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Why are Health Insurance premiums rising?

Why are Health Insurance premiums rising?

Key takeaways from this article:

  • Coming into effect on 1 April 2018, the Australian government has announced a private health insurance average premium rise of 3.95%
  • This cost increase is the lowest in 17 years but still exceeds the rate of overall inflation
  • In 2018, the government’s private health insurance rebate will also be cut by about half a percentage point
  • The 3.95% cost rise is only an average – you may experiences rises between 2.28% and 8.97%, depending on the fund you’re with and type of cover you’ve taken out
  • Advances in medical technology, more chronic disease and an ageing Aussie population are just a few of the factors that increase the cost of health care in Australia
  • Not all insurers are the same – shop around for bonuses, discounts and quality cover that is well-matched to your needs

Over the past decade, the cost of health services in Australia has been steadily increasing. In response, for the most part, health funds have been required to increase their premiums.

By law, private health insurers must apply to the Australian Health Minister for approval of any changes to their premium prices, which take effect each year on the 1st of April.

In 2018, Health Minister Greg Hunt signed off on an average premium rise of 3.95% (down from 4.84% in 2017), which will see the cost of private health insurance for Australian families increase by as much as $140.

This hike is the lowest in a decade but is still twice the rate of inflation – and it comes on top of a simultaneous cut (of around half a percentage point) to the government private health insurance rebate. This ‘double whammy’ translates to a real-world average rise of 4.7% in premium costs for consumers in 2018.[i]

Why are premiums rising?

Two of the main drivers of Australia's surging healthcare costs are its ageing population and the rise of chronic disease.

Two major reasons for surging health insurance premiums in Australia are our ageing population and the rise of chronic disease. The Australian Institute of Health and Welfare (AIHW) reports that by 2053, 21% of the population (8.3 million of us) will be aged 65 and over and 4.2% will be aged 85 and over (1.6 million).

These figures are based on Australian Bureau of Statistics (ABS) medium-level growth assumptions.

Chronic diseases like diabetes are increasing across the globe in all age groups, but some diseases are consistently more prevalent in the older demographic, including heart, stroke and vascular diseases, hypertensive disease, arthritis, osteoporosis and many others.

The combination of changing health lifestyles and an ageing nation puts tremendous pressure on existing medical services across Australia.[i]

The relationship between an ageing population and health costs is complex but will certainly have major implications for everyone’s future in this country – this PDF from the Australian Institute of health and Welfare goes into more detail.

Some spending categories cost more than others – especially hospitals, medical services/primary care (including Medicare) and pharmaceuticals. But what is clear is that, overall, we are accessing healthcare more often and those services, while improving in quality, are also increasing in price.

Spending more on health is to be expected in a prosperous, first-world economy – and it’s not necessarily a bad thing. With extra costs come extra benefits. Australia has high life-expectancy rates and a standard of healthcare well above many other nations.

As medical technology progresses, we’ll enjoy better treatment in the future too. However, these improvements have a flow-on effect on insurance providers, resulting in higher premiums for consumers.

While it’s important to be aware of the average price increase nationwide, it’s what it means for your specific policy that is the real question: Before the 1st of April, your health fund is required to inform you in writing about how much your premiums will rise.

This handy table will give you an idea of where various individual Aussie health funds are placed in relation to the 3.95% average rise announced for 2018.ii

Not all health insurers are the same

Private health insurance allows you to choose who treats you, when and where.

It’s become increasingly clear to the federal government that the status quo for Australian healthcare is far from perfect or even sustainable, yet major cuts to health funding can have serious and far-reaching consequences.

While there’s not much you can do about the overall annual rises in health fund premiums, there’s plenty you can do to reduce your personal health insurance costs — and that’s by comparing the market.

While on the surface there may appear to be little separating the different health funds, you’re likely to find incentives for switching to another insurance provider if you dig a little deeper.

Many insurers offer incentives for switching to another insurance provider, such as discounts for signing up online, policy add-ons, bonus deals, extra services and referrals.

If you’re looking to buy private health insurance for the first time, now is the right time: Unexpected illnesses and injuries can happen to anyone at any time and private health insurance can give you the ability of choose your doctor and hospital and help you avoid public hospital queues.

Health insurance can also assist in payments for specialist medical services like dentists, chiropractors, podiatrists, physiotherapists and optometrists, which are generally not covered by Medicare.

Ways to reduce your healthcare costs

One of the ways to reduce your healthcare costs is to pay your annual insurance premium before April 1 to avoid potential price hikes for 12 months.

Keeping yourself healthy is by far the easiest way to beat the rising costs of healthcare, as so many of the current burdens on our national health system are caused by diseases and conditions that could be prevented by simply adopting healthier lifestyle choices.

Australia’s health system is highly accessible, but often the most difficult part of preventative health is making the time to visit your doctor. However, by being checked sooner rather than later, you can potentially save a considerable sum in treatment costs by catching a problem early.

In some cases, a rapid diagnosis might even save your life.

When assessing which private health insurance policy is right for you, there are some important points to consider. An insurer’s FAQs web page and member guide are good places to start for information about what you will be covered for and, just as importantly, what you won’t be.

An insurer’s FAQs web page and member guide are good places to start when assessing which private health insurance policy is right for you. If you’re looking for a new insurance provider in order to reduce costs, questions to consider include:

  • How long have they been in business?
  • What independent industry awards have they won?
  • What is their complaints record like?
  • How many testimonials from happy customers have they received?
  • The Australian Private Health Insurance Ombudsman also provides useful annual reports on providers, to help you make a more informed decision.

Other ways to reduce your health care costs with your current healthcare provider include:

  • Pre-pay your annual premium upfront before 1 April to avoid potential price hikes for 12 months.
  • Assess your level of cover — you may be paying for more than you need for your stage of life or circumstance.
  • Ask if your provider offers discounts for direct debit payments.

Always read the member guide thoroughly so you know what’s covered and what isn’t – this will prevent surprises when it’s time to make an insurance claim. And if you’re looking for great (and super-competitive) health insurance, be sure to get a quote from Budget Direct.

[i] https://www.choice.com.au/money/insurance/health/articles/health-premium-hikes-on-the-horizon-131115

[ii] https://www.aihw.gov.au/getmedia/19dbc591-b1ef-4485-80ce-029ff66d6930/6_9-health-ageing.pdf.aspx

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