Posted on Apr 04, 2011 by Sergio Ulloa
Starting April 1st 2011, private health insurance premiums in Australia are set for an average cost increase of 5.56 percent across the board. The average premium for families is due to rise AU$2.88 per week and Australians are projected to cumulatively spend an extra AU$821 million per year for their private health insurance options.
Individuals will pay around an additional AU$75 annually and combined family policies will increase AU$150 a year on average. Premium increases for policyholders vary depending on individual private insurance company and policy type.
The health insurance industry is tightly regulated in Australia. The premium amount which private insurers can charge citizens is directly monitored by the Federal Government. Every year, insurance companies provide the government with details of whether and how much they would plan to alter their health coverage premiums in order to protect their business and guarantee that they remain a solvent operation in Australia. Once those rates are calculated and granted permission, they are systematically applied from April 1 of the following year.
Australian Health Minister Nicola Roxon approved the private health insurance premium increase for 34 out of 35 domestic health funds, by an average of 5.56 percent, on February 25th. The individual rates for each insurer can be viewed on the Ministry of Health's website, ranging from Railway & Transport Health fund's premium increase of 14.38 percent to the Reserve Bank Health Society more modest 1.5 percent rise in premium. The government-owned Medibank Private, Australia's largest insurer with an estimated 30 percent of the market, lifted its premiums 5.35 percent. The average premium increase is slightly less than last year's 5.87 percent standard rise and remains below the global rate of inflation for healthcare services. The overall inflation rate in Australia is 2.7 percent.
Minister Roxon defended the premium increase, stating that rates remained below that of her predecessor who averaged annual increases of 6.44 percent on health insurance. Tighter financial regulation was improving outcomes in the healthcare sector. "Under Labor an additional 725,000 people have taken out private hospital insurance with more than 10.1 million Australians now covered, which is the highest number since 1982," Health Minister Roxon said.
The Health Minister confirmed that the government underwent due diligence in assessing insurance companies' applications to raise premiums. "A much more rigorous process has been put in place and I think that is having an effect," she added "We've also kept ongoing pressure on insurers to make sure that their products are attractive to consumers." 17 out of the 35 premium increases initially brought forward by insurers were sent back for review, asking for either a lower premium increase or to provide additional evidence for the increase sought. Only one health fund, Australian Unity, had its plan for a premium increase completely overruled.
The Australian health insurance industry maintain that increases in premiums are matched against current and forecast raises in benefit outlays and are required to ensure that health funds remain solvent and can provide quality coverage options. The benefits paid out to private health insurance policyholders increased by 7.7 percent in 2009-10 to AU$12.2 billion from AU$11 billion the previous year. This occurred while the consumer price index valuing hospital and medical services for 2010 remained at 6 percent. Benefits paid to members account for over 85% of total premiums paid by policyholders. The growth in benefits outlay is expected to continue. This outlook includes the rising costs of medical treatments and services (in particular increased expenditure due to advanced technology and provider costs) and the higher expected utilization of these services. Benefits paid are forecast to increase by over 9.45 percent over the next year, which is notably more than the average proposed premium increase.
Private health insurance companies in Australia generally operate within narrower profit margins than the global industry average and are also concerned with maintaining good underwriting and long term viability. Companies must hold a minimum level of capital above prudential requirements to ensure they can meet obligations to policy holders and continue to operate. Increasing premiums gives the insurers necessary capital to more adequately cover any adverse events, potential volatility in benefits, as well as further proactive investments in their business, which ultimately improves the quality of service for its policyholders.
Private health insurance is not compulsory in Australia. The Australian healthcare system incorporates both public and private institutions. Medicare was introduced in 1983, providing Australians with free universal coverage for medical treatment as well as scalable reimbursement for outpatient services. A Pharmaceutical Benefits Scheme is also in place to subsidize medical prescriptions. The country allocates around 8.5% of its GDP towards healthcare, on par with other high-income nations. The Medicare system is primarily funded through general revenue. Those above a certain income who remain solely on Medicare are liable for a Medicare Levy Surcharge, which is assessed at 1% of taxable income.
The Australian Government has taken proactive steps to encourage more people to obtain private health insurance to ease both the financial and structural burden the large numbers of aging patients place on the public healthcare system. Under the Private Health Insurance Rebate, private health coverage receives a 30% subsidy from the federal government, of which all Australians are eligible. The Lifetime Health Cover (LHC) policy was implemented to further encourages young Australians to take out health insurance.
Government incentives and insurance rebates introduced in the last decade have given Australians impetus to take out private health insurance and they have. The insurance industry in Australia has grown substantially as a result.
Key players on the health insurance market are Medibank Private, BUPA, HBF, and the Hospitals Contribution Fund of Australia.