On April 1, health insurance premiums rose across the board by an average of 5.56 per cent. The increase happens every year, while the percentage that premiums increase by differs. This year’s increase, according to research by iSelect, equates to around five million baskets of groceries or eight million tanks of petrol. It would also be enough to buy groceries for 100,000 families for a year. In individual dollar terms it works out to an average annual increase in premiums of $190 per family.
So last week I did a number of radio interviews, talking about the increase and suggesting ways that consumers can try to reduce their personal cost while making sure that they have appropriate cover. And one question that I was asked (fortunately off-air, because it took me aback a little) was whether I thought it was fair that everyone – regardless of size or health – paid the same premium.
It’s a version of a question that I’ve been asked a number of times: Should health insurance should be medically underwritten. In other words, should the overweight, underweight, smokers and otherwise-unhealthy among us be paying more for their health insurance? The crux of the reasoning, of course, being that the healthy consumers in the population are paying more than their fair share of premiums. And that’s not fair, right?
So – given that premiums have just risen I thought it might be timely to mention how health insurance premiums are calculated and how – if you’re a fit and healthy person – you can partially avoid paying more than your biologically fair share.
First up, medical underwriting is not something that health funds in Australia are currently allowed to do. Under the Private Health Insurance Act 2007, a health insurance fund cannot refuse you health insurance or charge you more for it based on your health or how often you’re likely to claim.
With the exception of the Lifetime Healthcover bonus, health insurance is “community rated”, whereby the health of the community overall is calculated and the resulting average is applied to everyone. What that means is that a non-drinking, non-smoking, fit and healthy 30 year-old will pay the same premium for the same product as a morbidly obese, chain smoking 30 year-old.
This is in direct contrast to most life, total and permanent disability, income protection and trauma insurance covers (except for the industry ones taken out through super funds). For most other personal insurances, applicants are medically assessed and premiums are set (or denied) accordingly.
So when it comes to health insurance, is it fair on the healthy person to be paying a higher premium than their personal situation warrants? Probably not. But is it fair on the unhealthy person to be otherwise barred from having private health cover, or charged an unaffordable premium? Probably not.
Taking fairness out of it (seeing as it’s a lose/lose situation) it comes down to economics, marketing and consumer choice – and the key to making sure that you’re not paying more than you need to for health insurance is exercising your consumer choice.
The thing is, there are 39 health fund providers in the market. And there are more than 20,000 different products. In the absence of medical underwriting, health funds have created multitudes of different health insurance products, designed to appeal to demographically different groups of people.
Each of these products is priced differently, depending on how much income is being received (in the form of premium payments) compared to how much the fund reckons it’s going to cost them to pay the health bills of the members. So – a product that’s targeted at a young, fit demographic (for example, some products rebate gym memberships) is probably going to be better value if – well – if you’re fit.
You can see a detailed explanation of how premiums are calculated here.
According to research released by iSelect, 80 per cent of us want a better deal on our health insurance – but only 43 per cent of us know what we’re covered for in the first place. Yet there is so much choice out there!
You can exclude certain conditions from your hospital cover, can choose the level of excess you want to pay and can decide what extras you do and don’t want to insure for. It really is a situation where a little bit of research and shopping around could save you some dollars.
[Posted by Justine Davies in 'The Punch'- http://www.thepunch.com.au]
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