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Private Health Insurance: why does it keep costing more?
Every year around this time the Government of the day announces that they have allowed Private Health Insurance Funds to increase their premiums. Everyone is unhappy about it. The Government “regrets the need”, and reassures the public that they have done their best to keep a lid on the rises. The 50% of the public who are covered by Private Health Insurance wonder anew whether it is worth setting money aside for, and the Funds themselves hope that the increase does not cause an exodus from their client base.
So if it causes so much unhappiness to all concerned, why is it done? Why cannot the Funds simply be content with the premium income they have, or why cannot the Government simply say no to another increase.
Just like the Health Service itself, the answer is complex.
At the simplest level, the Government is obliged to ensure that the Funds maintain sufficient reserves to be able to meet the claims their members make. This amount is effectively that left over from premium income, once all claims have been satisfied, and is a form of reassurance to the public that claims will continue to be paid in the future. The Health Funds are, after all, just another form of insurance, and no-one would contemplate an insurance company that doesn't maintain a reasonable surplus.
Unlike most insurances, however, Private Health Insurance is not allowed to set a different price for those who represent a higher “risk” (i.e. more likely to make a claim). “Community rating” lumps us all together, and averages out our “risk”.
This has a direct impact on health care, since we as a general population get older and live longer, putting upward pressure on the costs involved in keeping us well. In a recent report by State and Territory Health Ministers, it was pointed out that the health system was designed for people with short-term illnesses, but is increasingly having to look after those with chronic, long-term illnesses1“Caring for our Health?” June2007. This has led to costs to the individual rising 5% a year, over and above the level of inflation.
Another form of upward pressure on costs is the increasing sophistication of the technology involved in both diagnosis and treatment. While we all want to be given the best possible care, and use the latest and most effective methods available, these are investments whose costs need to be covered.
While it is likely that the April increases will continue to be part of the fabric of Private Health Insurance cover, other measures can be taken to keep household costs under control. One is to make sure that your family's cover closely matches your lifestyle, and likely requirements. This can best be achieved by comparison engines such as www.moneytime.com.au, that explain the options available, and allow you to compare different products, alongside each other.