Over the last decade premium rises have tracked well above the consumer price index (CPI), at around an average of 6.1 per cent, as can be seen in the graph below.
|Source: Parliamentary Library|
The process around premium setting largely reflects the highly regulated arrangements around private health insurance in Australia. However, by having the Minster so closely engaged in annual premium setting it also inevitably politicises the process. Some argue the process needs greater transparency and have called for reform. A recent report from Deloitte (p. viii) argues that the premium approval process should be moved to an independent regulator such as APRA, beyond the influence of the Health Minister.
It should be noted that the announcement is for an average premium increase, so the premium for individual products may be above or below this figure. But some consumers may find they are paying even more for their PHI. Following the recent means testing of the PHI rebate, higher income earners now receive a lower level of rebate, and among the highest income earners, none at all. After July 2013, those who have incurred a Lifetime Health Cover Loading on their premium—a 2 per cent loading on the premium for each year they delay purchasing hospital cover after they turn 30—will receive a lower rebate if legislation currently before the Parliament is passed. This is because the bill proposes that the rebate amount be calculated only on that component of the premium which is not attributable to the loading, as this Bills Digest explains. Meanwhile, those consumers who took up the offer made by many insurers to lock in last year’s premium by pre-paying in advance will then face a jump in their premiums once this pre-paid time period expires.
It seems highly likely therefore, that consumer concern around PHI affordability can be expected to remain high and that the Private Health Insurance Ombudsman may see an increase in consumer complaints around cost issues. Health insurers have already registered their concerns around the proposed changes to PHI, running a series of half page advertisements in daily papers and on the internet, as well as through a submission to the Senate enquiry into the current bill before the Parliament. And a further change mooted in the Mid Year Economic and Fiscal Outlook (MYEFO p. 237) which could affect PHI affordability—aligning annual premium increases to CPI if CPI is lower than the average increase sought by insurers—may generate further concern when it is introduced.
The Minister argues that the ongoing reforms to PHI are about making PHI more equitable and effective, as well as helping to achieve much needed budget savings to partially fund other health priorities, such as dental reforms (see MYEFO, p. 237).
Overall, 2013 looks set to be a year where PHI will remain in the spotlight, with issues around consumer affordability and potential impacts on membership levels likely to feature.