It's just days before many health insurance companies like Medibank Private Limited (ASX: MPL) and NIB Holdings Limited (ASX: NHF) begin applying their annual premium increases, with many Australians expected to exit the private health insurance (PHI) sector as a result.
Premiums are expected to rise by around $200 a year for a family and around $100 a year for singles from April 1, according to news.com.au. Australians with PHI were hit with an average increase of $185 a year last year.
Bupa's Top Hospital with $250 excess is rising by 8.5% while Medibank's combined package for families is rising by nearly 10% according to news.com.au.
Almost half of all health fund members plan to shop around according to a survey commissioned by online comparison website iSelect Ltd (ASX: ISU). Another 530,000 Australians told the survey they plan to ditch their health insurance premiums, which could exacerbate the rising pressure on Australia's public health care system. Families and couples who have hospitals only or extras only cover are the most likely to quit according to the survey.
A survey by iSelect in December 2015 found that one in six Australians were so upset by their health insurance they changed their health fund and that more than one in four had considered dropping their health cover in 2015. Of the 28% of Australians considering dropping their health cover, 65% stated it was 'to save money'.
Health funds have warned the government that it will soon be cheaper to pay the tax penalty for not having private health insurance for many Australians. A Medicare levy surcharge of up to 1.5% of your adjusted taxable income is payable if an individual doesn't have private health insurance. But as the following chart shows, PHI participation rates are strongly influenced by affordability, and insurance premiums have been growing at a faster rate than claims for many years. A number of Australians now report that health insurance now ranks in their top 3 weekly expenses – which is likely to see many question their value.
The biggest problem for most Australians is that despite a number of comparison PHI websites and a free government comparison website, comparing health funds is still extremely complex – which is probably how they like it and meaning customers are less likely to switch funds.
Even worse, is that comparison websites charge a commission for signing up new members, with Compare the Market reporting that it charges 27.3% commission on the first year's premium. With some top level policies heading towards an annual cost of over $10,000, that's a significant cost to customers.
Health funds then need to recover those charges, meaning premiums are higher than they really should be.
In a recent report, the Australian Medical Association (AMA) also raised concerns as to whether these sites actually provide people with the best information that leads to them getting the best policy. Many don't cover every insurer or every type of policy available, and they may also receive financial inducements from the health funds, despite promoting themselves as 'free services'.
If you want truly independent advice on private health policies, head to www.privatehealth.gov.au.
Foolish takeaway
Both NIB and Medibank rank low when it comes to paying out on a number of selected procedures, suggesting Australians may be better off switching to a not-for-profit health fund.
