Ageing, tech costs drive premiums

20/11/2019 - 09:43

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HBF chief executive John Van Der Wielen said the costs of medical technology and an ageing population are driving up health insurance premiums, as debate intensifies over sector reforms and how to keep price rises in check.

Ageing, tech costs drive premiums
John Van Der Wielen says the issue is how to incentivise young people to stay in health funds. Photo: Attila Csaszar

HBF chief argues fuller coverage and increased incentives for younger Australians could fix the private health industry’s issues.

HBF chief executive John Van Der Wielen said the costs of medical technology and an ageing population are driving up health insurance premiums, as debate intensifies over sector reforms and how to keep price rises in check.

Those comments came as the Australian Medical Association’s recent report card on private health insurance argues that increasing premiums are the result of younger individuals leaving the market.

The report said premiums were increasing at an average rate of 3 to 5 per cent per annum, against average national wage growth of just 2 per cent.

AMA president Tony Bartone said that was leading many younger people to forgo private insurance, leaving an increasingly older, higher-claiming population to drive up premiums.

“As the insured population continues to age, the likelihood of requiring hospital treatment rises,” Mr Bartone said.

“This generates higher claims and exerts upward pressure on premiums, exacerbating this issue further.”

Mr Van Der Wielen acknowledged that premiums had increased relative to wage growth, but said the increase was in large part due to the increasing cost of medical technology.

“Because technology is driving up cost, the level of inflation runs higher than many other industries,” he told Business News.

While he conceded that older claimers had also driven up premiums, Mr Van Der Wielen said this was unavoidable given how private health insurers in Australia calculated risk when setting premiums.

Unlike other forms of insurance, Australia uses a lifetime community rating to set premiums, which means everyone pays the same rate for the same policy, regardless of their individual risk.

As the general population grows older though, people are more likely to make claims to insurers, with premiums for everyone increasing as a result.

“This is not unique to Australia,” he said.

“The minute the population becomes older, there are more older members than there are younger members, and again, premium rates go up.”

The federal government’s reforms to industry regulation introduced in April have tried to address this issue by permitting insurers to offer a maximum 10 per cent discount off premiums to people under the age of 30.

The effectiveness of that policy has been debatable though, with 7,804 fewer people between the age of 20 and 24 with hospital cover as of June 2019, according to the Australian Prudential Regulatory Authority.

In August, The Grattan Institute recommended Australia set premiums by individual risk to make private health insurance more attractive to younger buyers.

“It’s time to consider a bold option to encourage young people to stay in private health insurance, which reduces their premium costs based on their likelihood of getting sick,” the institute’s health program director Stephen Duckett said.

Australia should begin setting premiums by individual risk, Dr Duckett said.

He proposed a new rating be phased in for people under the age of 30, with people under the age of 25 offered premiums set by individual risk before being transitioned into paying community rated premiums at age 30.

Mr Van Der Wielen argued that a blended rating was not viable, because equalising risk for only a certain group of people would prevent the community rating from working as intended.

He noted that if premiums were to be determined by age or health factors, as Dr Duckett proposed, younger and healthier people would buy private health insurance while unhealthier or older people, faced with much higher premiums, would be more likely to use the public system.

That, he said, was not sustainable.

“Australia has a very good health system, and it’s utter nonsense that private health insurance is in a death spiral,” he said.

“If you risk rate, that means all people with diabetes, obesity or mental health problems will pay five times the cost of someone who is healthy.

“I think the issue is how we incentivise young people to stay in the funds.”

Mr Van Der Wielen suggested tax credits or fuller coverage as a solution, while also flagging the for-profit model as itself in need of reform.

“I would stop allowing the listed insurers from making large profit margins, so I would set a maximum margin of profit on younger age groups,” he said.

HBF, which is the second largest not for profit based on revenue in WA according to BNiQ, had an average premium increase of 1.94 per cent in the year to April 2019.

Mr Van Der Wielen said a key factor in keeping premium increases low was the group’s investment strategy, which has become more conservative.

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