Fewer than 40% of the population will be covered by private health insurance by 2030 unless significant reforms are made, according to a report from public policy thinktank the Grattan Institute.
The report, led by health economist Stephen Duckett, recommended partially deregulating premiums, with insurers free to charge younger people less than older people for the same level of cover. It also said premiums should remain regulated and should not vary by age for those aged over 55.
The recommendations come after data from the Australian Prudential Regulation Authority (APRA) found the number of Australians with basic hospital cover has fallen to a 12-year low. Less than half the population (44.2%) of Australians have basic insurance cover.
The number of young people with private health insurance dropped by 28,000 people in the 12 months to June 30, according to APRA.
Mr Duckett said this is because young people are spending more money on private hospital insurance but getting less value for money.
“Rising premiums and unexpected out-of-pocket costs have diminished the value of private health insurance for many Australians, especially the young and healthy,” Mr Duckett said.
“Many people, particularly younger people, are dropping cover entirely. As younger and healthier people drop private health insurance, premiums have to rise for the remaining members, which drives even more young and healthy people to leave.
“The industry faces a demographic death spiral as costs for older people rise and younger people leave.”
Currently, health insurers must charge everyone young and old, sick and healthy, the same insurance premium under the ‘community rating’ principle. By abolishing the community rating for members under the age of 55, Grattan says health insurers will be able to reduce premiums for younger customers.
“Community rating is one of the underlying causes of the recent youth exodus from private health insurance,” the report said.
“Community rating exists to ensure that younger, healthier people cross-subsidise older, sicker people. This necessarily makes health insurance a less attractive proposition for the young and healthy. Community rating was designed to facilitate access to private health insurance for everyone – it is now effectively deterring younger people from taking out insurance.
“If the private health insurance industry carries on with business as usual, premiums will keep rising, younger people will continue to drop out, and community rating will become unsustainable.”
Despite insurers currently offering 10% discounts for 18 to 29-year olds on their hospital insurance premiums, the report said this hadn’t been effective.
“Since April 2019, insurers have been permitted to offer people aged 18-29 discounts of up to 10% on their hospital insurance premiums… There was no evidence in its first quarter of operation that this policy had reduced the youth exodus from health insurance. It is unlikely the discount will be enough to induce young people to buy a product that they consider poor value for money,” the report said.
The report proposed a number of other reforms, including redirecting the private hospital insurance rebate towards older patients. It also called for the government to resist calls to increase the rebate, scrap the rebate on extras and ‘junk’ policies, and withdraw the rebate from low coverage policies.