How the Australian Government regulates private health insurance

How the Australian Government regulates private health insurers

In Australia, private health insurers are regulated by the Commonwealth Government.

If a corporation wants to register as a private health insurer, it must apply to the Australian Prudential Regulation Authority (APRA) to become registered.

As part of this process, the applicant must submit a business plan that includes financial projections (specifically, a detailed budget statement and proposed premium changes for the first three years of operation).

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How the Australian Government regulates private health insurance prices

The Australian Government does not only regulate health insurers. It also regulates the health insurance prices.

In Australia, private health insurers can only change their prices once a year. 

Before they can increase or decrease their prices, they must apply to the Australian Government. 

They also must provide supporting evidence explaining why the change is appropriate.

The process for private health insurers to apply to the Australian Government for permission to change their prices involves 10 stages:

Stage 1: The Australian Department of Health releases the application form for private health insurers to apply for price increases for their products (August or September).

Stage 2: Private health insurers submit annual returns to the regulator – APRA (September).

Stage 3: APRA familiarises itself with the issues and challenges including conducting an annual risk assessment and financial analysis (October). During this process, APRA examines all information from the insurers, the industry and the broader financial sector. It undertakes a full financial analysis, including meeting with each insurer to discuss how they are managing their risks (pricing, capital strategy, current issues).

Stage 4: Private health insurers submit applications to increase their premiums (usually in November for price increases they want to implement on 1 April the following year).

Stage 5: APRA assesses all applications to ensure that the requested increases are justified (November).

Stage 6: APRA refers all applications to the Minister of Health and advises on the implications of each private health insurer’s application to change premiums (December). It advises whether denying the request could mean that an insurers may be unable to:

• meet its promises to policy holders
• pay claims
• sustain its business over the long term.

The Minister must approve an application unless it is not in the public interest.

Stage 7: The Minister announces the approved price changes (usually in December).

Stage 8: Private health insurers must notify the policyholders of approved premium price changes. They must give enough notice so the policyholder can change insurers and/or policies if they want to.

Stage 9: The private health insurers can introduce the price changes on 1 April of the following year.

Stage 10: If the Minister approves the proposed price change, the private health insurer must notify the Private Health Insurance Ombudsman:
a. The premium that applied before the approval
b. The premium that applies after the approval.

The private health insurer must notify the Private Health Insurance Ombudsman about the change either by 1 February or 20 days after the Minister approved the change (whichever date is later). Any changes to the price are described as a percentage of the current premium.

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How the Australian Government makes information about policy rules and prices available to consumers

The Australian Government makes information about policy rules and prices available to consumers through a document called a Private Health Information Statements (PHIS).

What is a PHIS?

A PHIS is a document that outlines the features of a health insurance policy for:

• Hospital Cover
• Extras Cover
• Combined Hospital and Extras Cover.

A PHIS must also include the premium before the Private Health Insurance Rebate, Age-based Discount and Lifetime Health Cover Loading. This is because the way these affect the price of a policy depends on the policy holders’ individual circumstances.

The idea is that a PHIS allows a consumer to compare policies.

Private health insurers must provide an up-to-date PHIS to both consumers and the Australian Government

For policy holders

A private health insurer must give an up-to-date PHIS to every adult policy holder:

• when they take out the policy for the first time
• every 12 months
• if they change the rules of the policy.

For the Australian Government

A private health insurer must give the Secretary of the Australian Department of Health and the Private Health Insurance Ombudsman a PHIS for:

• new products (on the first day when the insurer makes the product available)
• updated products (as soon as practicable after the statement is updated).

In addition, a private health insurer must notify these government bodies if it changes rules under any PHIS (other than changes approved by the Minister under Section 66-10: Minister’s approval of premiums because there is already a process for this).

The price a consumer ends up paying for a private health insurance policy may vary from the price quoted in the PHIS

There are three distinct reasons why the price a policy holder actually pays may vary from the price in the PHIS.

First, it depends whether the person can claim the:

• Private Health Insurance Rebate
• Age-based Discount
• Lifetime Health Cover Loading.

Second, occasionally, prices may vary for policies in the same ‘product’ depending on the type of group insured. Where a product covers 2 or more people that include a dependent non-student or a dependent person with a disability, the policy may cost more. For example:

• Family A includes two adults and two dependants. One dependant is a non-student dependent and the other has a disability. Their insurer can charge them more than a family with dependent students for Family Health Insurance.
• Family B includes two adults and two dependants. Both dependants are students. Neither of them has a disability. Their insurer can charge them less than Family A for Family Health Insurance

Finally, insurers can offer discounts of up to 12% if it is available for every policy in the product:

• If you pay a premium at least 3 months in advance.
• If you pay a premium as part of a payroll deduction.
• If you pay a premium by pre-arranged automatic transfer from an account at a bank or other financial institution.
• If you agree to communicate with the insurer via electronic means
• You are treated as belonging to a contribution group
• You do not have to pay a levy under a law of a state or territory
• A promotion (discount, service, waiver or other thing) offered in the first year after the person purchases a policy.

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How the Australian Government make the PHIS data available to the public

The website at www.privatehealth.gov.au, managed by the Private Health Insurance Ombudsman, “provides the PHIS for every insurance policy available from every registered health insurer”.

You can access a PHIS for every health insurance policy currently being sold in Australia at https://www.privatehealth.gov.au/dynamic/search/start.

The Australian Government provides data files that “contain data for each of the registered health insurers and for every policy published on privatehealth.gov.au”.