The Australian government has approved a significant increase in private health insurance premiums, set to rise by 4.41% starting in April 2024. This marks the largest hike in nearly a decade, raising concerns among consumers already facing rising cost-of-living pressures. As interest rates climbed in February, many Australians are reconsidering the value of maintaining their private health coverage amid escalating costs.
Elizabeth Deveny, chief executive of the Consumers Health Forum, expressed concerns about the implications of these rising premiums. “If premiums are rising faster than wages and inflation, people are asking: are we getting better protection, clearer coverage, and fewer surprise bills?” she stated. “Right now, many consumers would say no.”
Over the past ten years, investigations have revealed numerous flaws within the private health insurance system. Many consumers have reported issues such as complexity, poor transparency, and questionable value. Despite government efforts to reform the system—labeling policies as gold, silver, bronze, or basic, and attempting to eliminate lower-quality options—these measures have fallen short. Complaints about confusing coverage and unexpected out-of-pocket costs persist, according to Deveny.
Challenges in Private Health Insurance Policies
Prof. Francesco Paolucci, a health economist at Newcastle Business School, pointed out that government policies aimed at promoting private health insurance, such as the Medicare levy surcharge and the private health insurance rebate, have not effectively addressed the underlying issues. These incentives, which have not changed in over a decade, often push individuals into acquiring coverage merely to avoid tax penalties rather than because they believe it meets their health needs.
The lifetime health cover surcharge penalizes individuals who delay obtaining private health insurance after age 31, increasing by 2% each year until age 65. Consequently, many opt for lower-cost insurance policies to circumvent these surcharges. The Medicare levy surcharge imposes an additional tax of 1-1.5% on individuals earning over $101,000 who do not have private insurance, while the private health insurance rebate serves as an income-tested subsidy that reduces premiums based on age and income.
Despite these incentives, Paolucci highlighted that they fail to contain premium growth and do not provide real value. “We don’t have regulatory mechanisms in place that effectively contain premium inflation,” he said, emphasizing the need for such policies.
Reevaluating the Future of Private Health Insurance
Yuting Zhang, a professor of health economics at the University of Melbourne, noted that the private health insurance rebate costs the federal budget billions annually. While proponents argue that the rebate offsets costs by reducing pressure on public hospitals, many privately insured patients still find their coverage inadequate. “The government provides substantial support to private health insurance, and that doesn’t necessarily make sense when we already have Medicare,” Zhang commented.
She suggested that subsidies could be better targeted towards lower-income groups or redirected to other areas of the health system. Zhang also raised concerns regarding efficiency, pointing out that approximately 85% of premiums are paid out in benefits, compared to nearly 90%
