National Seniors (NS) is calling for the introduction of a superannuation-style performance test for private health insurance, saying insurers need to justify large premium increases amid the cost-of-living crisis.
NS says that although they are two different industries, they share many commonalities such as both being subject to Australian Prudential Regulation Authority (APRA) regulation, being supported and encouraged by the government and receiving special tax concessions.
They also both have a significant impact on the quality of life enjoyed by older Australians, and NS says its research shows many are not happy with their insurers, mainly citing increasing premiums and decreasing value.
“For several years the superannuation industry has had its investment performance and fees closely investigated by the industry regulator, and underperformers named,” says NS in its proposal.
“This has led to some underperformers closing and members shifting to better funds.”
NS believes a similar test for health insurance would yield similar results, with poorly performing funds forced to either alter their products or leave the market completely. But how would it work? First, you need to know how the superannuation performance test works.
How the superannuation performance test works
First introduced in 2021, the performance test analyses the annual results of hundreds of default MySuper products, assessing them on returns and fees. If a super product fails to meet certain benchmarks, APRA warns the super fund that it must improve performance.
If a product fails to pass the test two years in a row, then it is forbidden from taking on any new members.
The test has had results, too. In 2021, 13 super products failed to meet APRA’s standard and were warned by the regulator. In 2022’s test, only five products failed – four of which were for the second time and therefore had to close to new members – which shows the majority of flagging products turned themselves around.
NS believes a similar system for health insurance could be a boon for everybody, but particularly for older Australians.
How would a health insurance performance test work?
Clearly, the superannuation performance test can’t just be copy and pasted onto the health insurance industry. They are different products, with different goals.
While both can be measured on factors such as fees charged, superannuation’s goal is to take fees in return for growing your money. The goal of health insurance is to take fees from everyone and then carefully manage the payment of benefits so the general pool of money isn’t lost.
NS says new APRA guidelines should be developed around benefits paid, management expenses incurred and complaints received and dealt with.
“Some of these measures are related,” NS says.
“Higher management fees leave less to pay out in benefits. The aim would not be to target particular levels, but rather to improve efficiency and outcomes for consumers.”
For this to happen, NS says the government would need to grant additional powers to APRA, which would not be a step too far as the government has control over health insurance in other areas.
“The government already has some control over private health price increases, with the health minister approving premium increases,” it said.
“Introducing a performance test for private health insurers would put a spotlight on disparate costs and benefits that flow on to people with insurance, but which are currently difficult to track and compare across the funds.”
Would you support a performance test for health insurance products? What other industries could use a performance test? Let us know in the comments section below.
Also read: Why older Australians should think twice before dumping their private health insurance
