PM&C: Broad membership to ensure sustainability

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Attracting more younger Australians to private health insurance is essential to ensure the sustainability of community rating and current benefit levels according to an analysis by the Department of the Prime Minister and Cabinet.

The analysis was included in a regulatory impact statement developed in response to the raft of reforms to the industry announced by health minister Greg Hunt in October last year.

The reforms included the introduction of a discount of people aged under 30, price reductions to medical devices, the introduction of product categories (Gold/Silver/Bronze), an extension in coverage for mental health services and the development of standardised clinical terminology.

According to the impact statement, the aim of the reforms is to mitigate the recent trend of a decline in private health insurance participation, particularly in younger age groups, maintaining overall membership at 55 percent of the population and above, and limit annual premium increases to below 4 percent.

It says the sustainability of the industry, its ability to maintain current benefit levels and the system of community rating, requires the retention of a broad membership base.

It notes the decline in membership for the 20-24 and 25-29 age groups and the fact that two-thirds of the population aged under 50 have been born or reached adulthood under Medicare.

"Many people in this age group regard health insurance as a supplement rather than a necessity, and they are therefore more likely to respond negatively to increasing premiums," it says.

On the proposed premium discount for people aged under 30, it says, "Encouraging more young people to take out private health insurance will benefit everyone."

"Without a broad membership base, premiums would need to increase to cover the cost of insuring higher risk consumers who maintain their health insurance," it says, pointing to the impact of community rating.

Under community rating insurers are prohibited from discriminating between people who wish to be insured on the basis of their health or likelihood to claim.

"Under community rating, everyone is entitled to buy the same product, at the same price (except for Lifetime Health Cover) and an insurer cannot refuse to insure an individual," it says.

"By requiring that the premium paid for a person’s chosen health insurance product, and the cover available under that product, are the same regardless of the health or demographic characteristics of the individual seeking coverage community rating imposes a cross-subsidy from low risk to high risk policy holders.

"Community rating prohibits insurers from discriminating on the basis of past or likely future health or risk factors such as age, preexisting condition, gender, race or lifestyle in the premiums that they charge. Although community rating means that people who are older or sicker do not have to pay higher premiums commensurate with their risk, it also means that younger and healthier people pay more than they otherwise would."