The start of the new year prompts many of us to do a bit of life administration. Whether it's the result of New Year's resolutions or the need to pay off holiday-induced debt, this is a good time to get your financial affairs in order.
For many of us, this includes having a look at our private health insurance.
There's a reason that health insurance is a key household budget issue. Health insurance premiums have increased by 66% in the past decade, far outstripping the rate of inflation. You might expect that to mean that we're getting more in return but that's clearly not the case. More and more people are being hit with bills for unexpected costs that aren't covered by insurance.
The natural response is to look for a better deal but with more than 48,000 health insurance policies in the market – all with different pricing, inclusions, exclusions and tricky terms – it's nigh on impossible to compare them.
One option is to simply opt out – given that Australia has a strong public health system, supported by Medicare, not everyone needs private insurance. But there are powerful forces working to persuade us otherwise.
The government subsidises insurance through a rebate to most people with insurance. It also requires high-income earners who don't have insurance to pay an additional Medicare surcharge – a financial penalty for not being insured. And if you delay taking out insurance until later in life, you pay higher premiums.
But these interventions create distortions. People in many regional areas end up paying for private insurance despite the fact that they have little or no access to the private health system. And many people simply buy 'junk' policies that offer protection from the penalties for having no insurance but provide next to no useful cover.
The government has responded to this mess by requiring insurers to rank policies as 'gold', 'silver' or 'bronze', starting from this year. But there will still be big variations between the policies in each category, so we fear that this will do little to reduce confusion.
CHOICE believes it's time for a much bigger review of the system by a body like the Productivity Commission. This should examine whether the private health insurance system is providing good value for money for individual consumers and for the community as a whole.
This is an industry supported by massive public subsidies, along with penalties that push people to take out insurance, even if they may not need it. Any industry that enjoys that degree of public support should be working for the public good. And there's no way we can say that's the case now.
Alan Kirkland, CHOICE CEO