personal finance

Private health insurance changes 'will lead to premium hikes'

New rules designed to simplify private health insurance will leave thousands of consumers facing significant premium increases, the Grattan Institute has warned.

From April many of the 70,000 existing private health insurance policies will fall into a gold, silver, bronze and basic classification system, which will also feature “plus” versions of those categories. Thousands of “junk” policies will be scrapped.

While the health minister, Greg Hunt, said the landmark reforms would have an overall neutral impact on premiums, Stephen Duckett, a health economist at the Grattan Institute, said some people would be more significantly affected by premium hikes than others. Modelling from Deloitte conducted for the Department of Health had shown there would be a significant premium rise for policies falling into the “silver” category.

“What the modelling showed is there are significant premium increases for some packages falling into the silver, but not everyone else, and in fact bronze went down,” Duckett said.

“This is a major and complex transition set to occur, and some people will find their policy has been categorised as a lower level of coverage and that as a result their premiums have reduced but they have lost some of their coverage for certain conditions.”

A health policy analyst with the Centre for Policy Development, Jennifer Doggett, questioned how Deloitte had been able to conduct modelling on the economic impact of the changes.

“The modelling would have to make a lot of assumptions about consumer behaviour, which is not always rational in this area and which is very hard to predict,” she said.

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“Modelling has to rely on untested assumptions about how consumers will respond to these changes so to claim any degree of accuracy is to draw a long bow, and for the government to say premiums won’t increase overall is overconfident.

“Part of what influences premiums depends on the risk pool of the people insured. If people respond differently to how Deloitte has predicted, and if more people drop or upgrade than predicted, that leads to big changes to the risk pool, which will impact premiums.”

Doggett said contrary to claims that the new categories would simplify insurance for consumers, she believed it could make the system more complex.

“It may make the products more uniform but choosing between those categories can be quite complex and won’t deal with underlying structural problem that health insurance is inherently inefficient and inequitable,” she said.

“This is just more of the government desperately trying to save a system that’s fundamentally flawed with stop-gap measures.”

The new rules announced on Wednesday mean insurers must also improve the information they provide to consumers. A new private health information statement will include mandatory information about what each policy covers. Duckett said this information should be provided to consumers at the same time they were notified of their policy’s classification and premium changes.

“You can be sure as eggs are eggs that the health insurance funds are going to disguise their drops in coverage,” Duckett said. “It will be interesting to see whether the insurers, when they send letters to consumers explaining their category of coverage and premium rises, will also include a clear and concise table in that same letter telling consumers what they are covered for.”

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New policies will be categorised under the system by April, and by April 2020 all products must fully comply with the new arrangements. Under the changes Australians aged 18 to 29 will receive premium discounts of up to 10%, which they will be able to keep until they turn 40.

People will be able to upgrade their coverage to include mental health services and avoid a waiting period. Australians living in rural and remote areas will also be more supported, with insurers now able to offer travel and accommodation benefits as part of hospital treatment cover for those those who can’t access treatment locally.

The Medical Technology Association of Australia, the Australian Orthopaedic Association, Pain Australia, Spine Society and the Neuromodulation Society of Australia New Zealand are concerned that under the tiered coverage model, procedures such as hip, knee and shoulder replacements and spinal fusion will require the highest and presumably most expensive level of “gold” cover, despite many of them now being available to people holding lower levels of cover.

The Medical Technology Association of Australia chief executive, Ian Burgess, said he had expressed concern to the government that insurers would choose to no longer offer certain services – such as spinal fusion, joint replacement, chronic pain or cataracts – on the lower categories.

“This could lead to a further reduction in the number of people with private health insurance or a reduction in the number of people covered by effective health insurance that properly covers them for their needs,” he said.

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“In either case there is a risk that further burden would be placed upon public health services for elective surgery and increased waiting lists for common procedures such as joint replacements.”


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