Health Minister Mark Butler has asked the Department of Health to “urgently investigate” private health funds, which continue to exploit a regulatory loophole to raise premiums.
The loophole — product phoenixing — is a practice that involves health funds closing a policy and opening an almost identical one at a higher price.
In December, the Commonwealth Ombudsman published a report showing the practice was widespread.
It also criticised the behaviour as anti-competitive, because it disincentivised consumers from shopping around for new products.
At the time, Mr Butler warned health funds that if they did not stop the “sneaky practice”, which he described as “price gouging”, he would legislate against it.
But the practice has continued.
Consumer group Choice looked at the prices for all insurance policies at the big five funds and found, in late February, HCF closed its gold level cover for new customers and reopened it at a price 35 per cent higher, on average.
The old policy had cost a single person in NSW $343 a month for hospital cover plus buying extras cover on top, while the new gold policy costs $456 a month for combined hospital and extras.
HCF no longer offers a hospital-only gold policy, so anyone wanting the highest level of hospital cover is now forced to take out extras as well.
The Health minister told ABC News he would “not tolerate this shameful phoenixing tactic from private health insurers”.
“I warned health insurers that this practice had to stop,” Mr Butler said.
“I have asked for this action from HCF to be urgently investigated by the Department of Health. If it is confirmed, then I will take action to protect customers and stop this from happening again.”
Insurance analyst from consumer group Choice, Mark Blades, said customers were worse off on HCF’s new product because it removed an excess waiver for day surgery and required people to buy extras cover, which is usually a profit-maker for health funds.
“More people are claiming, there’s an aging population, so that does increase the pressure on gold policies.
“However, what HCF have done with this phoenix increase is put the burden on new customers, not existing customers, and that restricts consumer options.
“For example, if you’re someone who has an older policy, you’re on a better deal, you might find it very restrictive to then compare with new policies, because the prices are so much higher — that’s restricting your right to change insurers.”
A spokesperson for the Commonwealth Ombudsman said in a statement it was continuing to monitor product phoenixing through its complaints processes.
“We have not received any recent complaints about this issue since our statement was published in December 2024,” they said.
Shadow Health Minister Anne Ruston said product phoenixing was “another hit to Australians’ household budgets at a time when they can least afford it”.
“Despite threatening to take action against private health insurers who use phoenixing as a means to hike costs for consumers, this government has failed to protect the 15 million Australians with private health insurance who face premium rises by more than the rate of inflation this week,” Ms Ruston said.
Unfair to ‘heavily subsidise’ gold cover: HCF
A spokesperson for HCF said “sustainability challenges of gold-tier policies and their impact on all members” led the company to only offer it as part of an extras package.
“This change reflects HCF’s broader approach to balancing member needs, product sustainability, and affordability,” THEY SAID.
“This decision ensures we can continue offering a gold hospital product for members who may need gold-level services in the future.
“Premium and optimal gold members represent just 3 per cent of HCF’s on-sale policies, and it is unfair to the remaining 97 per cent of members to heavily cross-subsidise these gold policies.”
Mr Blades said HCF’s argument meant new customers had to bear the brunt of rising costs and existing customers were not encouraged to shop around and change policies.
A spokesperson for the private health insurance lobby, Private Healthcare Australia, said in a statement that funds only closed products when they were “consistently making a loss” and that the Australian Prudential Regulation Authority (APRA) did not allow health insurance products to make a loss and “remain in the market indefinitely”.
“When more expensive policies are created, the pricing reflects the underlying cost of healthcare, which is increasing every year in an inflationary environment.”
HCF chief executive Sheena Jack announced her retirement on Monday, having been in the top job since 2017.
Premiums rising from April 1
The practice of phoenixing products allows health funds to increase prices for new customers beyond the limit set by the federal government.
Each year, private health companies must get approval from the Health minister to raise premiums on April 1 — this year, the government has approved 3.73 per cent increase.
The limit is a weighted average across all policies for each fund, meaning customers on the highest levels of cover often experience price rises of between 8 and 13 per cent, while those on lower levels of cover may only see their premiums increase 1 or 2 per cent, or, even go backwards.
Choice found, among the top five insurance companies, basic cover will rise on average by 0.8 per cent, bronze by 2.5 per cent, silver by 3.2 per cent, while gold policies will spike by nearly 12.6 per cent.
Stephen Duckett, honorary professor at the University of Melbourne, said private health insurers had become a “game of smoke and mirrors”.
“The government needs to say this is not tolerable … if the average premium increase is 3.8 per cent, it is 3.8 per cent.”
HCF customer Judi Giddings lives in Perth and wasn’t surprised to learn her annual premium would rise by 7.3 per cent.
The 73-year-old said she was forced to keep working just to pay for her health insurance.
She shopped around and found a policy with nib that was slightly cheaper and offered her a higher percentage back on dental — which is the only reason she has health insurance in the first place.
“I’ve had trauma with my teeth since I was a teenager and it’s become a situation where I need to get major work done [now] before I can’t afford to do it anymore,” she said.
“If I wasn’t still working, I would not be able to afford it.”
Her health insurance fees take up nearly 10 per cent of her pension, she said.
“[It] doesn’t sound a lot… but when you’re struggling to pay mortgages and food, it means you can’t do anything else, literally.”
Government premium cap ‘not useful’
Peter Albiston lives in Canberra and has private health cover with Defence Health.
Mr Albiston said the fund notified him his premium would increase on April 1 by 6.5 per cent, which confused him because the fund’s website said its increase this year was 3.3 per cent — below the industry average.
The 65-year-old was told by Defence Health its advertised increase was “an average across all policies and does not necessary reflect an individual members premium increase”.
“I find this misleading and wonder how many others are affected by it — is it across the board in the industry?” MR ALBISTON SAID.
Choice’s Mark Blades said this showed the average increase agreed to by the government was “not at all helpful for consumers to understand what has been happening for their individual policy”.
“Gold [policies] are rising much higher than the reported averages across all policy tiers,” Mr Blades said.
“Our analysis found the average price of comprehensive gold policies available for sale increased 45 per cent from 2021 to 2024.”
The increase in costs is partly due to the declining number of young people taking out cover.
A survey by financial comparison site Finder found, out of around 1,100 people earning above $100,000, just one in five had private health insurance.
While 7 per cent said they planned on taking out cover in the next six months, 11 per cent said they would never take out a policy.
“As these health insurance hikes happen every year, people are weighing up whether it’s just more cost-effective to pay the surcharge at tax time,” Finder’s Rebecca Pike said.
“There definitely is scope there for some intervention into the health insurance industry, because at the moment, there’s very little Australians can do.”
A product ‘so bad that we want to force you to take it out’
Kylie, a teacher in Perth, said she can understand why young people are avoiding health insurance.
The 54-year-old, who did not want her last name used, took out a policy in January last year and was stung with a 44 per cent Lifetime Health Cover (LHC) loading fee — 2 per cent extra for each year after age 31 she did not have private hospital cover.
Kylie said she lived overseas for 17 years and had no idea loading fees even existed.
She now pays $180 a month for a bronze policy with Australian Unity (which includes the loading fee).
“I have to pay the loading for another nine years,” she said.
The policy was introduced by the Howard government in 2000 to encourage young people to take out private cover.
Kylie said she was stuck between a rock and a hard place — if she didn’t take out private hospital cover, she would be stung with the Medicare levy surcharge, and if she did, she had to pay loading.
“People [at work] really don’t want to get health insurance even though they’re in their 60s because the loading will wipe them out… [the system] just doesn’t work.”
Professor Stephen Duckett said there were a number of issues when it came to health insurance for young people.
“It is often cheaper to buy a junk policy than to pay [the tax].
“I think that this whole ‘forcing people to take out a product that they don’t want’ is really a strange concept of a private market,” he said.
“It is quite bizarre that we say this product is so bad that we want to force you to take it out.”
Professor Duckett said the idea was to get people who are unlikely to claim on health insurance to take up cover, to improve the overall pool of risk.
“It has nothing to do with a sensible economic policy or a sensible market policy.”
With many who have insurance still ending up with fees in excess of what they are covered for when going through the private system, Professor Duckett said it’s not a good product for most Australians.
“People are saying, I’ve got private insurance that hasn’t done for me what I wanted, and that’s not government’s job to fix — that’s the private insurance industry’s job to fix.”
By business reporter Rachel Clayton
