Millions of Australians are being overcharged for private health insurance as companies exploit a loophole that circumvents government regulations on premium increases. A report from the Commonwealth Ombudsman reveals the widespread use of a practice called “product phoenixing,” which allows insurers to raise costs for certain customers while avoiding scrutiny.
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How Insurers Exploit the System
Under Australian law, private health insurers can only raise their premiums once a year, and each increase must be approved by the federal health minister. However, some insurers have found a way to bypass these rules.
Product phoenixing involves insurers discontinuing a policy for new customers and replacing it with a nearly identical product at a higher price. Existing customers often remain unaware of the shift, while new policyholders face inflated premiums and fees.
The Financial Impact
According to an analysis, the average new customer is paying:
- $38 more per month in premiums.
- $184 more in excess fees.
This practice disproportionately affects customers of “gold” tier insurance policies, which typically cover maternity, mental health care, and other comprehensive services.
Government and Industry Responses
Health Minister Mark Butler’s Criticism
Health Minister Mark Butler has condemned the practice as a “sleight of hand” and accused insurers of undermining consumer choice and trust.
“It is clearly against the spirit of the law and an underhanded, largely secret way of raising prices,” Butler stated. “If two members of the same fund with essentially the same product are paying prices that differ by 20 per cent, you have to call that price gouging.”
Butler warned insurers to clean up their practices, stating that failure to address the issue could result in legislative action.
Industry’s Defense
Private Healthcare Australia, the peak industry body, acknowledged the government’s concerns but cited challenges in maintaining affordable policies amidst rising healthcare costs and an aging population.
“When health funds cancel products, it is usually because those products are making a loss,” the organization said. “More expensive policies reflect the underlying cost of healthcare, which increases every year in an inflationary environment.”
Wider Implications for Australia’s Health System
Impact on Hospitals
The revelations have drawn sharp criticism from the Australian Private Hospitals Association (APHA). CEO Brett Heffernan accused insurers of breaking their commitment to fully fund members’ care while amassing significant profits.
“Insurance companies are gouging their members like they gouge hospitals,” Heffernan said. “Public waiting lists are ballooning, and private hospitals are closing because insurers are not fulfilling their obligations.”
Taxpayer Support and Accountability
Butler highlighted that health insurers operate with substantial taxpayer support, including the private health insurance rebate. He warned that such exploitative practices threaten the industry’s “social license.”
“They need to respect that social license, and this sort of practice damages it,” he said.
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What’s Next for Health Insurance in Australia?
The government is closely monitoring the situation and has indicated a willingness to intervene if insurers fail to change their practices. In the meantime, consumers are encouraged to:
- Review Policies Annually: Ensure your policy still meets your needs and compare prices.
- Shop Around: Look for better deals across different insurers.
- Ask Questions: Clarify if your policy has been discontinued and whether you’ve been automatically shifted to a more expensive option.
The ombudsman’s report and Minister Butler’s strong stance against product phoenixing signal a potential turning point for health insurance regulation in Australia. Whether through voluntary reform or legislative action, the aim is to restore fairness and transparency to an industry critical to Australians’ well-being.
Final Thought
With millions affected by hidden premium hikes, the need for accountability and reform in the private health insurance sector has never been more urgent.
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