How The Insurance Premiums & Rate Rises Affect You

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Health insurance premiums are rising. Find out why and how the increase will impact you so you get the best out of your insurance.

Private health insurance premiums rise annually, leaving some Australians wondering where all their money is going and questioning the true value of health cover.

In light of these rises in premiums, we’ve put together the following guide to help you understand what drives these rate rises and your options if you’re considering switching policies or ditching your private health insurance altogether.

What is the 2020 health insurance premium rate rise?

Health insurance premiums typically increase from the 1st of April each year. Some health funds increase their premiums more than others. The 2020 average premium percentage rate increase announced by the Federal Health Minister was 2.92%.

If the 2020 insurance premium rise has left you contemplating whether you can continue to afford private health insurance, understanding your options may help you find a better value policy. By comparing funds, you may find a more affordable health cover that still meets your needs. Why not skip ahead and get started with an online quote right now?

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Our comparison tool allows you to compare a range of options from over 15 not-for-profit health funds in just a few minutes.

Why do private health insurance premiums increase?

The premium rate rise generally covers the increased costs and variations of insurance services and claims. The rising costs of medical treatments and technology also influences the changes in premiums. Additional factors leading to the increase in premiums can include rises in doctors’ fees, wages for hospital staff, and theatre costs.

While health funds maintain reserves to cover unexpected increases in the costs of benefits, this can only assist the insurer temporarily. If there is an ongoing increase in these costs, they must increase their income by raising member premiums to remain financially viable.

How much do the premiums rise by?

The exact health insurance increase will vary from fund to fund. The rate will also depend on the type of private health insurance policy you hold. The lowest average premium increase in 2020 will be 1.98%. The highest average rate rise for 2020 will be 5.63%.

If your premium increases, your health fund provider will notify you in writing. You’ll receive an update to your policy along with any other additional information about the recent change. In the event your premium rate increase was higher than the 2020 average, your health fund has to demonstrate that the increase in necessary to cover the benefits of your policy.

What does the health insurance rise mean for me?

The 2020 health insurance premium increase will no doubt hit the pocket of many Australians. That’s why it’s important to make sure you’re getting the most value from your current health fund and research new policies regularly.

The amount your policy premiums changed in 2020 will depend on your insurer and the type of cover. The Health Minister Media Release dated 7 December 2019 highlights the following premium average price increase:

Singles can expect to pay an additional $35 per year in premiums.
Families can expect to pay an additional $103 per year in premiums.

How are health insurance premiums calculated?

Health insurance premiums are based on the Private Health Insurance Community Rating System. This system ensures that “everyone pays the same premium for their health insurance and health funds are prevented from discriminating against members based on health status, age or claims history.”

This is not the case with other forms of cover, such as car insurance or life insurance.

Health insurance premiums are calculated using the following criteria:

The type of cover

Whether you choose singles, couples, or family health cover will influence your premiums. Singles cover is typically the most affordable as there is only one person insured. Family cover on the other hand, tends to be the most expensive. This is because kids can be covered under the family policy until the age of 25. Couples cover generally falls in the middle.

The level of cover

The more comprehensive your policy is, the higher the cost of your annual premiums.

Your address

The amount you pay in premiums will vary from state to state. The premiums are also based on the demographics for each state.

Your income

Depending on your income, the private health insurance rebate will adjust your premium. Your family and marital status as well as your age are additional factors. The rebate can potentially reduce your premiums by more than a third.

Lifetime Health Cover loading

If you’re paying a Lifetime Health Cover Loading because you took out your cover after the 30th of June following your 31st birthday, you’ll be paying higher premiums than someone who took out cover when they were younger. Once you’ve paid the loading for 10 years, it will be removed.

Your choice of private health insurance fund may affect how these criteria influences your premiums. For example, one fund may offer greater value and a higher level of cover with singles policies. Another fund may offer more competitive premiums for families.

How can I avoid paying the health insurance rate rise?

Depending on your health fund, you may be able to choose to pay your annual premium in advance before the rate rise.

This gives you the opportunity to lock in your premium at the previous year’s premium rate. This could potentially result in savings as you won’t be required to pay the higher premium until the policy expires. It is important to note that not every fund will increase their premiums annually. Some policy premiums could actually decrease and others may remain the same.

The best way to avoid paying expensive premiums is to find a great value health insurance policy. Compare your current policy against new policies to make sure you’re getting the most value from your provider at a price you’re happy to pay. If not, it might be time to switch!

With our online comparison tool, we can help you compare a range of funds to find a policy that suits your needs. Making the switch could potentially see you paying even less and enjoying more benefits than your current policy offers.

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How can I lock in my premium?

Some private health insurance members choose to ‘lock in’ their premiums before the rate rise comes into effect in April. This means you lock in your premium at the current rate, delaying having to pay any increase for up to 12 months.

To be eligible to do so you need to process your annual premium payment before 1st April. It’s worth remembering, processing funds by the bank can take up to 6 days. Leaving it too late could see you miss the deadline to lock in your premiums.

Where does the money of my premiums go?

You’re probably wondering where all that money you spend on annual premiums ends up.

This will largely depend on your health insurer but the majority of premiums paid will end up being indirectly paid back to the fund’s members through benefits for hospital and extras cover. Hospitals, doctors and medical practitioners will also receive some of the premiums paid.

The amount the fund retains in profits or puts towards the cost of operating the fund again depends on the individual insurer.

We, for example, are not-for-profit health insurers where any profits retained are reinvested to give improve services and member benefits.
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While the rising premiums are influenced by the increase in health-related costs, it is also partially due to the fact Australian’s are claiming more in health insurance benefits than ever before.

According to the Australian Prudential Regulation Authority, in the December 2016 quarter there were 1.15 million hospital treatments claimed on private health insurance. The usage of public hospitals increased by over 6% in 2016 and private hospital usage increased by more than 3% in the same year.

The increase in Australian’s claiming on their insurance may be due to the private health insurance rebate encouraging more people to take out cover. There is also an increase in the number of older Australians with a private health insurance policy as more people want to avoid the lengthy public waiting list.

How does the 2020 private health insurance increase compare to previous years?

Private health insurance premiums have increased by 54.6% since 2010.

The below table shows the annual average increase over the last ten years.

Year Of Premium Rise
Avg Rate Rise Percent (%)
2020
2.92%
2019
3.25%
2018
3.95%
2017
4.84%
2016
5.59%
2015
6.18%
2014
6.20%
2013
5.60%
2012
5.06%
2011
5.56%
2010
5.78%
Total
54.6%

* Industry average updated 19 December 2019

How does my 2017 premium increase compare with other insurers?

Interested to know how your health fund premium increase compares with the rest of the insurers? The Department of Health lists the average of premium increases by insurer by year for the last ten years here.

It’s important to note, these percentages are an average and the premium for your individual policy may be above or below the fund’s average.

What happens if I keep the same health insurance policy for several years?

It’s not uncommon to hear people staying with the same policy for several years, sometimes even longer. They feel their policy covers them for what they need and it’s unnecessary to compare funds. Unfortunately, by doing so, many people end up paying higher premiums every year for the same level of cover.

Take a look at this scenario:

You took out a family health insurance policy in January 2017 and haven’t changed anything about the policy since. Your annual premiums at the time were $2,600. In April 2017, these payments increased by an average 4.84% and your annual bill rose to $2,726. Your level of cover remained the same.

In 2018, your premiums increased by 3.95% and you paid $2,834. In 2019, your premiums increased again by the average of 3.25% and you now had to pay $2,926. The 2020 increase of 2.92% saw your annual premiums rise to $3,011. So, you’re now paying over $400 more for the same level of cover.

In that four-year period, health cover benefits are likely to have expanded and the range of policy options increased. Discounts and incentives would have been offered to help make funds more appealing and policies more affordable. Instead of paying $400 extra for no additional benefits, you could have secured a higher level of cover of greater value.

If you haven’t reviewed your health insurance policy in the last 12 months, it’s worth doing so before April 1. Reassess your health needs and get to know what you’re exactly paying for to ensure your health cover brings you value.

What are my options now with private health cover?

Feeling the pinch from the 2020 health insurance premium increase? It’s time you considered your options so you can still maintain your private health cover.

Your current health fund may be able to offer you a different private health insurance policy that’s more affordable and still meets your needs. Alternatively, you could compare the benefits of another fund.

Compare these against your existing policy and consider whether you need the same level of cover or expand the coverage to better suit your needs.

If you have hospital cover, most funds can offer more affordable options if you’re prepared to pay a higher excess or co-payment towards the cost of any future hospital treatments. If you have extras cover, you may decide to reduce some of the benefits that you don’t use to reduce your annual premiums.

Before you switch to more affordable cover, make sure you’ve taken the time to understand the range of member benefits the policy offers.

You also want to read the fine print of any conditions or restrictions before signing on the dotted line.

If you think it’s time to consider your health options, all you need to do is compare policies to find the best cover for you. With our comparison tool you can compare a range of hospital, extras, combined and ambulance cover in just a few minutes from health funds. Finding the right private health insurance policy that suits your budget and needs couldn’t be any easier!

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Who needs cover?

Single Male Single Female Couple Family Family (Single Parent)
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If you have any questions or queries with your health cover or premiums, we have friendly staff who are all health insurance experts. You can call one of our team on 1300 806 119