Health insurance reforms: The impact of removing restrictions

How your premiums may be affected by changes in restrictions.

The introduction of a new, simplified tiered health insurance system has recently kicked off, placing many new hospital policies into one of four categories: Gold, Silver, Bronze or Basic.

The new tiered system makes various hospital treatments compulsory if they are to be included in one of four categories. This affects certain restrictions in some health insurance policies, an issue that the government has looked to address.

What's changing with health insurance premiums?

The government considered plans to stop private health insurers from offering products with restricted cover for clinical categories except for hospital psychiatric care, rehabilitation and palliative care.

Yet many of us have cover with restrictions. In fact, roughly 25% of Australians that have hospital cover buy a policy that has some form of restriction that impacts a clinical category outside of hospital psychiatric care, rehabilitation and palliative care.

A Deloitte report modelled the impact of the government's proposals to remove these restrictions. It found that there would be an increase in premiums and an overall reduction in the number of people covered by private health insurance (PHI).

As a result, the government has permitted insurers to apply restrictions in Basic products. By retaining restrictions for psychiatric care, rehabilitation and palliative care in Silver, Bronze and Basic tiers, as well as for all other clinical categories in the Basic product tier, you're likely to be protected from large premium increases.

How will this affect you?

The Private Health Insurance Ombudsman (PHIO) has said that removing all restrictions would have a detrimental effect on many of us. Not only would it affect both our hospital and general cover, it would remove things we currently have in our policies. Removing restrictions could stop us from being able to choose our own doctor and potential prostheses benefits.

The Deloitte report also found that removing restrictions would increase the drawing rate of mid-level products by about 10% and this would flow through to premiums.

Higher premiums are bad not just for customers, but for insurance companies as well. In recent years, premiums have gone up by almost 50%. It might be going into the insurer's pockets, but in the long run it's turning people away from PHI. With health insurance premiums set to rise by an average of 3.25% in 2019, an 18-year low, the insurance industry will be hoping this trend continues as much as the customer.

Will it impact your wallet?

The Deloitte report found that removing the current restrictions in some health insurance policies would increase costs to insurers by about 3.5%. However, this is offset by the impact the four-tier structure will have, so you should find that you have more money in your wallet at the end of the month.

Why are there going to be changes to premiums?

The private healthcare system is in need of reform and looking at how some of the restrictions can be changed is an inevitable part of that. Many people with PHI value the cover provided by restricted products. For instance, if you live in regional and rural areas, where access to private hospitals is usually more limited and expensive, it's likely you value the cover provided by restricted products. It keeps your policy affordable and your premiums lower.

Retaining restrictions then helps protect consumers from facing large premiums. While policies in the Gold tier won't have any restrictions, there will still be restrictions on hospital psychiatric care, rehabilitation and palliative care in Silver, Bronze and Basic tiers, as well as all other clinical categories for the Basic tier.

When's it changing?

Changes to the health insurance tiers kicked off in April 2019 but insurance companies have until April 2020 to fully implement them. If your insurer makes any changes that affect you, it could happen at any point during that timeframe but they'll be required to give you plenty of notice.

What else is changing with the 2019 health insurance reforms?

Other changes to PHI include:

  • Discount for under-30s. Discounts for 18- to 29-year-olds at a rate of 2% per year up to a maximum of 10%.
  • Better access to mental health services. Waiting periods have been scrapped for people who need mental health services and are upgrading their policies.
  • Improved care for those in rural areas. Insurers can now offer accommodation benefits to improve access to those in remote or rural areas.
  • Cuts to some natural therapies. A range of benefits for natural therapies have been cut to curb the rising cost of PHI.

Picture: Unsplash

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