The biggest private health insurance price hike this year was 45% for an extras policy in the ACT and NSW, well above the 3.95% average increase. It applies to Super Extras with St.LukesHealth and translates to an up to $800 premium increase for this policy (for a family before the rebate).
"Although premiums on some of the smaller funds are among the biggest increases, they might still be good value for money at a time when BUPA and HBF among others are cutting benefits," says CHOICE head of media Tom Godfrey.
"In the case of St.Lukes, which recorded the biggest percentage price increase in NSW, it's important not to discount it, particularly in its home state of Tasmania where the increase was only 4.5%," says Godfrey.
Other funds also recorded increases of up to 30%, but some policies became significantly cheaper or kept their premium at the same price. BUPA and Medibank both recorded increases on at least one of their policies of up to 6% in some states.
Why do premiums vary in different states?
The reason St.Lukes' premium increased by so much in the ACT and NSW is that St.Lukes is based in Tasmania and their policies traditionally were priced the same in all states.
However, this year St.Lukes changed the price of its Super Extras product to reflect the differing costs in different states. The premium went up by 45% in the ACT and NSW, 35% in Victoria, 20.1% in QLD and WA, 12.5% in SA and the NT, and 4.5% in Tasmania.
St.Lukes' closest competitor, Tasmanian-based Health Care Insurance, also changed to state-based pricing and increased the price of its Premier Extras product by 30% in all states except Tasmania, where it went up by 5.1%. Both policies pay a high level of benefits and were previous CHOICE recommendations for comprehensive extras cover.
Most health funds charge higher prices for their policies in Victoria, ACT, NSW and Queensland, whereas, for example, Northern Territory and Western Australia customers often pay lower premiums.
The cost to health insurers to provide services in different states varies, depending on the number of services members are using, the mix between private and public hospital use, and the cost of healthcare service providers such as hospitals and doctors, and extras service providers such as dentists or physiotherapists.
"We have this year introduced pricing based on the customer's state of residence, which reflects the costs of providing our product in that state," says St.LukesHealth CEO Paul Lupo.
"We have found members in NSW and Victoria are accessing services more often and, as a result, the overall benefit paid to members is much higher.
"The change to state-based pricing provides our overall membership with a level of fairness so that they are paying a premium that is relevant to where they reside and are not subsidising other markets."
Other reasons why premium increases may be significantly higher or lower than the average include:
- a policy had a below-average premium increase last year and is now playing 'catch-up'
- costs were higher than expected
- an insurer wants to compete in a new market and reduces premiums for that state.
Average premium increases by fund
Health insurance more expensive in real terms
Health Minister Greg Hunt previously confirmed the premium increase of 3.95% on average, although some funds have had price hikes as high as 8.9% on average.
"Every dollar matters to families, which is why we introduced a billion-dollar change and reduction in medical costs through better deals for medical devices and earlier access for families and patients," he says.
However, a 3.95% increase means the average cost of a single-person top hospital policy will increase from $2020 to $2100 before the rebate discount. With couples and family policies typically costing twice as much, a family might find themselves spending around $158 a year more on hospital cover.
Despite being low by historical standards, this year's premium hike is twice the rate of general inflation, raising concerns that private health insurance is being priced out of the reach of many Australians.
"This latest increase will mean private health insurance customers have
been hit with a 70% cumulative price hike since 2008, forcing many to
downgrade or drop their private health insurance," says CHOICE head of
media Tom Godfrey.
"Notwithstanding the barrage of fear-laden advertising from health insurers
and for-profit switching sites, private cover is unaffordable and often
unnecessary for many consumers."
While premiums have increased by 70% in the last decade, the Consumer Price
Index (CPI) grew only 26%.
Rebate cuts mean consumers pay even more
Compounding the price pressure were simultaneous cuts to the
government's private health insurance rebate. The rebate amount goes down
if the average premium increase is greater than CPI growth – which it is
every year. The rebate amount for under 65s earning less than $90,000 (or
$180,000 as a couple) was reduced from 25.9% to about 25.4%.
With premium increases at one end and a rebate cut at the other, the cost
of the average policy actually increased by 4.7%. When the annual cuts
to the rebate are factored in, the real cost of health insurance has grown
82% in the last decade.
CHOICE to Health Minister: Put junk insurance in the bin
Rising insurance costs are driving many consumers to seek out low-cost policies that offer little in the way of actual cover. While most policies cover the majority of treatments and may come with some exclusions, these 'junk' policies do the reverse, covering as few as 10 treatments and excluding everything else. Other junk policies will only treat patients in public hospitals, raising questions about their worth as a 'private' hospital insurance policy.
"Consumers are often unaware that their junk policy excludes the vast majority of treatments until its too late," says Mr Godfrey. "These extremely limited policies do not reduce strain on the public healthcare system. The government should remove the rebate from junk policies which do not provide value to the individuals who purchase them or to the Australian taxpayer who subsidises them."
We believe it's time for the government to force insurers to give clearer information about the policies they sell. "If you're deciding to go private, it pays to be aware of exactly what you're getting in terms of cost, coverage and value for money," says Mr Godfrey. "That's why we are also calling on the federal government to simplify policy information, making it easier for consumers to find a better value policy that meets their needs."
Health insurance saving tips
Consider increasing your excess to reduce your premium.
See if your health fund offers discounts for paying by direct debit.
Ask yourself if you really need
extras cover: if the amount you claim is lower than your premium, consider dropping it.
Check to see if you can join a
restricted membership health fund.
Pay your annual premium in March to put off the April 1 price hike until next year.
- Take the Do I Need Health Insurance? health check to see if there's any tax benefit to paying for hospital cover.
Read our health insurance buying guide for more information, or see our independent health insurance reviews to compare policies.