Health Minister Mark Butler has directed the Department of Health to investigate the practices of private health funds, which continue to exploit a regulatory loophole to increase premiums. The loophole, known as product phoenixing, involves health insurers closing a policy and reopening a nearly identical one at a significantly higher price.
A December report from the Commonwealth Ombudsman highlighted the widespread nature of this practice, describing it as anti-competitive. It warned that it discourages consumers from shopping around for better deals. Despite Minister Butler’s earlier warnings that such “price gouging” practices would result in legislative action, the loophole persists.
Price Increases Expose Consumers to Higher Costs
In late February, consumer group Choice reported that HCF, one of the largest health insurers, closed its gold-level cover for new customers, reopening it at an average 35% higher price. Previously, a single person in New South Wales would pay $343 per month for hospital cover, plus additional extras. The new policy, however, costs $456 per month for a combined hospital and extras cover.
HCF also discontinued offering a hospital-only gold policy, forcing customers to purchase extras, which are typically profit-making for health funds. Health Minister Butler expressed strong disapproval of this practice, stating, “I will not tolerate this shameful phoenixing tactic from private health insurers.”
Mark Blades, an insurance analyst at Choice, argued that HCF’s policy changes unfairly burdened new customers, while existing customers were not incentivized to switch policies. He further criticized the move for reducing consumer options and pushing costs onto new customers.
Ombudsman and Opposition Weigh In
A spokesperson for the Commonwealth Ombudsman stated that the office continues to monitor product phoenixing through its complaints processes. However, they noted that no recent complaints had been received since December 2024.
Shadow Health Minister Anne Ruston condemned the practice, stating that it exacerbates the financial strain on Australian households. She accused the government of failing to protect the 15 million Australians with private health insurance, who are facing premium increases exceeding inflation rates this week.
HCF Defends Premium Adjustments
In response, an HCF spokesperson justified the changes, citing “sustainability challenges” with gold-tier policies and their broader impact on all members. They explained that the decision to bundle hospital and extras coverage was made to ensure that HCF could continue to offer gold-level hospital products in the future. HCF argued that cross-subsidizing these gold policies was unfair to the remaining 97% of members.
However, Blades countered that HCF’s rationale resulted in higher costs for new customers while maintaining the status quo for existing ones, further limiting consumer choice.
Industry Defends Practices Amid Rising Costs
Private Healthcare Australia, the peak body for private health insurers, defended the practice of closing policies, stating that it only occurred when products were consistently unprofitable. They also pointed to the increasing costs of healthcare as the reason for premium hikes. The Australian Prudential Regulation Authority (APRA) requires that insurance funds not make losses on their policies, ensuring they remain viable in the market.
As premiums rise across the sector, consumers face a significant financial burden. Starting April 1, health funds will implement a 3.73% average premium increase, a cap approved by the government. However, some customers will experience steep hikes. For example, comprehensive gold policies are expected to rise by nearly 12.6%, while silver and bronze policies will see more modest increases.
A Growing Crisis for Consumers
Stephen Duckett, an honorary professor at the University of Melbourne, criticized the lack of transparency in premium hikes, describing the health insurance market as a “game of smoke and mirrors.” He argued that consumers deserve clear information about their individual premium increases rather than being presented with industry-wide averages.
For many Australians, these rising costs are becoming increasingly difficult to manage. Perth resident Judi Giddings, 73, expressed frustration over her 7.3% premium increase, which she said took up nearly 10% of her pension. She relied on her health insurance primarily for dental care and noted that without continuing to work, she wouldn’t be able to afford her policy.
The Premium Squeeze: Struggling Consumers Seek Alternatives
Peter Albiston, a Canberra resident with private health cover through Defence Health, also voiced concern about the lack of clarity in premium increases. His fund initially reported a 3.3% increase, but he was later informed that his premium would rise by 6.5%. Albiston described the situation as misleading, as the average premium increase did not reflect individual adjustments.
Choice’s Mark Blades emphasized that these discrepancies illustrate the limitations of the government’s premium cap, which fails to provide meaningful transparency for consumers.
A System in Crisis: Rising Costs and Shrinking Coverage
The rising costs of private health insurance are pushing more Australians to reconsider their coverage. A survey by financial comparison site Finder found that just 20% of people earning over $100,000 have private health insurance, and 11% have no plans to ever take out a policy. As premiums continue to climb, many are weighing the financial viability of paying the Medicare levy surcharge instead of keeping private cover.
Young Australians, in particular, are avoiding health insurance, with policies often seen as too expensive for the limited benefits they offer. Kylie, a teacher in Perth, shared her experience of being forced to pay the Lifetime Health Cover loading fee, which adds 2% to her premium for every year she was without private hospital cover after age 31. At 54, Kylie now pays $180 a month for a bronze policy with Australian Unity, which includes the loading fee.
The Need for Reform
Experts like Professor Stephen Duckett argue that the current health insurance system is fundamentally flawed, particularly for younger Australians. He noted that the government’s strategy of encouraging private insurance coverage is misguided, as it often forces individuals into policies that are not well-suited to their needs.
Duckett also criticized the private health insurance sector for failing to meet the needs of most Australians, with many policyholders finding their coverage insufficient when they need it most. He called for reform in the industry to address these persistent issues.
As premiums continue to rise and coverage options shrink, it’s clear that the private health insurance sector is under growing scrutiny. With mounting pressure from both consumers and politicians, the future of private health insurance in Australia may soon face a much-needed overhaul.
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