What Causes Health Insurance Premiums to Increase?
Health insurance premiums are increasing by 2.92% on 1 April 2020. There are several reasons for the yearly rate rise. However, the most common cause is usually the increased cost of healthcare. Buying the latest medical technologies and keeping up with doctors, specialists and nurses’ salaries, forces most health funds to lift their prices to remain viable and continue to offer you their best service. Keep reading to learn why health insurance premiums are increasing and how it affects you.
Important: 1 April 2020 health insurance premium increases are postponed for 6 months due to Covid-19. Select health funds like HBF have waived the price increase for 12 months.
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The average increase in health insurance premiums by year
How are premium increases calculated?
The average percentage by which a health insurance company increases their premiums are calculated using a specific formula relating to forecast contribution income (FCI) of an insurer for 12 months after implementing the changes. The FCI formula excludes discounts related to rates and age protection as well as any changes to membership.
The formula: (FCI with premium changes – FCI without premiums changes) x 100 divided by FCI without premium changes.
10 Reasons why health insurance premiums increase
1. Population growth
Australia’s population continues to grow as the natural birth rate increases and more and more people immigrate from overseas. More people lead to healthcare prices going up as the need for these services increase. Private health funds raise their costs in order to cover the higher demand for healthcare.
2. Ageing population
The proportion of the population that are seniors are also increasing, thus Australians with private health insurance has been aging. Older people are living longer, and their health insurance claims are higher because they generally need more frequent medical services, pharmaceuticals and hospital visits. Premiums prices are rising to compensate for the increase in claims.
3. Young people are ditching private health insurance
Younger Australians are choosing to cancel or not purchase private health insurance due to the high price, which causes premiums to rise because the people continuing with their insurance tend to be less healthy or older, requiring more medical assistance. As the risk pool gets worse, premiums become more expensive. Health funds need younger, healthier people that are less likely to claim, to join the insurance pool.
Take note: From 1 April 2019, select health funds now offer Australians under the age of 30 aged-based discounts up to 10% off premiums.
4. Rising cost and utilisation of healthcare
Hospitals, medical services and the salaries of health-care professionals cost more each year. The cost of health insurance needs to be in line with the growing cost of medical services. There is also an increase in the utilisation of these healthcare services, particularly for people 65 years and older, which subsequently increases insurance claims.
5. The rise of chronic illnesses
Chronic diseases, for example, arthritis, diabetes, cancer, respiratory disease and heart disease, are growing in Australia and the ongoing treatments for such illnesses has the potential to overwhelm Australia’s healthcare services. High risk individuals drive up premiums.
6. Using private health insurance in public hospitals
It’s come to light that public hospitals frequently encourage patients to use their private health insurance to avoid out-of-pocket costs. However, patients are not informed that by using their health insurance in a public hospital it contributes to the overall pressure that’s placed on their premiums.
7. More for-profit health funds
Another possible reason for premiums increasing is the need for large corporations working as for-profit companies needing to generate a profit and return to their shareholders.
8. Changes to government rebate
When Australian Government Rebates for health insurance decrease, your insurer may have to increase their prices to compensate for these changes.
9. State-based differences
Where in Australia you live, might also contribute to your health insurance costs going up. Premiums generally differ between states depending on the population density, demographics and the amount of health funds available to compete for customers.
10. Advances in medical technology
Continual medical advancements have resulted in specialised treatments now becoming available for certain conditions. However, the cost for some of these advances and services contribute to the rising cost of health insurance.
What can you do to keep your premiums affordable?
- Request quotes and compare policies: Review which health fund meets your requirements with a premium you can afford. Also, be sure to check if they offer discounts.
- Choose a bigger hospital excess: If you have a Hospital policy, you might want to increase your Excess, usually you’ll have an option between $250, $500 and $750 for a single adult. Generally, the higher your upfront fee for hospital treatments, the lower your premium.
- Only pay for what you need: Review your policy at least annually to make sure you’re still using the benefits provided. For example, if you still have a pregnancy benefit but don’t plan on having any more children, you might want to downgrade your level of cover.
- Pay premiums annually: If you pay your premiums annually, before the April increase, you’ll generally pay the previous year’s rates on your premiums for the current year.
- Switch to a different health insurance provider that offers premiums that suit your budget and requirements.
Will health insurance premiums ever stop rising?
Health insurance premiums are not likely to go down anytime soon, as healthcare costs continue to rise. However, depending on health insurance revisions and government announcements, prices might not go up as fast. Also, if the Minister of Health rejects a fund’s proposed increases, rates might only rise slightly.
Can health insurance companies raise premiums?
Not really. Each health insurance premium increase must be approved by the Commonwealth Minister of Health. Private health insurance companies must submit a proposal with their projected increases to the Department of Health and Australian Prudential Regulation Authority (APRA) before being sent to the Minister of Health.
The proposals should include a detailed financial report as well as a cost and benefit projection. If the rate increases are determined to be necessary, they are applied.
Conclusion
Several factors affect health insurance premiums and the reasons they keep rising. However, as soon as you’re notified of your April increase, it might be a good time to compare private health insurance funds to ensure your provider still offers you the best price.