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Australians are shelling out hundreds of dollars more for their health insurance as companies exploit a loophole that allows them to increase costs for some customers.
Private health insurers are only allowed to raise their premiums once a year, and any increase must be approved by the federal health minister.
But a report by the Commonwealth Ombudsman revealed that some companies are getting around this through a practice known as “product phoenixing”.
This includes terminating a policy for new customers and starting an almost identical one at a higher price.
Millions of Australians have fallen victim to secret premium hikes from insurers, with the average new customer paying $38 more each month in premiums and $184 more in surcharges, according to one analysis.
Health Minister Mark Butler called the practice a “sleight of hand” that made it difficult for customers to switch from insurer to insurer, limiting their choice.
“This is clearly against the spirit of the law and is a sneaky, largely secret way for health insurers to raise their prices,” he told reporters in Canberra on Monday.
“If two members of an existing fund with essentially the same product are paying prices that may be 20 percent different … you have to describe that as overpricing.”
This was particularly prevalent in ‘gold’ level insurance policies, which are typically used by those wanting to access services such as maternity and mental health care.
In one example, an insurer closed existing gold policies before opening essentially identical ones in 2023. at prices 21 percent higher than the average premium of the old policy.
The insurer repeated the practice in 2024 when it launched a product that was 14 percent more expensive.
For some, the revelations are not unexpected.
“Is anyone surprised that insurance companies are eating their members like they are eating hospitals?” Australian Private Hospitals Association chief executive Brett Heffernan said.
“That’s enough.
“It’s time for the federal health minister to tackle the hospital crisis burning around him.”
Heffernan says insurers have made billions in profits and missed hospitals while public waiting lists swell and private hospitals close because insurance companies “break their pact” to fully fund members’ care.
Butler said health insurers operate with significant support from taxpayers – both from member contributions and the private health insurance rebate through billions in taxes.
He called on the industry to clean up its act or face the consequences.
“They have to respect that social license, and this kind of practice hurts that,” Butler said.
“I want to give them a chance to do the right thing, but that chance won’t be open forever.
“If there is no clear indication of a change in practice by the insurance companies, then I will take legislative action.”
Leading industry body Private Healthcare Australia has pledged to work with the government to investigate its problems, but noted it is difficult to provide affordable products as the population ages and inflation rises.
“When health funds cancel products, it is usually because those products are making a loss,” it said in a statement.
“When more expensive policies are created, the pricing reflects the underlying costs of health care, which increase each year in an inflationary environment.”
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