Why Do Private Health Insurance Premiums Increase Every Year?


Unfortunately this year in November a lot of the Australian funds will increase their premiums. Which means everyday Aussies will get hurt in the hip pocket a lot more. So we thought we would check out Private Healthcare Australia why they do increase every year. Of course, every increase means it’s a great opportunity to remind yourself to do a health insurance comparison and the easiest way to do a private health insurance comparison is through Billy Explores.

Essentially, the Government has said that there will be an increase in premiums every year. This is to make sure that funds stay financially stable, meet statutory prudential requirements, and, most importantly, continue to give members access to good medical care by covering the rising costs of healthcare services. Most Australians know that if they want more benefits paid out on their behalf, they have to pay more. But before they pay more, as mentioned it’s best to do a health insurance comparison and Billy Explores is the easiest way to do a private health insurance comparison.

Reasons Why Premiums Go Up

As part of the plan to make the process of setting premiums more clear, the main reasons why premiums are going up across the industry will be made public. This is also to distinguish more the differences between Medicare and private health insurance.

At an industry level, the main reasons for the level of the premium increases are current and expected increases in the amount of benefits paid out. This includes the fact that treatments and services are getting more expensive (especially because of technology and higher provider and contracting costs) and that more people are using them.

Other reasons insurers gave for raising rates were:

  • Maintaining long-term viability, which includes having enough nett margins for underwriting and enough capital to meet prudential standards and pay out benefits;
  • Taking on the higher costs that come with an ageing membership base; and
  • Payments to the risk equalisation pool are getting more expensive.
  • How well private health insurance companies do
  • Even though investments and other business returns that aren’t related to health have gotten better over the past year, it’s expected that growth in benefits and use of privately insured services will be much higher than this year’s average premium increase.

In Australia, most private health insurers have small profit margins. Gross margin is the difference between total contribution income and total cost of benefits, which includes state levies. The nett margin is equal to the gross margin minus the costs of running the business.

For the 12 months ending on March 31, 2012, the weighed industry average nett margin is expected to be 3.92 %. Net margins are expected to be higher on average for larger insurers and insurers that are in it for the money. The average nett margins that larger insurers expect are 4.08%, while smaller insurers expect 3.38%. Average nett margins are expected to be 5.78% for insurers that want to make money, and 2.01% for insurers that don’t want to make money.

In the past few years, benefits paid out by private health insurers have grown a lot. In 2015, private health insurers gave their members more than $18.35 billion in benefits, which is more than the year before ($17.35 billion). About 86% of all the premiums that members pay go to the benefits they get. Benefits are expected to keep growing for a while. For the 12 months ending on March 31, 2012, benefit payments are expected to rise by 9.45% on average across the industry. Most insurers think that the total amount paid out in benefits will go up by between 8% and 14%.

Information From Private Health Insurance Companies

Changes in premiums for private health insurance must be approved by the Minister for Health and Ageing (section 66-10 of the Private Health Insurance Act 2007). Changes to premiums can be both increases and decreases.

When applying for a premium, private health insurers must give a lot of information to back up their claims. A “approved form” must be used to give this information (section 66-10 of the Private Health Insurance Act 2007).

Evaluation of Applications

The Minister for Health and Ageing, the Department of Health and Ageing, and the Private Health Insurance Administration Council all look over all applications (PHIAC). It is common for PHIAC to send some applications to the Australian Government Actuary (AGA) for a second, independent look (eg. five largest insurers).

Premium increases must be approved unless they are not in the public’s best interest (section 66-10 of the Private Health Insurance Act 2007). The Minister doesn’t think it’s in the public interest for premiums to go up unless they’re the bare minimum needed to keep insurers solvent, pay for benefits, and meet prudential standards for capital adequacy, all while keeping private health insurance affordable and valuable as a product.

What the Minister doesn’t say, and what Billy Explores would like to add, is that the best way to keep premiums the best value for everyday Aussies is to compare health insurance in Australia! Imagine if the Government was vocal in telling Aussies to get the best value health insurance for their needs (of course – we would also love for them to say to do the private health insurance comparison through Billy Explores).

When Premium Increases Happen

With an annual premium round and a consistent date for when premium increases take effect, consumers know when and by how much their premiums will go up. It also lets all private health insurers’ applications be reviewed at the same time to make sure that everything is done consistently and on time.

So make a note of when to get started on your private health insurance comparison. You can also compare hospital cover in Australia and do an extras insurance comparison as part of your private health insurance comparison. So get started on your health insurance comparison today!

Health Insurance Comparison – How To Do A Private Health Insurance Comparison

Not sure how to get started on your health insurance comparison? Well thankfully Billy Explores is here to help you! It’s so easy to start your private health insurance comparison… just click here. You will be able to explore potential savings and save time and effort, just by doing your private health insurance comparison through Billy Explores. Let’s get started on your health insurance comparison!