Introduction by Croakey: The phoenix is an immortal bird with a long and colourful history in mythology, and is also known for making an appearance in poetry and literature over the centuries.
“Associated with the sun, a phoenix obtains new life by rising from the ashes of its predecessor,” says its Wikpedia entry. “Some legends say it dies in a show of flames and combustion, while others that it simply dies and decomposes before being born again.”
As Charles Maskell-Knight reports below, the phoenix has more recently been re-born as an instrument of the private health insurance industry, with some dubious consequences that require policy attention.
Charles Maskell-Knight writes:
The private health sector has been in the news a number of times this year, with reports on issues including spinal cord stimulators, which cause more problems than they solve, allegations of fraudulent billing by medical specialists, and a number of contract disputes between private health insurers and private hospitals.
The most recent issue relates to the measurement of private health insurance premium increases – a pertinent issue given the annual premium increase approval process is in full swing.
On 9 December, the Commonwealth Ombudsman released a statement on the practice reported earlier in the year by Choice of private health insurers “closing cheaper Gold-tier policies to new customers and releasing very similar Gold policies for new customers that were much more expensive”.
The Ombudsman reported that the data held by his office confirmed that this practice was taking place, and that the effect was “that if a new customer wants to buy a Gold policy from that insurer, or an existing customer wants to upgrade their policy to Gold level, they will pay a significantly higher premium compared with policy holders on the very similar old policy (which had a premium increase approved by the Minister)”.
Cue outrage from all involved in the private health sector (other than the insurers), including the Australian Private Hospitals Association and the Medical Technology Association of Australia, condemning the practice which is now described as “product phoenixing”.
Health Minister Mark Butler issued a statement saying “insurers are putting a new name on the same policy, with a higher price tag”.
“It’s a cheap trick that makes your health insurance more expensive, and it’s got to stop,” he said. “Let me be clear: we will be monitoring this closely. If insurers don’t stop this practice immediately, then I will force them to stop.”
However, the point about this practice is not that insurers are getting money they wouldn’t otherwise get. If they didn’t raise the additional revenue from “new” more expensive policies, they would apply for higher increases for existing policies – and after some ritual huffing and puffing, they would get virtually everything they asked for.
The point is that the practice allows insurers and the Government to report a lower average premium increase than they otherwise would – with a public relations benefit to both sides.
The other point about the practice is that it is not illegal under the current Act, and there is no provision to make legislative instruments outlawing it. As Butler said in a media conference, legislative change will be required to stop the practice.
Butler also revealed that he had considered insurers’ initial requests for premium increases to apply from 1 April next year, and had responded to all insurers asking them to come back with lower increases.
However, this round of huffing and puffing will be more difficult, as it is likely that the initial requests submitted by insurers were artificially deflated by product phoenixing.
Diversionary tactics
Private Healthcare Australia (PHA), the private health insurance lobby group, responded to the issue with a statement trying to divert the blame to the regulatory requirement to classify insurance products as gold, silver, bronze and basic.
PHA promised to “work with the Federal Government to address problems with Gold cover”, arguing that the “rigid ‘Gold, Silver, Bronze, Basic’ tiering of products introduced by the former government in 2020” has contributed to the problem of ensuring the affordability of Gold products.
The tiering system was introduced in response to consumer bewilderment at a market containing tens of thousands of health insurance products, and was intended to assist consumers to compare products.
Far from being “rigid”, the system allows “Silver plus” and “Bronze plus” products, as a result of insurers’ lobbying.
When the system was developed, actuarial analysis showed that about 45 percent of existing policies were effectively Gold and covered everything; 45 percent were Basic (aka “junk” policies) covering hardly anything; and only 10 percent were in the middle.
It is not unreasonable for the Government to require insurers to offer a comprehensive product, and describe it in a common way so that customers can compare the cost.
Of course, people will buy that product because they want comprehensive health insurance. And as a result, that product will be relatively expensive.
However, that does not justify hiding the premium increases required to ensure the products are sustainable by constantly closing existing products and creating near identical new ones.
The PHA statement also notes that “since 2020, health insurance premium rises approved by the Federal Government have consistently been under inflation”.
While that is true, the point is that product phoenixing has resulted in an artificial lowering of the measured premium increases.
Claiming your income is low is not a credible defence against allegations of tax avoidance.
And of course, the regular shutdowns of elective surgery during 2020-22 means that the volume of hospital services paid for by insurers decreased.
PHA concluded its statement by saying that it would raise the need for an urgent review of the product tiering system in the Private Health CEO Forum appointed by Health Minister Mark Butler to examine options to improve the viability of our private health system.
As I have written previously, such a forum is highly unlikely to agree on anything except the date for the next meeting.
Australia is one of only two countries with a system of voluntary community rated private health insurance. As this depends on young people choosing to pay actuarially unfair premiums to support the claims of older people, it is fundamentally unstable.
Until the Government bites the bullet and decides whether insurance should be voluntary and risk rated, or compulsory and community rated, playing around with product tiering will not effect substantive improvement.
Author details
Charles Maskell-Knight PSM was a senior public servant in the Commonwealth Department of Health for over 25 years before retiring in 2021. He worked as a senior adviser to the Aged Care Royal Commission in 2019-20. He is a member of Croakey Health Media and author of The Zap column. Follow on X/Twitter at @CharlesAndrewMK, and on Bluesky at: @charlesmk.bsky.social.
See Croakey’s archive of articles on private health insurance
