Posted on Feb 29, 2012 by Sergio Ulloa
The cost of private health insurance in Australia is due to rise by an average of 5.06 percent across the board this year after the government approved the latest round of premium hikes by local insurers. This rate increase will translate to roughly an additional AU$70 a year for individual policyholders with typical hospital cover and AU$150 for families based on 2011 Health Department figures for average medical fund costs. Premium increases for policyholders will of course vary depending on individual private insurance company and policy type.
The private health insurance market is tightly regulated in Australia, with premium levels regularly monitored and reviewed by the Federal Government to ensure affordable access to cover. Every year, Australian health insurance companies must provide the government with details justifying whether and how much they plan to fine-tune their health insurance premiums in order to further grow their business and adjust to industry expenses while remaining a solvent operation in the market. Once those rates are calculated, means-tested and rubber stamped, they are systematically applied from April 1 onwards of the following year.
On Tuesday, Australia's Health Minister Tanya Plibersek announced that the government had approved the latest round of private health insurance premium increases at an average of 5.06 percent for 2012. This year's average premium increase is slightly lower (0.5 percentage points) than the 5.56 percent rise seen in 2011 and remains more than 1.5 percentage points lower than the average rise over the last five years of the previous government administration. The adjusted premium amounts for each individual Australian health insurer will soon be available on the Ministry of Health's website to give consumers further information.
Of the health insurance rate adjustments made public in Australia so far, HCF lead the way with a 5.94 percent planned increase in premium from April 1, followed by NIB at 5.5 percent and Westfund at 5.2 percent. All are above the recorded average. Among the other big funds, BUPA and Australian Unity remain slightly below the average with an increase of 4.91 per cent and 4.55 percent respectively. The government-owned Medibank Private, Australia's largest insurer with around 30 percent of the market, meanwhile said it would lift its premiums by around 4.7 percent. According to health insurance consulting firm iSelect, these premium increases will yield an additional AU$780 million in revenues for health funds in 2012. Individual insurers will inform their customers about the new charges in coming weeks.
Minister Plibersek defended the annual premium increase, stating that 2012 represented the lowest annual rate rise in four years and that these new charges remained below the average fee inflation charged by doctors and hospitals
over the past year. 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. According to the Health Minister, the amount Australian insurers paid out in benefits to health insurance policyholders rose by 7.6 percent last financial year to AU$13 billion (US$14 billion) and premium adjustments were necessary to ensure the solvency of these companies going forward. Indeed, while people are certainly paying more for private cover now they are also receiving more back. The growth in benefits outlay is expected to continue. Benefits paid out by health insurers are forecast to rise by a further 9 percent in 2012/13 "which is significantly more than the average premium increase," Ms Plibersek added.
Tighter financial regulation has worked to improve outcomes in the Australian healthcare sector. The Health Minister further affirmed that the government had undergone due diligence in assessing insurance companies' applications to raise premiums this year. Before the guidelines could be set, 24 out of the 34 premium increases submitted by insurers had to be sent back for review, asking for either a lower rate hike or to provide additional evidence to justify their original rate adjustments. "This resulted in seven insurers reducing their premiums, helping bring about lower premium increases for four million Australians, representing 38 percent of people covered by private health insurance," Minister Plibersek said in a media release.
Private health insurers in Australia tend to operate within more narrow margins than their multinational peers and remain more concerned with maintaining stable underwriting practices and long term viability. Insurance groups must hold a minimum level of capital above prudential requirements to ensure they can meet obligations to policyholders and continue to operate in Australia. Thus allowing these companies to gradually increase their premium levels gives them the ability to generate more capital to cover for any adverse events, rising care costs, as well as fund proactive investments in their business, which ultimately should improve the quality of service for its members.
Private health insurance is not a compulsory purchase in Australia. The country's healthcare system incorporates both public and private insurance institutions. Medicare was established in 1983 and provides Australians with free universal coverage for medical treatment and scalable reimbursement options for outpatient services. A Pharmaceutical Benefits Scheme has also been set up to subsidize medical prescriptions. The Medicare system is funded primarily 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 percent of taxable income. Overall, Australia allocates around 8.5 percent of its GDP towards healthcare, which is on par with other high-income industrialized nations.
The Australian Government has taken proactive measures over the past few years to encourage more people to obtain private health insurance to ease both the financial and structural burden their rapidly graying population
will have on the public healthcare system. Under the Private Health Insurance Rebate system, private health coverage receives a 30 percent subsidy from the federal government, of which all Australians are eligible. The Lifetime Health Cover policy was also introduced to encourage young Australians to take out insurance. Government incentives and insurance rebates introduced in the last decade have given Australians impetus to take out private health insurance and many have. Health Minister Plibersek said that an additional 1 million people had taken out private hospital insurance since 2007, with more than 10.4 million Australians now covered, the highest number since June 1975. The insurance industry in Australia
has grown as a result.