The conversations of life

Please explain: Government questions health insurance industry premium increases


How many of us realise that every year for the past 10 years, the health insurance industry has jacked up its prices by 6 per cent, when inflation has been just 2.5 per cent?

How many of us understand that each year they have to get government approval for the 6 per cent increase and every year the government has given it to them?

How many of us understand that every year, small but significant benefits, historically covered by health insurance, are taken away? With that information submerged in lots of words in a brochure or a letter, if at all.

Just half the population is now covered by private health insurance. The healthy and well-off hang in and are forced to just accept accelerating costs for a lesser product each year.

Well, these are the facts and we consumers are paying for this comfortable insurance club and their shareholders.

Worse, it is the people in most need of a health safety net who are suffering the most. As prices go up, the less well off -people on low incomes, aged pensioners, sole parents etc – are having to bail out. Last year 500,000 Australians either gave up their health insurance or downgraded to a lesser cover.

Just half the population is now covered by private health insurance. The healthy and well-off hang in and are forced to just accept accelerating costs for a lesser product each year.

Insurers on notice

Minister for Health, Sussan Ley
Minister for Health, Sussan Ley

But there is some good news. To give the Turnbull government credit, the new Minister for Health, Sussan Ley, this week announced that she won’t simply accept the next round of premium increases. She wants justification.

“I’m putting insurers on notice that I will be closely scrutinising their applications.”

“This is important because I no longer believe it is possible for people to genuinely shop around for a better deal if their insurer increases their premiums too high,” she said.

And that is a fact. Where can consumers go for a better deal or even a deal that we understand?

(I personally have no idea what I am covered for now. I have tried to find out then I get lost in all the words).

Health insurance is a nice little earner. While these private companies point out that $17 billion was paid out for members’ treatments last year, they also acknowledged that this represents 87 per cent of the money they collect as premiums. This means that they kept $2.54 billion for themselves. This will be made up of their operating costs and profits. $2.54 billion is $2,540 million shared amongst about 35 companies.

How does it all add up?

What is an insurance company? They don’t have factories, they don’t grow things, they don’t invest in research and development. They are just people – staff – managing invoices for health costs and their payment.

Health insurance companies are different from most insurance businesses that put money aside for events like floods, hurricanes or bushfires; where they have, say two good years and one bad year for payouts. Health insurance is predictable, year in year out.

So the $2.54 billion income each year must go to covering operating costs and profit. How much does it cost to run a health insurance company? I would think not that much because it’s just wages. Let’s say it’s $50 million each company and there are 10 of them, that’s $1.75 billion. That leaves $1 billion for their profit – every year, and possibly increasing if you get 6 per cent price increases versus 2.5 per cent inflation.

And while 500,000 people last year abandoned or downgraded their health insurance because they could no longer afford the premiums, there is a silver lining for the insurance companies. Many chronic illnesses, requiring treatments are more common among people in lower socio-economic groups; so the people leaving the system because they can’t afford it are likely to help reduce the payouts. Of course that also means it is those who most need the health services who will miss out…

I for one back the government for demanding answers. We will follow the story and let you know what the insurance companies say. Watch this space.

Chris Baynes is a columnist and publisher of Frank & Earnest. He is also the publisher of, the leading national directory of retirement villages and aged care services in Australia.

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