I warned repeatedly that Australia’s private health insurance system is facing a ‘death spiral’ as young and healthy people (the so-called “invincibles”) continue to leave system, pushed-out by rising costs, thus leaving a larger proportion of unhealthier, older, expensive users.
If this process continues, it will force premium up further, leading to a further exodus of the invicibles, and so on.
Now, the Grattan Institute’s Stephen Duckett warns that the future of private health insurance is looking bleak as rising premiums force younger members to drop their coverage:
Premiums are rising and people are dropping their cover, especially the young and the healthy.
Those who are left are more likely to need health care, which drives insurance costs up further. About 100,000 fewer Australians have private hospital cover today than a year ago.
Private health insurance in Australia faces a reckoning. Labor has promised that if it wins the May 18 federal election it will order a comprehensive Productivity Commission review of the private health sector. The Coalition should match that promise.
Rising costs per person have placed private health insurers under increasing pressure. Premiums have risen faster than inflation, and more people are downgrading their cover by opting for products with deductions and exclusions.
The age divide is ominous. The number of people covered by private health insurance has declined in every age group up to age 60. This drop is biggest among 20-39-year-olds.
Meanwhile, the number of people with private health insurance is rising for every age group over 60, particularly among 70-79-year-olds. There are almost 100,000 fewer 20-39-year-olds and 360,000 more people over 60 insured now than five years ago…
Australia’s “community rating” rules require insurers to charge all people the same premium regardless of age. It’s a vicious cycle. The young and healthy (low users of health services) cross-subsidise the old and sick (high users of health services), which makes health insurance more attractive to the elderly and less attractive to the young.
As the cross-subsidy from young to old increases, private health insurance becomes increasingly poor value for younger Australians. Their rational response is to downgrade their cover or opt out completely.
One thing that immediately comes to mind when pondering this issue is that Labor’s idiotic plan to uncap visas allowing migrants to bring their elderly parents into Australia will very likely worsen the private health insurance ‘death spiral’. This is because it will burden the system with potentially hundreds of thousands of elderly people with high health needs, requiring cross-subsidisation from younger Australians and forcing-up premiums even further.
The elderly migrants will also place greater pressure on health care professionals – both private and public – whose training is paid for, to a large extent, by Australian taxpayers.
