Healthcare costs driving up health insurance premiums: APRA

Richard Laycock 8 February 2018

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Declines in affordability force younger policyholders to leave.

Australian Prudential Regulation Authority (APRA) executive board member Geoff Summerhayes spoke at Members Health Directors’ Professional Development Program in Sydney about the financial sustainability of the private health insurance industry.

In a candid speech, Summerhayes said that APRA didn't believe that profits are the primary drivers of rising premiums but rather that "a greater uptake of medical services among policyholders and the rising cost of treatments and procedures" were to blame.

"The underlying cost of Australia’s health system is the ailment; rising insurance premiums are just a symptom," Summerhayes said in his address.

But one of the major issues with the rising costs of health insurance is that it drives out younger policyholders, who are less likely to claim and whose premiums would therefore offset the claims made by older policyholders.

“As the affordability of private health insurance declines and younger, healthier policyholders leave the system, effective decision-making is vital to keep funds sustainable and able to pay their members’ claims into the future,” Summerhayes said in a statement.

On 13 October 2017, the government announced a raft of reforms, which are hoped to curb the growing number of younger people leaving or not getting private health cover. One of the proposed incentives is to provide younger people taking out cover with a discounted number of years they hold cover before the age of 30.

Summerhayes' address comes just over a week after the government announced that health insurance premiums would be going up by an industry average of 3.95%, meaning that for more than a decade premium increases have outpaced inflation by a factor of two each year.

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