If switching health insurance funds can save money, why don’t more Australians do so?
Amanda Biggs, from the Commonwealth Parliamentary Library, investigates some of the reasons below. (This article is cross-posted from the Library’s FlagPost blog).
Negotiating the maze is hard work
Amanda Biggs writes:
A recent report by Choice, the publication of the Australian Consumers’ Association, found that if some people switched health insurers they could make substantial savings to their health insurance costs. Reviewing some 17 000 health insurance products as part of its annual survey of health insurance, Choice found that families could save more than $1500 a year by switching to a better value fund. In some cases, the savings could be even higher.
Under Australia’s health insurance arrangements, consumers are guaranteed portability. Portability means consumers can change private health insurers at any time without incurring additional waiting times, provided the new product offers similar benefits.
Despite this guarantee, very few of the 10 million Australians covered by private health insurance switch health insurers.
The most recent statistics from the Private Health Insurance Administration Council (PHIAC) (see page 2 ‘Changes during the Quarter’) show that 62 495 people, or just 0.6 per cent of the total number of people covered by health insurance, transferred to another fund in the March 2011 quarter. It is notable that during this quarter the Government announced the annual premium increases to apply from April 2011; with an average increase of 5.57 per cent across the sector.
It might be expected that the announcement of a premium increase would prompt consumers to consider their health insurance options with some then opting to switch to a better value fund.
However, although the figures fluctuate, the rate of transfer between health insurers over the last five years has hovered between 0.3 and the 0.6 per cent seen in the March 2011 quarter.
A higher proportion of people drop their cover each quarter—in the March 2011 quarter some 1.7 per cent dropped their cover (although some of these drop-outs may be people who later go on to purchase new cover). The number of those switching to a new fund in the March 2011 quarter represents the highest proportion since September 2006, but this still remains a tiny proportion of members.
Switching funds is not straightforward and there are a number of reasons why there are difficulties. Firstly, many funds offer loyalty schemes with bonuses for longer term members. If a consumer switches to a new fund, they will most probably lose all the loyalty bonuses they have accrued. Some of these bonuses are in the form of benefits for high cost extras such as for orthodontic or major dental costs, which can act as a strong disincentive to switch funds.
Secondly, although portability is mandated, there are limits and restrictions, as this brochure from the Private Health Insurance Ombudsman explains. If a member switches to a new fund that offers a product with additional benefits, their right to portability is not assured. Policies can be complex and so the consumer has to be assiduous in comparing policies to determine if they will lose their portability.
Having a pre-existing medical condition can also affect portability. While new injuries or conditions will be covered, the consumer may have to wait a specified period for treatment of a pre-existing condition. If a consumer does not know they have a condition but exhibits symptoms of the condition prior to changing funds, then portability may be affected and they may have to wait an additional period for treatment or pay an excess.
It is recommended that consumers who are considering switching check with their new insurer, but doing so takes time and effort.
The Government has recognised that consumers need to be able to easily compare policies in order to purchase the most suitable product so it has set up this website to enable comparisons to be made across all health funds. An industry funded website has also been established. But a complete assessment is not always available online, and consumers are still advised to contact the insurer for full details.
Furthermore, consumers are warned they may face additional out-of-pocket costs, unless the insurer has a specific agreement with the consumer’s choice of doctor to limit such costs.
While some consumers remain loyal to their health fund for particular reasons, such as a link with their employment conditions, it appears that many consumers still face a maze of information and uncertainty when it comes to choosing a health insurer and may decide that the risks of changing funds are too great.