to and from medical and rehabilitation appointments, and arranges travel and accommodation.

Direct costs to the individual, such as time spent off work and time spent traveling to and from medical appointments, as well as indirect costs to families and carers also pose a significant burden.

• As an example, average people with back pain or related problems are absent from work almost 21 days per year as a result of their illness.

A report investigating the impact on carers of people who have experienced stroke found that:

• 58% of primary carers of people with stroke and disability spend 40 hours or more per week in their caring role
• 21% report a decrease in income due to their caring role
• 24% incur extra expenses due to their caring role
• 31% have difficulty meeting everyday living costs

These indirect costs are often hidden and difficult to estimate and therefore budget for, ahead of time.

The rising cost of serious healthcare is a growing risk — for Small Business

Nothing stops a small business like an unexpected loss of a Business Owner (or Keyperson) or a surprise serious medical bill for a family member.

• A surprise medical bill creates an immediate drain on personal or business cash flow and can bring with it uncomfortable decisions about, 'what level of medical care can I actually afford?'

That's why Small Business Owners and Partnerships use Life insurances to help cover that financial gap and protect the business from the inevitable cashflow reduction when a business owner unexpectedly needs to draw down more funds from a business, to meet the cost of an unexpected health event.

Common example: The Increasing Survival Costs of Cancer

Cancer is not one disease, but many. It’s the name given to more than 200 different conditions, each with its own name and strategy for treatment. While Cancer does not discriminate, the cost of affording cancer treatment and medicines does. One of the regular questions people are beginning to ask themselves is, are they prepared for the cost of surviving cancer?

• The good news – in the last decade the five-year relative survival rates from all cancers combined increased from 48% in the 1980s, to 68%.
• The downside – the advances in medical diagnosis mean while cancers can be diagnosed earlier, not all available cancer treatments are publicly available through the government's subsidised treatment scheme, the Pharmaceutical Benefits Scheme (PBS).
• The average lifetime cost of cancer for individuals aged 15-64 is $126,280.

Managing the risks of Out-of-Pocket expenses for major health care costs

• 'How would you like to pay for that?' is another uncomfortable question people are faced with during an unexpected medical cost.

This is the tough question thousands of Australians are suddenly forced to answer when they, their child or a member of their extended family is suddenly faced with the reality of a serious medical condition or injury — and the enormity of the out-of-pocket expenses it can bring.

• Do they choose to wait for a vacancy in the public health care system to become available?
• Can they afford a loan to pay for the recommended treatment or procedure?
• Can they afford advanced medications that might help them recover faster, not on the government's subsidised pharmaceutical PBS system? And if so, for how long can they afford them?

Depending on the condition, these direct costs can range from hundreds to many thousands of dollars each year. Often these are compounded by the indirect costs – such as foregone income – impacting the sufferers and their carers. 

Responding to this financial reality, we look at the two major issues facing our clients:

1. The incidence of serious illness or injury conditions in Australia, and
2. The average size of the Out-of-Pocket costs, (direct and indirect) individuals and their families can face in the event of a serious illness or injury.

The two types of Out-of-Pocket Expenses

There are two main ways to categorise the Out-of-Pocket costs people can face.

• Direct costs are direct out-of-pocket expenses direct to the individual, usually having to be paid upfront and not reimbursed by either the healthcare system or private health insurance.
• Indirect costs are those families and carers alike may face as they care for the individual (like loss of personal wages or reduced spending power).

These out-of-pocket expenses can impose an often unaffordable burden upon an individual and their family.

And this is usually at a time when people are facing unexpected serious medical conditions where their decisions will cause equally significant emotional consequences for all concerned.

The Growing Indirect Costs and what this means for Families

While you may recover from cancer, you may be financially crippled and facing a bleak financial future. Medical advances also mean we face the reality that some diseases also have a greater chance of reoccurring while other opportunistic ones will trigger a future need for additional funding too.

• Depending on the condition, these direct costs can range from hundreds to many thousands of dollars each year.
• Often these are compounded by the indirect costs – such as foregone income – impacting the sufferers and their carers.

The payment gap in medical and pharmaceutical treatments can create a barrier to individuals seeking suitable treatment for their conditions

An Australian study investigating the effects of healthcare costs reports;

• 14% of adults didn’t receive the recommended medical care due to costs.
• for those living with chronic health conditions, the level was higher at 24%, and
• for individuals living with anxiety and related conditions, 40% of individuals with depression, skip treatment and other care needs because of the cost.

Typical questions people face include;

• How will they afford the out-of-pocket expenses?
• Do they try and go into debt to pay for early surgery or out-of-pocket medical costs?
• Do they try and access medications or rehabilitation treatments not listed on the government’s subsidised Pharmaceutical Benefits Scheme (PBS) and how will they pay for them?
• Do they wait in lengthy public hospital lines hoping the illness doesn’t progress quickly?
• Do they make major lifestyle decisions about selling the family home to pay for treatments?

In some circumstances, many families and friends turn to organising an online GoFundMe crowdfunding charity campaign asking for public donations to pay their private medical expenses.

What we can do about it?

Ask the question, 'What's the chance of this happening to me?'

• We first need to figure out what the statistical chances are of facing a major health risk, then
• Set reasonable expectations for what we can do about it, then
• Ask the question, 'What is the average lifetime out-of-pocket cost of managing the illness?'

Insight: While the human brain naturally prefers certainty, this bias undermines the ability to think through ranges of outcomes. We are not naturally wired to think in terms of probabilities and this discomfort with statistical reasoning is a stumbling block for both making good investments and risk protection decisions.

The 10 Major Heath Conditions and their expected Out-of-Pocket costs

Health Condition Categories

Where to from here?

In the following pages, you can see the Cost to Care for the most common major health issues Australians face.

Now you can plan and prepare to meet these potential costs, just in case, is where our strategies and the life insurances products like Crisis Insurance, Total & Permanent Disability (TPD) and Severity Based Insurances (SBI) can help.

Browse the side menu to view the more detailed cost calculations for over 30 individual health conditions.

How we can help

Creating a backup plan to cover major medical costs of recovery, just in case, is an important part of protecting your business and your family, from the burden of major healthcare costs in Australia. Crisis and Medical Trauma insurance could play a powerful protective place in your financial life.

Contact us for a confidential chat about your needs.

Data Sources

1. Australian Institute of Health and Welfare 2013. Health expenditure Australia 2011–12. Health and welfare expenditure series no. 50. Cat. no. HWE 59. Canberra: AIHW, p. 117.
2. Australian Institute of Health and Welfare 2017. Health expenditure Australia 2015–16. Available herre 
3. Essue B et al. Out-of-pocket costs of health care in Australia. Submission to the Senate Standing Committee on Community Affairs. Submission 28.
4. Callander EJ, et al. Out-of-pocket healthcare expenditure and chronic disease — do Australians forgo care because of the cost? Aust J Prim Health. 2016;23(1):p.15–22.
5.  Australian Institute of Health and Welfare (2013). Stroke and its management in Australia: an update. Cardiovascular disease series #37. Cat. no. CVD 61. Canberra: AIHW.
6. Australian Institute of Health and Welfare (2017). Back problems. Available from: www.aihw.gov.au/ reports/arthritis-thermusculoskeletal-conditions/ back-problems/ what-are-backproblems [Accessed May 2018].