Since 2015, the share of younger people (aged 20 to 39) with private health insurance has dropped from 24% to 22%.
People in this age group contribute more in insurance premiums than they claim in pay-outs. So this decline ends up pushing prices up for the 44% of Australians with private insurance.
And new private health insurance coverage data shows this trend continuing.
Our latest Grattan report outlines a four-step plan to stop this trajectory and fix the private health insurance system. The first step is preventing insurers increasing premiums if they cannot demonstrate the policy offers value for money.
What’s the private health insurance ‘death spiral’?
An ageing population, increased use of health services, and rising health-care costs are driving up the benefits insurers have to pay out each year.
As pay-outs increase, insurers raise premiums, to recoup these costs.
Rising premiums make health insurance less affordable and less attractive — particularly to younger and healthier people.
As younger, healthier people drop their insurance, the insurance “risk pool” gets worse; people who hold insurance are older and more likely to use their benefits and use them to a greater value.
This increases the cost of premiums, younger people drop out, and the death spiral starts again.
What does the data say?
The chart shows the overall trends in private health insurance over the past six
Over this time period, the number of people with private health insurance over 65 — who are likely to draw on their health insurance, receiving more in benefit pay-outs than they pay in premiums — has increased dramatically.
At the same time, the numbers in all other age groups is declining, albeit with a slight uptick in the September quarter of 2020, possibly associated with people being allowed to defer premium payments during the COVID crisis.
The picture is particularly stark for 20 to 39-year-olds. People in this group make the pool of people insured less risky overall.
So far, policy tweaks have failed
In 2017 the federal government announced several rearrangements of private health insurance deckchairs to make the product more affordable or to encourage young people into insurance.
This included:
- simplified gold/silver/bronze/basic labelling of products
- increasing excesses from A$500 to $750 for singles, and double that for families. Premiums are lower for people who accept higher excesses to reduce premiums
- premium discounts from 2% for 29-year-olds to 10% for 18 to 25-year-olds.
But these initiatives have failed to entice young people into private health insurance.