The government has approved a 4.41% private health insurance premium rise from April – the largest hike in almost 10 years.
With consumers already grappling with cost-of-living pressures, including an interest rate rise earlier in February, more Australians are likely to be wondering whether keeping their private health insurance is worth it.
“If premiums are rising faster than wages and inflation, people are asking: are we getting better protection, clearer coverage, and fewer surprise bills?” said Elizabeth Deveny, chief executive of the Consumers Health Forum.
“Right now, many consumers would say no.”
Almost a decade ago, Guardian Australia investigated the numerous flaws in the private health insurance system, with consumers reporting complexity, poor transparency, questionable value and incentives that pushed them into buying cover they did not necessarily want, need, or find value from.
There have been numerous attempts by the government to make private health insurance more affordable and consumer-friendly since then, including labelling policies as gold, silver, bronze or basic, and introducing reforms to reduce junk products.
Those policies have failed.
The system remains difficult to navigate, and questions about value for money persist. Complaints about confusing and limited coverage and unexpected out-of-pocket costs, remain common, Deveny says.
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Prof Francesco Paolucci, a health economist with Newcastle Business School, says part of the reason is that the government has failed to tackle the key policies – known as private health insurance incentives – that push people into taking up cover in the first place.
These include the Medicare levy surcharge, lifetime health cover, and the private health insurance rebate, which have remained unchanged for more than a decade.
The lifetime health cover surcharge goes up by 2% every year a person delays taking out private health insurance after the age of 31 and until the age of 65. Many people simply take out one of the lower cost private health insurance policies because it works out cheaper than these surcharges.
The Medicare levy surcharge means people without private health insurance and who earn more than $101,000 pay an additional tax of 1-1.5% of their income.
Meanwhile, the private health insurance rebate is an income-tested subsidy that reduces premiums depending on age and income.
The problem with all of these measures is that they are designed to drive participation in private health insurance rather than deliver value; they encourage people to take out cover simply to avoid tax penalties rather than because they believe it will meet their health needs.
The government needs to rely on these incentives, because why would consumers willingly opt in to a product that costs them more each year while covering them for less?
The incentives are also failing to contain premium growth, Paolucci says. “We don’t have regulatory mechanisms in place that effectively contain premium inflation.” He says such policies are sorely needed.
Yuting Zhang, a professor of health economics at the University of Melbourne, says the private health insurance rebate costs the federal budget billions each year.
While insurers and the government may argue this spend is offset because insured people use private hospitals instead of public ones, reducing pressure on public hospitals, the reality is public hospitals still treat many privately insured patients, especially those who find their policy doesn’t cover what they need.
“The government provides substantial support to private health insurance, and that doesn’t necessarily make sense when we already have Medicare,” Zhang says. She believes subsidies could be better targeted towards lower-income groups or redirected elsewhere in the health system.
She also has concerns about efficiency, noting that about 85% of premiums are paid out in benefits, compared with closer to 90% historically, suggesting more of consumers’ money is being absorbed by administration and other costs.
It is for these reasons that some have argued that it’s time to scrap private health insurance altogether and instead properly fund a truly universal, strong Medicare.
Neither Zhang nor Paolucci believe such calls are realistic given how enmeshed the public and private systems are, but Deveny says: “Whether we keep private health insurance or redesign it is a legitimate question”.
“But the immediate issue is that people have lost confidence in the value of it,” she says.
“And if the insurance system is going to exist, it has to work for the people who are paying for it. Insurance should reduce risk and make people feel safe when they’re sick – not create a second layer of risk and anxiety.”
But if premiums continue to climb, discussions around private health insurance may move beyond value and cost-of-living concerns, and towards whether the system is fit-for-purpose and worthy of being propped up by government at all.
Do you have a story about private health insurance to share? Contact melissa.davey@theguardian.com