Health Minister Mark Butler is urging an investigation into private health insurers for “product phoenixing,” which involves closing existing policies and reopening similar ones at higher prices, thereby raising premiums without regulatory approval. Despite previous warnings from Butler, this practice has persisted, contributing to significant financial strains for consumers.
Health Minister Mark Butler has called for an urgent investigation into private health funds exploiting a regulatory loophole known as “product phoenixing.” This practice involves health insurers closing existing policies and reopening similar ones at significantly higher prices, essentially allowing them to increase premiums without regulatory approval. The Commonwealth Ombudsman highlighted this practice in a December report, describing it as widespread and anti-competitive, as it discourages consumers from exploring better deals.
Butler has expressed strong discontent over this practice, labeling it as “sneaky” and “price gouging.” He has previously warned health insurers that he would take legislative action if they didn’t cease these actions. However, despite these warnings, product phoenixing has persisted. A recent analysis by consumer group Choice revealed that HCF, one of the major health funds, closed its gold level cover for new customers and reopened it at an average price increase of 35%. Specifically, a single person in New South Wales was paying $343 monthly for the old policy, which rose to $456 for the new one that also bundled extras cover. As a result of these changes, consumers seeking top-tier hospital coverage are now required to also purchase extras, which further complicates their insurance choices.
Butler emphasized that he would not tolerate such tactics and expects a prompt resolution to the issue. The Commonwealth Ombudsman affirmed that they are monitoring product phoenixing through ongoing complaints but noted a lack of recent grievances related to the matter since their last report. Meanwhile, Shadow Health Minister Anne Ruston criticized the government’s inaction, stating that product phoenixing adds to the financial strain on Australian households, especially during times of economic hardship. She pointed out that millions of Australians with private health insurance are facing premium increases greater than inflation, which is a significant concern.
HCF responded to the criticism by stating that they had to change their offerings due to “sustainability challenges” associated with gold-tier policies. According to them, it was unfair to have the majority of members subsidizing the premiums of a small percentage of gold members. They argued that their decision was a balance between sustainability, affordability, and the needs of their members. Critics, however, claimed that this justified placing the cost burden on new customers while existing customers were not incentivized to consider alternatives.
Private Healthcare Australia, representing health funds, defended the practice of closing products as being necessary when they are consistently unprofitable. They asserted that health insurers cannot allow loss-making products to remain indefinitely, according to regulations set by the Australian Prudential Regulation Authority (APRA). Furthermore, they maintained that price increases reflect the actual costs of healthcare, which have been rising in an inflationary climate. The backdrop to this controversy includes the annual approval of premium increases by the government, effective on April 1 each year.
This year, the government approved a 3.73% increase, which is the average across all policies offered by each fund. However, those who hold high-tier policies often face hikes of 8 to 13% while customers with lower-tier plans may see increases of only 1 to 2% or even decreases in their premiums. Choice’s analysis revealed disparities in premium rises across policy levels; basic cover premiums would rise by an average of 0.8%, bronze by 2.5%, silver by 3.2%, and gold policies would face near 12.6% hikes.
Experts, including Stephen Duckett from the University of Melbourne, criticized the private health insurance sector, describing it as a “game of smoke and mirrors.” He pointed out that the government must take a firm stance against practices that exploit consumers, advocating for clarity in premium increase regulations.
For individuals like HCF customer Judi Giddings, the rising premiums directly affect their financial situation. At 73 years old, Giddings reported struggling to afford her health insurance and was compelled to continue working to meet her premium payments. In her search for more affordable options, she found a slightly cheaper policy with another insurer that also offered better benefits, highlighting the difficulty many face in navigating the complexities of private health insurance.
In summary, the ongoing issue of product phoenixing within private health insurance highlights significant challenges for consumers in Australia, particularly as families grapple with rising costs amid economic pressures. Health Minister Mark Butler’s investigation and the broader debate around transparency, competition, and consumer protection underscore the critical need for reforms to safeguard the interests of Australians reliant on private health coverage. The scrutiny of practices that burden consumers should propel further discussions and potential legislative action to ensure fair and equitable access to healthcare.
