And which health fund's premiums are rising the most?
These questions are being asked a lot these days, with many Australians struggling to maintain private health cover in the face of the higher cost, or worse, not knowing their premium has gone up until the next payment is due. This guide's purpose is to help you understand:
- Why private health insurance premiums increase each year
- Which health funds have the most competitive premium rates post-increase
- How to prepare for the premium rise and lessen the blow to your bank account
What factors cause premiums to increase?
A common myth is that health funds raise the cost of premiums each year to maximise profit. In reality, it is done to counteract the increase in claims, which have been growing steadily over the past few years. Health funds are required to maintain a ratio of 85% claims paid out to total premiums coming in, so funds are actually restricted to relatively modest profit margins.
If the number of benefit payouts goes up compared to the previous year, health funds can apply to the government for approval to raise prices. It is worth noting that these requests are not rubber stamped. In 2016 requested premium increases were deemed too high by the health minister and the health funds had to come back with a lower figure.
So why are health insurance premiums rising in 2018? A major cause is the increasing costs of health services relating to:
- Doctors fees
- New medical technology
- Complex medical treatments and procedures
- The burden of an ageing population
Which funds are going to have the lowest premiums after April?
How much your premium increases as of 1 April 2018 will depend on the health fund you are with. The increase is expected to be an industry weighted average of 3.95%, but this can differ depending on the products and membership size of each fund. This 3.95% rise is actually the lowest premium increase in 17 years.
To assist you in deciding if you should switch funds before the premium hike goes into effect, finder.com.au has crunched the numbers and calculated which four funds have had the highest and the lowest increase, along with how the "Big Four" health funds have fared this year:
What do the experts say about premium increases?
finder.com.au spoke with a range of economists about the rising costs of private health insurance and asked them if there was a way to slow these rising costs. Of the 11 panellists that weighed in on this question;
5 said that removing cover for natural therapies would have a great effect on the affordability of cover.
3 of the economists suggested removing "risk equalisation" would have a positive effect on the cost of cover. Risk equalisation supports the community rating Australia's health insurance industry has in Australia, which basically means that every Australian ought to have access to health cover at the same price.
To support the community rating, risk equalisation re-distributes money from funds paying below average benefits to those paying more, thereby offsetting a fund who have a riskier demographic profile. However, removing the community rating could have negative effects for many Australians.
“Risk equalisation means insurers in Australia cannot penalise a policyholder for being at a higher risk of illness. With this rule in place, health insurance is as affordable for the elderly as it is for younger people. Eliminating this policy would mean cheaper insurance for some, but could also mean more expensive insurance for the most vulnerable people in society,” insights manager at finder.com.au Graham Cooke said.
One possible way to balance out the risk pool without raising the costs of private health insurance will be coming into effect in April 2019. The reform incentivises people between the ages of 18 and 29 to get cover by rewarding them with a 2% discount on their premiums for every year they hold cover (up to a maximum of 10%).
Average increase with rate protection
|ahm (see Medibank)|
|Emergency Services Health||3.36%|
|Health Care Insurance||6.52%||7.40%||5.54%||3.97%||5.34%||6.12%||6.90%||6.06%||8.90%|
|Mildura Health Fund||4.67%||4.56%||2.19%||5.75%||3.65%||6.14%||6.74%||5.95%||5.68%|
|Nurses & Midwives||3.22%|
|Queensland Country Health||4.49%||4.89%||4.38%||4.59%||5.85%||4.77%||4.91%||5.15%||4.39%|
|Queensland Teachers’ Union Health Fund Ltd (TUH)||5.97%||4.94%||3.96%||4.50%||4.50%||6.36%||7.15%||7.30%||4.40%|
|Railway and Transport Health||8.97%||14.38%||5.74%||4.29%||4.80%||6.17%||5.61%||5.54%||4.47%|
|Industry weighted average||5.78%||5.56%||5.06%||5.60%||6.20%||6.18%||5.59%||4.84%||3.95%|
*The yearly price increase listed above is only indicative and not representative of what every consumer may experience. Certain policies may have had higher or lower premium rises.
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 health insurance 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 funds 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 fund 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 fund 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:
- Get 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.
- Request a cheaper alternative (most funds offer cheaper policies and are willing to negotiate to retain your business).
- Shop around for a better deal (you have over 30 funds to choose from), but make sure that a cheaper policy still provides an adequate level of cover.
How can I make sure I'm not overpaying for private health insurance?
As well as the options described above to minimise the effects of the health insurance increase, other ways to keep your health insurance costs as low as possible include:
- Reviewing 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.
- Reviewing your hospital cover. Don't pay for items you don't need like pregnancy cover, but be sure you maintain sufficient cover to preserve your Lifetime Health Cover status and avoid the Medicare Levy Surcharge if you earn over $90,000.
- 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.
- Keep an eye out for discounts. Look for a fund that offers member discounts (e.g. gap-free dental for children, multi-policy and loyalty discounts).
- Compare cover from seperate funds. Consider purchasing your hospital and extras cover from different health funds if they are offering better individual deals.
Compare your options
Annual premium rises are a necessary evil for our private health system to remain viable. Fortunately, as this guide demonstrates, there are still lots of ways to keep your premiums low in the face of continually rising health costs. Why not see how your current premiums stack up against other top health funds.
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