Private health insurance premium round process

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

Page last updated: 10 February 2017

Private health insurers submit applications for premium increases 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 increases

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

The average premium increase 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 rate protection.)

A revenue based measure, such as the percentage increase in forecast contribution income is considered to be the most appropriate way of reflecting the increase in premiums that will be received by an insurer. This method is less biased by extremely low increases 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 increases for individual products.

The industry weighted average premium increase is calculated by weighting each insurer’s average increase by its market share. The market share is measured according to the number of people covered.

Under rate protection, if a member has paid for their policy in advance they will not have to pay extra if the premium is increased during the period for which they have paid. For example, on 1 March a member may pay their premiums for 12 months in advance. If premiums increase on 1 April, and their insurer offers rate protection, the member will not have to pay the increased premium amount until 1 March the following year. Most insurers offer rate protection.

Comparing of private health products and insurers

The 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 increase 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 increase. For example, although the average premium increase 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 increases for their particular product. Insurers must provide consumers with a reasonable period of notice prior to a premium increase 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 increase for their particular product.