Private Health Insurance Increase

Why do I keep paying more for health insurance every year?

This question is being asked a lot these days, as many Australians struggle to maintain private health cover in the face of an 1 April health insurance increase.

This guide looks at the reasons for the 1 April health insurance increase, the process involved in their approval and what you can do to reduce the cost of cover if you are having difficulty affording private health insurance.

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Why do my private health insurance premiums keep going up?

Despite what some might think, private health funds in Australia don’t increase the cost of their premiums each year just to increase their level of profit. They do so in order to counteract the increase in benefit payouts, which have been growing steadily over the past few years.

A for-profit health fund is a business and must be run as such to remain viable. Insurers are heavily regulated in Australia and are required to maintain a certain balance between what they take in and what they spend. Benefits paid out are approximately 85% of the total premiums coming in, so when you add management costs, it’s clear that insurers are actually running on relatively modest profit margins.

The reason benefit pay outs have been increasing is due to the steadily rising cost of health services such as:

  • Wage increases
  • Increased doctor’s fees
  • New technology
  • Increasingly complex medical treatment procedures
  • An ageing population

So, when benefit pay outs increase, premium costs must also increase and this is why on 1 April each year, insurers apply to the government and generally receive approval to raise their prices. Sometimes, as was the case in 2016, the health minister will deem that the rises are too high and ask the insurers to go away and come back with a lower amount.

How much have my fund’s premiums increased this year?

The amount your premium increases as of 1 April this year will depend on the health fund you are with. The average increase is expected to be around 5.6%, but some funds will raise their prices more than this and some less, depending on the products they offer and their share of the marketplace (the number of members they service).

Compared with a long-term average rise of 6.1% pa, this is actually the smallest rise in four years, but when viewed in the context of inflation (three times the current rate) it is still expected to increase an average family's health insurance bill by up to $200 a year.

Biggest health insurance increase to come this year

Health insurance increase comparison
YoY Change
Queensland Teachers' Union Health Fund Ltd

Lowest health insurance increase to come this year

Health insurance increase comparison
YoY Change
Lysaght Peoplecare Ltd

How did the big four fair?

Health insurance increase comparison
YoY Change
Bupa Australia Pty Ltd5.69%5.59%
Medibank Private Limited5.64%6.59%
nib Health Funds Ltd5.55%6.55%

"Big 4" average increase between 2010 and 2016

Who approves premium changes?

Premium rises must be applied for and approved by the Federal Minister for Health and the Private Health Insurance Administration Council (PHIAC), the independent health insurance financial regulator. This is to ensure premiums remain as low and as attractive as possible to consumers. It also ensures transparency and consistency in private health insurance pricing, in line with the requirements of the Private Health Insurance Act 2007.

Applications from insurers are considered on their individual merits and must be supported by detailed financial data and cost and benefit projections that have been certified by an accredited professional actuary (risk management expert). The insurer is then notified of the result and if the premium rise is approved, they must notify their members prior to the increase taking effect, so that they have time to shop around for another insurer if they are unhappy with the change.

What if I'm not happy about the increase?

If you are not satisfied with your health fund’s premium increase, you have several options available to you. You can:

  • Give yourself some breathing space by paying your premium prior to 1 April and locking in your current rate for a further 12 months.
  • Reduce your overall level of cover by increasing the excesses and reducing the benefit amounts on certain items.
  • Ask your insurer for a cheaper alternative (most insurers have cheaper versions of their policies and are willing to negotiate to retain your business).
  • Shop around for a better deal (there are more than 30 different insurers out there), but make sure that a cheaper policy still provides an adequate level of cover for your needs.

How can I make sure I'm not overpaying for private health insurance?

As well as the options described above to minimise the affects of the health insurance increase, other ways to keep your health insurance costs as low as possible include:

  • Examine your extras cover. Have you reviewed your extras cover? Discard those items you no longer or rarely use such as major dental if no one on the policy is at risk of needing braces or having wisdom teeth pulled.
  • Examine your hospital cover. Have you reviewed your level of hospital cover? Don't pay for items you don't need like pregnancy cover? Be sure you maintain sufficient cover to preserve your Lifetime Health Cover status and avoid the Medicare Levy Surcharge.
  • Review your cover. Review your policy regularly (at least every six months) to ensure it is still providing you with the best value for money.
  • Look for restricted funds. Consider joining a restricted membership fund run through an employer or industry group (most people are eligible to join at least one), as the premiums are usually lower and the benefits are higher.
  • Review your discounts. Look for an insurer that offers member discounts (i.e. gap-free dental for children, multiple policy and loyalty discounts etc).
  • Compare cover from seperate providers. Consider purchasing your hospital and extras cover from separate providers if they are offering better individual deals.

Compare your options and lock in your premiums before 1 April

Annual premium rises are par for the course when you have health cover and are a necessary evil if our private health system is to remain viable. Fortunately, as this guide demonstrates, there are still lots of ways to keep your premiums low and ensure you have adequate cover in the face of continually rising health costs.

Speak with an adviser and get a quote today

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