Health Insurers Seek Significant Premium Hike, Adding Pressure on Labor Government

Private health insurers are gearing up to request the Albanese government for a premium increase that could be double the amount granted this year. This presents a fresh political challenge for Labor ahead of a federal election likely to focus on cost-of-living concerns.

Although formal submissions are expected in early November, sources familiar with the discussions suggest insurers will seek a rise between 5 and 6 per cent, effective from April. This would mark the most significant premium hike since 2016, further intensifying the financial strain on households grappling with rising living expenses.

Several major private health insurers have already submitted their early cost projections, outlining the increased funds they anticipate needing to cover private hospital payments and medical treatments next year.

NIB's chief executive, Mark Fitzgibbon, highlighted the long-term trend of claims inflation, noting that it has consistently ranged between 4 and 6 per cent. “In the longer run, claims inflation will likely stay within this range, which aligns with the past 24 years, where claims have grown at an average of 5.5 per cent annually," Fitzgibbon said.

He emphasized that premium hikes face constant scrutiny but are necessary for financial stability. “Ultimately, we have to account for claims inflation like any insurer because if you don’t, eventually you go out of business,” Fitzgibbon added.

Any decision to raise private health insurance premiums must receive approval from Health Minister Mark Butler. Last year, the political sensitivity of this decision was underscored when the premium announcement was delayed until after the Dunkley by-election.

A recent Australian Financial Review/Freshwater Strategy poll highlighted that cost-of-living concerns dominate the political landscape. 74% of voters identified them as a key issue. Health also ranked high, with 27% considering it a priority for the government.

Last year, Mr. Butler approved an increase of about half of what health insurers had requested. However, insurers argue that with rising treatment costs and an uptick in surgeries, premiums should return to pre-COVID-19 levels. The Australian Prudential Regulation Authority (APRA) monitors the costs of healthcare services and insurer revenues, ensuring that any premium increases align with the financial reality of providing care.

With a federal election expected by May, industry experts suggest Mr Butler will likely be cautious about approving a significant hike. Increases are typically announced between December and March, but industry insiders anticipate intense scrutiny of this year’s proposals.

“There will be huge pressure on Butler to keep increases in the two to three per cent range, but without some control over healthcare expenditures, APRA won’t allow that,” said Rachel David, CEO of Private Healthcare Australia, representing major insurers.

Premium increases have remained low in recent years. In April 2023, premiums rose by an average of 3.03% despite insurers pushing for double that. Similarly, in 2022, the increase was 2.7%; in 2021, it was 2.9%. The last time premiums rose above 5% was in 2016 when they jumped by 5.59%.

Private hospitals have criticized health insurers for seeking significant premium increases, accusing them of profiteering. Brett Heffernan, CEO of the Australian Private Hospitals Association, said, "The health insurance industry’s rapacious profiteering over the last two years has laid bare the real agenda. The idea that they are concerned about members’ premiums while seeking higher premiums and failing to cover hospital care costs is obscene.”

For patients facing hospital stays, navigating the healthcare system can be daunting. Many turn to hospital accommodation guides, which provide valuable information about available services, accommodation options, and support resources, ensuring patients and their families can find suitable lodging during treatment. These guides help patients understand their options and facilitate a smoother experience during a stressful time.

Industry analysts predict the government will be wary of approving an increase above 3%. Terry Barnes, a health policy consultant and former advisor to the Howard government, noted, “The government will be very nervous about anything more than 2-3%. This year will see the government scrutinizing applications closely this year.”

Insurers have reported a 0.7% drop in premium revenue, equivalent to $52 million, in the six months to June 2024, suggesting that many members are downgrading their coverage due to cost-of-living pressures. Private Healthcare Australia said more than 216,000 policies were downgraded, marking a 35% increase compared to the previous year.

The health insurance industry is now paying members 88 cents in the dollar for claims, returning to pre-pandemic levels. Despite these financial challenges, the push for significant premium hikes continues to clash with political and public concerns over affordability.