What’s The Deal With Private Health Insurance?

What’s The Deal With Private Health Insurance?

There’s a strong policy agenda for young Australians to engage with private health insurance, but what do young people actually think about it? Gina asked her mates and found out there’s a big disconnect between policy reform and the people that it affects: young people!

We’re lucky in Australia with our public healthcare system—it was recently ranked second-best in the developed world. However, our private healthcare system sure is lagging behind.

Recent industry reforms pushed for policies that leverage young people’s participation to improve private healthcare’s offering to members. And as of April 2019, private health insurers can offer age-based discounts for young people aged 18 to 29.

Nonetheless, early data shows that young people continue to be disengaged with Australia’s private healthcare system. So I went out and asked some of them what they think of it.

Firstly, what is it?

Like many developed nations, Australia has a pretty comprehensive healthcare system made up of two major parts.

There’s the public health system, which covers access to public and community services such as hospitals and affiliated health organisations, general practitioners (GPs) and some specialist services. This means Australians can access a range of healthcare services for free or reduced cost. This is funded through Medicare, which is funded by tax.

Then there’s the second part, the private health system (think BUPA, Medibank, NIB and the like). This involves privately-owned and managed health service providers, and includes hospitals, GPs, specialists and pharmacies. These services are funded through a number of means, the key ones being private health insurance premiums (that’s the premiums paid by customers), people paying directly for private health care treatment, and government incentives. Private health insurance companies are supported and represented by peak industry body, Private Healthcare Australia.

What are young people saying about private health insurance?

Young man, 27, Canberra:

“It’s bogus! The coverage provided by private health insurance is so useless—you pay so much for services you don’t really need, but when it comes to the services you do need, you still need to fork your own money out! It doesn’t make any sense.”

Young woman, 24, regional NSW:

“I genuinely have no thoughts or have never even thought about it—we’ve got a pretty good system here with Medicare, do we even need private health insurance?”

Young man, 23, Melbourne:

“I don’t know much at all… I’ve always had great treatment with private cover as I’m included within my parent’s cover, but obviously, my parents pay quite a fair bit for it and I’m not sure I would pull out the money for it myself.”

Young woman, 25, Sydney:

“I think it depends on what health services so you need access to…I calculated that taking on private health insurance was more cost-effective for my prescription glasses and specific eye treatments but otherwise I wouldn’t pay for it. I’ll probably cancel my private health insurance once I’m done with my eye treatments, because it’s a lot of money for not that much at all.”

While this is only a small sample of insights, it’s clear that there’s a disconnect between policy reform and the actual people it’s supposed to be for.

So what’s with the policy push for young people?

Private health insurance operates within a co-dependent system, so unlike most types of insurance (which are usually risk-based), private health insurance pricing is predominantly based on community rating. This means that insurers are supposed to charge all users the same premium (price) for the same product (the private health insurance). The idea is that higher-risk people can take out private health insurance at a reasonable cost because lower-risk people are subsidising their costs by contributing more than they would be expected to use.

The sustainability of the system is reliant on a broad membership base—the fewer members there are, the higher premiums rise, creating a cyclical dependency on membership numbers.

Unsurprisingly, lower-risk people such as the young and healthy are less likely to take on private health insurance. And the numbers sure show this—the 20-29 age group comprise the smallest age bracket of general private health insurance holders. Less than 600,000 young Australians aged 25-29 have general private health coverage while over 900,000 Australians aged 35-39 have coverage.

With less young members than ever before, the Australian private health insurance industry sought reforms to specifically target young people.
In an effort to flip the policy on itself, a bundle of major industry reforms such as age-based discounts were made available for young people. This reform was seen as being beneficial not just to young people but also the wider community because increasing youth participation increases membership, which is meant to drive premiums down.

These reforms came in response to industry experts highlighting concerns over the ”death spiral”, that is, rising costs for members and declining participation by healthier, younger people in the private health system.

Cool, discounts. But did it work?

Despite the attempts to lure young members, early data from the Australian Prudential Regulation Authority (APRA), the body that supervises insurance institutions, actually found a decrease in the number of young people insured with private health since the youth discounts were implemented. By June 2019, roughly 28,000 fewer young people aged 20-29 were insured with private health than at June 2018, when 1.25 million young Australians were insured.

While this is preliminary data, it’s one indicator, among many other factors that affect our earnings and spending, that Australia’s private health insurance isn’t working for young people. 

If lowering the prices hasn’t got young people on board, what will? Do they need to? Tell us what you think – email newsroom@fya.org.au.