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Why are health insurance premiums rising in 2017?

And which health funds are going to be the most affordable after the increase?

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, being unaware that the premium has gone up until their next payment is due. This guides purpose is to help you understand:

  • Why private health insurance premiums increase each year.
  • Which health insurers have the most competitive premium rates post-increase.
  • How to prepare for the premium rise and lessen the blow to your bank account.

Considering a switch? Compare policies from 35 Australian health funds

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 insurers are actually restricted to relatively modest profit margins.

If the number of benefit payouts have gone up when compared to the previous year, health insurers 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 where 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 2017? A major cause are the increasing costs of health services relating to:

  • Wages
  • 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 2017 will depend on the health fund you are with. The increase is expected to be an industry weighted average of 4.84%, but this can differ depending on the products and membership size of each insurer. This 4.84% rise is actually the lowest premium increase since 2010.

To assist you in deciding if you should switch insurers before the premium hike goes into affect, finder.com.au has crunched the numbers and calculated which four providers have had the highest and the lowest increase, along with how the "Big Four" health insurers have fared this year:

Health fundPremium increase in 2016Premium increase in 2017
CBHS Health Fund LimitedN/A2.98%
Doctors Health Fund3.76%3.54%
Grand United Corporate Health4.26%4.11%
Health fundPremium increase in 2016Premium increase in 2017
Health Insurance Fund of Australia Limited6.55%7.99%
Queensland Teachers' Union Fund Ltd7.15%7.30%
CDH Benefits Fund6.19%6.57%
Health fundPremium increase in 2016Premium increase in 2017
NIB Health Fund Ltd5.55%4.48%
Medibank Private Limited5.64%4.60%
Bupa Australia Pty Ltd5.69%4.90%
The complete list of health funds along with per month dollar statistics can be found here.

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:

  • 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 insurers offer cheaper policies and are willing to negotiate to retain your business).
  • Shop around for a better deal (you have 35 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 affects 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.
  • 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 an insurer that offers member discounts (e.g. gap-free dental for children, multiple policy and loyalty discounts).
  • 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.

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