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Why Health Insurance Premiums Increase

Every year, countless Australians face the unwelcome news that their health insurance premiums are rising again. This annual increase often frustrates many and confuses them, especially when their personal use of health services hasn’t changed significantly. You might wonder why you’re still subjected to higher costs despite maintaining a healthy lifestyle and rarely claiming on your policy.
Fact Checked

Updated: 20 May 2024

In this blog, we will delve into the specifics behind the annual increase in health insurance premiums, aiming to shed light on this complex issue. From dissecting the impact of an ageing population on healthcare demand to exploring the financial implications of adopting cutting-edge medical technologies and understanding the role of healthcare inflation – we’ll cover the key factors contributing to the cost adjustments you see each year. 

Key facts

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Understanding Premium Rises

Understanding the reasons behind calculating health insurance premiums is crucial for policyholders seeking to navigate their options and manage costs effectively. At its core, the premium calculation process, known as underwriting, evaluates various personal factors to determine the level of risk each policyholder represents.

Age and Premium Costs
Age is a primary determinant in premium pricing due to its direct correlation with health risks. As individuals age, the likelihood of requiring medical treatment increases, a reality reflected in statistical data and insurance models. Insurance companies utilise this data to adjust premiums accordingly, with older policyholders typically facing higher rates. This approach compensates for the increased risk and higher healthcare costs associated with age-related conditions.
Lifestyle and Location Influences
Insurers consider lifestyle choices and geographical location when calculating premiums. Lifestyle factors, such as smoking, alcohol consumption, and participation in high-risk activities, can significantly impact health risks and, consequently, insurance costs. For example, smokers may pay higher premiums due to the increased risk of developing smoking-related diseases.

Similarly, a policyholder’s location plays a role in premium determination. Factors like the availability of medical facilities, regional health risks, and the cost of living can all influence insurance costs. For instance, premiums may be higher in areas with limited medical infrastructure or higher rates of certain illnesses.

Top 10 Reasons for Annual Premium Increases

How to find affordable coverage?

Maintaining affordable health insurance amidst rising premiums requires a strategic approach. By actively managing your health insurance through these strategies, you can make more informed decisions, leading to more affordable coverage that still meets your healthcare requirements.

Strategies to help you find and keep cost-effective coverage:

Annual Premium Increases: A Given?

Understanding that health insurance premium increases are part of a larger economic context can help policyholders understand the complexities of healthcare financing. These increases are not simply about paying more; they reflect a dynamic economic environment and the evolving nature of healthcare requirements and services.

Just like the cost of goods and services in other sectors, healthcare costs are subject to inflation. As the overall price level of goods and services in an economy rises, so do the costs associated with healthcare provision—from medical supplies and equipment to wages for healthcare professionals. Insurers adjust premiums to account for these increased costs to ensure they can cover the claims made by policyholders.
Healthcare Sector Trends
Advances in medical technology and treatments, while often leading to better health outcomes, also come with higher price tags. Adopting new technologies, pharmaceuticals, and procedures can significantly drive up the cost of care, affecting insurance premiums.
Demand for Services
Changes in demographics, such as an ageing population, increase the demand for healthcare services. More people needing more care, especially for chronic conditions and age-related illnesses, increases insurance costs, which are then passed on to policyholders as premiums increase.
Economic Conditions
Broader economic conditions, such as recessions or periods of economic growth, can also influence health insurance premiums. Economic downturns may lead to increased rates of uninsured individuals, placing additional pressure on healthcare systems and influencing insurance costs.

Navigating Policy Adjustments

Impact of Lifestyle Choices

Health insurance premiums is closely tied to personal health choices, with lifestyle decisions such as smoking or engaging in high-risk activities significantly influencing costs. Insurers often categorise individuals who smoke or participate in dangerous sports as higher risk, leading to increased premiums due to the greater likelihood of health issues and medical claims. Conversely, engaging in healthy behaviours like regular exercise, maintaining a balanced diet, and avoiding tobacco can improve overall health and potentially lower insurance costs.

Many insurers offer wellness programs to promote healthier lifestyles among policyholders, providing incentives like gym membership discounts, rewards for non-smoking, or bonuses for routine health check-ups. These initiatives support better health outcomes and can lead to reduced premiums, showcasing the direct impact of lifestyle choices on insurance expenses.

The Role of Preventive Care

Preventive healthcare is pivotal in managing health insurance costs for individuals and insurers. Regular check-ups, screenings, vaccinations, and active participation in wellness programs can significantly reduce the risk of chronic diseases and detect health issues early when they are more treatable and less costly. 

This proactive approach to health not only aids in maintaining overall well-being but also can influence the cost of insurance premiums. Insurers often recognise the value of preventive care by offering lower premiums or rewards to those who actively maintain their health, acknowledging the long-term savings in healthcare expenses and the reduced risk of expensive medical treatments.

Frequently Asked Questions and Answers

The yearly rise in health insurance premiums is attributed to several key factors, including the growing cost of healthcare services, advancements in medical technology, and inflation. Other contributors include the increased chronic diseases, the ageing population, and the higher demand for medical services. Each of these elements exerts pressure on insurance companies to adjust premiums upward to cover the escalating claims costs.

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Individuals can adopt several strategies to manage the impact of premium increases. Reviewing and comparing health insurance policies annually is crucial to ensure you’re receiving the best value for your requirements. Additionally, taking advantage of government rebates and incentives, increasing your deductible to lower premiums, and exploring wellness programs offering discounts for healthy behaviours can help mitigate premium hikes.

Personal lifestyle choices, such as smoking, lack of physical activity, and poor dietary habits, can significantly impact health insurance premiums. These behaviours are associated with higher health risks and chronic conditions, increasing the likelihood of filing insurance claims. Insurers may charge higher premiums for individuals with such lifestyle habits to offset the increased risk they represent.

Engaging in preventive care measures, such as regular health screenings, vaccinations, and participating in wellness programs, can positively influence insurance premiums. These actions help detect and address health issues early, potentially reducing the need for expensive treatments later. Insurance companies often support preventive care through lower premiums or rewards, recognising the role of these measures in reducing long-term healthcare costs.



Megan has extensive experience writing about health and life insurance in Australia. Megan has a special interest in health and wellness. She relies on her background in counselling psychology to convey the latest findings in a manner that is most beneficial to ComparingExperts readers. In every article she writes, Megan aims to uphold the standards of the Private Health Insurance Intermediaries Association (PHIAA) which ComparingExpert is part of.

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