This April, we have seen the largest health fund premium rise in nine years.
The approved rises range from 3.14 per cent for Health Partners policies to 7.99 per cent for NIB policies with the average increase at 6.2 per cent.
Although this increase may seem quite hefty to some, health economist Professor Luke Connelly suggests that the increase is on par with current trends.
“Last year, the increase in benefits paid for by private health insurers rose by an average of 8 per cent, so the average 6.2 per cent increase in premiums is reasonable, although it doesn’t help people who may already find paying their premiums difficult,” he said.
“Most insurers pay 85 per cent back to consumers and the remainder of premiums is typically spent on administration costs and reserves. Many private health insurance companies in Australia are not for profit, although that is also changing.”
It is no secret that Australians are invested in their health; in 2011, 9.5 per cent of Australia’s GDP was spent on health goods and services.
Although some may attribute the rising health insurance costs (as well as general health expenditure) to our aging population, Professor Connelly believes that the primary driver is an increase in health technologies.
“We have new drugs, new devices, new implants and new techniques; but all of the new things we can do come at an additional cost.”
“We have a wider range of potential treatments, and more often alternative and natural therapies are being considered as a part of extras cover by private health insurers.”
The costs of insurance premiums are governed by the expenditure year to year, and so it stands to reason that as more consumers spend more money on extras, the prices will rise.
“The increases to premium costs are real, rather than purely nominal,” Professor Connelly stated.
Even with the upcoming increase in premiums, for some people, having private health insurance may still be the most economically viable option.
The Medicare Levy Surcharge is charged to tax payers who do not have private hospital cover and who earn above a certain income.
The surcharge aims to encourage individuals to take out private hospital cover, to reduce the demand on the public system.
Professor Connelly notes that there are some instances that paying for private health insurance may cost less than the tax penalty.
There are 34,000 different health insurance products on the market, so it may seem daunting to find the one that best suits your personal needs.
“A good tip for consumers is to look at the private health insurance ombudsman it compares across all premiums and providers,” Professor Connelly suggested.
Although the rise in premiums is unavoidable, there is still always a window of opportunity to have a lower premium locked in.
“If you pay an annual premium in one hit, you can avoid the increase for the coming year.”