Officials 'confident' of reform impact

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The Department of Health says it is “very confident” the package of reforms announced by health minister Greg Hunt last year will help address cost increases contributing to higher private health insurance premiums.

In response to questions at the recent Senate Estimates hearing, senior officials said they could not guarantee the magnitude of future premium increases but pointed to recent comments by APRA’s Geoff Summerhayes regarding the drivers of increases.

According to Mr Summerhayes, "The underlying cost of Australia’s health system is the ailment; rising insurance premiums are just a symptom. Specifically, the fundamental forces pushing premiums up are higher claims costs experienced by insurers, through such factors as a greater uptake of medical services among policyholders and the rising cost of treatments and procedures."

Under questioning on low-cost policies, often euphemistically referred to as ‘junk’ policies because they provide minimal benefits, officials said government decided to retain four tiers for the categorisation of policies - gold, silver, bronze and basic – to ensure maximum choice.

“The low-cost products play a very important part in the overall insurance market,” said one senior official.

“The low-cost products enable people to make a judgement about their own level of risk, often at a time when they are younger or where their financial circumstances would allow them to make a proper risk-based choice to opt for lower-cost products.

“It keeps them in the private health insurance system and enables them to avoid lifetime health cover levies, which would apply if they did not have compliant policies in place before they were aged 30. It gives them an entry point and then they are able to make informed choices about increasing their level of cover.

“And the way that they're able to make informed choices is by having consistent product classifications across those three tiers. The basic products also contribute to the risk pool.”

They added the premiums related to low-cost policies contribute to a “price-dampening effect” across the entire insured population.

Research by Deloitte, which was commissioned by a private health ministerial council, found removing low-cost policies would result in a 16 per cent across-the-board increase in premiums.

“So they actually play a very, very important role. And that's why the government have decided to retain a four-tier rather than a three-tier product classification arrangement,” said the official.