Health insurance price spikes – who’s to blame?

As they do every year in line with federal government legislation, health insurance premiums rose in April. The size of the increase varied by insurer, but most customers copped a rise that exceeded the inflation rate. Insurers justify the increases by citing spiralling costs, particularly in the private hospital system.

Are those justifications genuine? Not everyone thinks so, and an analysis of health insurance profits suggests the scepticism is well-founded. That analysis, published last week, shows insurance industry after-tax profits jumped to $2.2 billion in the 2022-23 financial year. That’s roughly double the sector’s profit in the previous year.

One healthcare provider, Catholic Health Australia (CHA), is pointing the finger squarely at insurers – especially the big ones. CHA argues the huge profits posted by brands like Medibank, Bupa and NIB come at the expense of healthcare outcomes.

Private hospital advocates say rising costs have driven the sector to breaking point. Director of health policy at CHA Australia Katharine Bassett says the effect has been devastating. “Over the past five years we’ve seen over 70 private hospital services close,” she said. “It has a huge impact on communities and puts the burden onto the public hospital system.”

Health insurance premiums – big insurers versus small

Does the data back up Dr Bassett’s claims? Consumer advocate CHOICE examined price increases in detail after they were announced in March. It found all three of the aforementioned three major companies – Medibank, Bupa and NIB – raised premiums by above-average amounts.

The industry average premium increase was 3.03 per cent. Medibank’s increase was 3.31 per cent, Bupa’s was 3.61 per cent and NIB’s premiums rose by an average of 4.01 per cent. Only the Commonwealth Bank’s employee focused funds – CBHS Health Fund and CBHS Corporate Health – raised premiums by more than NIB.

Some insurers have argued that the leading  factor in the rise in health insurance premiums is private hospitals running inefficiently. The counterargument is that insurers have driven an increase in what are called ‘gap payment rates’. That’s the difference between what a patient pays and what hospitals get back from insurers.

University of Technology Sydney Associate Professor Nathan Kettlewell explained the widening health insurance price gap. “There’s an increase in the number of policies that are being sold that have exclusions and so don’t cover all the procedures that have occurred in private hospitals,” he said.

“That means patients going into the private system are paying an increasing amount out of pocket or the hospital has to adjust its costs.”

Dr Bassett says the top insurers are not shouldering enough of the burden. “We want insurers to be giving more back,” she said. CHA has argued that just 83 per cent of revenue from premiums is being returned to patients. This falls short of a 90 per cent standard set by the industry in partnership with regulators.

“We want that funding to flow from insurers into hospitals,” Dr Bassett said.

What can be done about the widening gap?

Health minister Mark Butler has launched a review of the sector with findings due in the near future. However, any action taken as a result of the review is unlikely to come into effect in a hurry. 

At this stage, then, it’s probably best to invoke the old adage: “The Lord helps those who help themselves.” Such is the volatility of health insurance prices, your best bet at getting the best price is probably to ‘do your own research’.

Fortunately, comparison sites such as Compare Club help make that task easier than it might otherwise be. 

Did your health insurance premiums rise significantly this year? Do you think the increase was justified? Let us know via the comments section below.

Also read: Health insurance complaints spike

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