Have you recently looked at the industry weighted premium increases due to commence on April 1 and thought "my health insurance is costing far more than I can afford"? When comparing your health insurance to another, you need to be careful about the conclusions you make.
The average industry increase does not account for the relative value of an individual insurance policy.
The average industry increase to premiums in the health insurance industry is interesting as far as seeing the general increase in costs to insurers over the past 12 months. However it does not denote the level of services each individual insurer provides, nor does it account for the relative value of an individual insurance policy.
With the media and the government often giving opposing information on the average industry increases and what the rate rise means, it can be difficult to know what's important and what's not.
The annual rate rise is merely macrostatistical
When you see that your private health insurance premiums have increased by the industry average 4.84 per cent this April, it does not mean that your insurer is providing an average level of service to you. Nor does it indicate that insurers increasing their premiums by more or less offer a better or a worse service.
"It is absolutely correct that the industry weighted data of a fund may bear no resemblance whatsoever to the actual increase experienced by an individual insured policy composition," said Jethro Still of HICA.
"But more than that, this sort of average increase data does not necessarily indicate relative value of a fund, its products, services nor indeed premiums."
The Department of Health always accompanies the data on industry average increases with a disclaimer stating that consumers' experiences will differ depending on their insurer, and that higher or lower increases to the average are not indicative of the relative value to any individual.
A percentage increase is also not a sound way of showing the true value of an insurance policy to an individual. For example, if a fund is expecting a higher premium increase, it doesn't necessarily mean that one premium will be more expensive than a competitor's premiums for a similar policy.
"To illustrate this important point, let's assume that Fund A and Fund B have comparable cover in terms of benefits and services offered for a particular policy," continued Mr Still.
"Fund A's premium for this cover is set to increase by 10 per cent in April. Fund B's equivalent cover is set to increase by 5 per cent. Is it reasonable to assume that Fund B's policy is better value? Not necessarily. It all depends on the base premium to which the percentage increase is measured and applied.
"For example, Fund A's current premium is $90 per month. Fund B's current premium is $100 per month. A 10 per cent increase to a $90 premium is $99, while a 5 per cent increase to a $100 premium is $105. Fund A's product still offers better value for a comparable product compared to Fund B despite the considerable differential in this year's increase."
Consider the whole picture of an insurer before deciding to change
There are many factors to consider when you start with a particular insurer, or indeed switch to a different policy.
According to IBISWorld, there are 34 businesses that provide health insurance in Australia. Each of those 34 insurers is going to have a different increase to their premiums this year, no matter how small, but it doesn't mean they offer more appropriate, or even more affordable cover.
There are many factors to consider when you start with a particular insurer, or indeed switch to a different policy with another insurer. The media perpetuates the idea that the industry average premium increase is a vital piece of the puzzle, but it is virtually useless information without further analysis.
To find out more about your insurer and the increasing premiums scheduled for April 1, contact a HICA representative today and book in for a free consultation.