Private health insurance premiums are going up this week. But the reasons why just don't stack up
Sunday, Sep 27, 2020, 07:59 PM | Source: The Conversation
But 2020 has been a year like no other. And some of the reasons insurance companies are using to justify this price rise don’t stack up.
At a time when many policy-holders are facing financial stress and many elective surgeries or treatments suspended or delayed, this week’s price rise isn’t justified. With a further price rise already set for April 2021, it would be fairer to delay any fee hike until then.
1. Increasing costs of hospital and health care — false
Costs of hospital and health care paid by private insurers have reduced substantially in 2020, not increased, according to the latest figures from the Australian Prudential Regulation Authority. That’s because many elective surgeries and routine extra care (such as dental check-ups) were suspended.
Private insurers paid reduced hospital treatment benefits in two consecutive quarters. They dropped 7.9% in dollar terms in the March 2020 quarter, compared with the December 2019 quarter. They fell another 12.9% in the June 2020 quarter, compared with the March 2020 quarter.
Private insurers’ payments for general treatment (also known as ancillary or extras) benefits dropped even more. They fell 32.9% in the June 2020 quarter, compared with the March 2020 quarter.
Some may argue the reduction in benefits paid is because substantially fewer people had private insurance in 2020. But this is not true.
While there was a small drop in the number of people with private health insurance in the first half of 2020, this was by less than a percentage point: the number of hospital memberships fell by only 0.4 percentage points. There was a similar drop in the number of people with extras cover.
2. Increase in claim frequency — false
Another reason for the price rise is there have been more claims over a given time, or an increase in claim frequency. This, again, is not true this year.
In Victoria, services are only gradually returning to full capacity from November. So it will be a long while before claims return to pre-pandemic levels.
People have also been avoiding seeking needed health care because they are afraid of contracting the coronavirus, or cannot afford out-of-pocket costs due to increased financial stress. This would be another reason for the numbers of claims decreasing, not increasing.
3. More chronic disease, an ageing population — no data supporting this for the next 6 months
In the long run, these claims are correct and premiums should increase gradually over the coming years because of the ageing population and growing incidence of chronic conditions.
However, they’re not likely to change enough in the next six months to justify a premium increase now.
Here’s what should happen
Some insurers are already providing discounts for families in financial hardship, such as people receiving JobSeeker or JobKeeper. Others offer discounts or waive price rises to people who pre-pay their policies for up to 12 months. More insurers should do this.
Providing financial relief and delaying the October premium increase will not only help customers but also help private insurers in the long run.
Increasing premiums twice in six months (October 2020 and April 2021) during an unprecedentedly difficult time can backfire, especially if the reasons to support the increase do not stack up.
When premiums increase, young people are more likely to drop private health insurance. This will drive up premiums further for everyone. This in turn will lead to more young and healthy people dropping their cover.
Consequently, it may cause a “death spiral”, driving private health insurance out of business.
Professor Yuting Zhang receives funding from Australian Research Council Future Fellowship and National Health and Medical Research Council's Medical Research Future Fund.