Private health insurance premium round process

This page provides an outline of private health insurance premium approval process

Page last updated: 07 December 2019

Private health insurers submit applications for premium price changes at the same time each year. This process is known as the annual premium round. Premium changes take effect from 1 April each year.

Average price changes

If you would like to find out this year’s average premium price change for each insurer and the industry, see the average annual premium price change by insurer webpage. Please note an individual’s product premium price change may be above or below the industry’s or their insurer’s average price change. Insurers inform their members in writing of the exact premium price change for their particular policy.

Assessment of premium applications

All applications are considered by the Minister for Health after careful examination of each application by the Department of Health and the private health insurance prudential regulator, the Australian Prudential Regulation Authority (APRA).

Under section 66-10 of the Private Health Insurance Act 2007, private health insurers must apply to the Minister for Health for approval of premium changes. The Minister must approve the proposed changes unless satisfied that a change would be contrary to the public interest.

Each application is closely scrutinised to ensure the price changes are fully justified and is assessed on its own merits.

Key information considered as part of the premium approval process includes the private health insurer’s application, appointed actuary opinion and APRA data.

Average premium price change

The average premium price change for each insurer is calculated according to the following formula.
(FCI with premium changes – FCI without premium changes) x 100
FCI without premium changes

(Where FCI is the forecast contribution income for the insurer for the 12 month period following the implementation of the changes, excluding forecast changes in membership, and including aged-based discounts and rate protection.)

A revenue based measure, such as the percentage change in forecast contribution income is considered to be the most appropriate way of reflecting the price change in premiums that will be received by an insurer. This method is less biased by extremely low changes for particular products and/or distortions arising from wide fluctuations in the number of policies covered by a particular product, compared to other methods such as simply averaging out the premium changes for individual products

The industry weighted average premium change calculation formula is outlined in the Private Health Insurance (Incentives) Rules 2012 (No.2). It specifies the industry average premium increase being the average change in premiums for each product subgroup offered by every private health insurer, weighted according to the number of people covered under complying health insurance policies in each product subgroup.

The insurer and industry weighted average include the impact of the savings from rate protection and age-based discounts.
  • If you can pay your health insurance premiums in advance, some insurers will offer a rate protection. With rate protection, if premium rates are increased within the period you have already paid for your insurance, you will not have to pay increased rates until that period ends. If you do not have rate protection, the insurer will ask you to pay the balance owing on the new rates, or reduce the length of time your advance payment covers.
  • From 1 April 2019, insurers are able to offer premium discounts on hospital cover of two per cent for each year that a person is aged under 30 when they first purchase hospital insurance, to a maximum of 10 per cent for 18 to 25 year olds. For a consumer on a $1,500 policy the savings is up to $150 and for a young family on a $3,000 policy the savings is up to $300.

Comparing of private health products and insurers

The PrivateHealth.gov.au website lists every health insurance product available from each health insurer, and allows consumers to search for, and compare, products. Consumers can find out the new prices of the products on this website from 1 April each year.

The Private Health Insurance Ombudsman’s State of the Health Funds Report compares different insurers each year and can be found at the ombudsman’s website.

When comparing the average premium price change for individual insurers, it is important to consider the type of benefits offered and the level of benefits paid. These factors also determine the value of the product(s) offered and provide a context for the size of the premium price change. For example, although the average premium price change for one insurer may be higher compared to another insurer, the first insurer may offer more generous benefits or have a cheaper actual product price. Consumers should carefully assess the full value offered by their particular product and insurer.

Notification to members following approval

Insurers will also notify policyholders affected by the changes of the premium price changes for their particular product. Insurers must provide consumers with a reasonable period of notice prior to a premium price change taking effect (section 93-20 of the Private Health Insurance Act 2007). The industry developed Code of Conduct also provides information about the obligations of insurers in providing information to their members. This provides consumers with an opportunity to shop around for a different product or a different insurer if they are unhappy with the premium price change for their particular product.