Insurers 'price gouging' with secret premium hikes

Australians are forking out hundreds of dollars more for their health insurance as companies exploit a loophole allowing them to hike costs for some customers.

Private health insurers are only allowed to raise their premiums once a year, and each increase must be approved by the federal health minister.

But a report from the Commonwealth Ombudsman revealed some companies are getting around this through a practice known as “product phoenixing”.

It involves discontinuing a policy for new customers and launching a nearly identical one at a higher cost.

Millions of Australians have fallen victim to insurers’ secret premium increases, with the average new customer paying $38 more each month in premiums and $184 more in excess fees, according to one analysis.

Health Minister Mark Butler called the practice a “sleight of hand” that makes it harder for customers to move from insurer to insurer, limiting their choices.

“It is clearly against the spirit of the law and it is an under-handed, largely secret, way of health insurers raising their prices,” he told reporters in Canberra on Monday.

“If two members of an existing fund with essentially the same product are paying prices that might be 20 per cent different ... you have to describe that as price gouging.”

This was particularly prevalent in “gold” tier insurance policies, which are generally used by those who want to access services such as maternity and mental health care.

In one example, an insurer closed existing gold policies before opening essentially identical ones in 2023 at prices 21 per cent higher than the average premium of the old policy.

The insurer repeated the practice in 2024 when they released a product that was 14 per cent more expensive.

To some, the revelations are not unexpected.

“Is anyone surprised insurance companies are gouging their members like they gouge hospitals?” Australian Private Hospitals Association chief executive Brett Heffernan said.

“Enough is enough.

“It’s time the federal health minister engaged in the hospital crisis, which is burning around him.”

Mr Heffernan says insurers have raked in billions in profit and short-changed hospitals while public waiting lists are ballooning and private hospitals are closing their doors because insurance companies are “breaking their pact” to fully fund members’ care.

Mr Butler said health insurers operate with significant support from taxpayers - from both members’ contributions and from the private health insurance rebate through billions in taxes.

He called on the industry to clean up its act or face consequences.

“They need to respect that social licence and this sort of practice damages that,” Mr Butler said.

“I want to give them a chance to do the right thing, but that chance won’t be open forever.

“If there’s not some clear indication of a change of practice by insurance companies, then I will take legislative action.”

Peak industry body Private Healthcare Australia has committed to working with the government to examine its issues but noted it was difficult to provide affordable products as the population ages and inflation grows.

“When health funds cancel products, it is usually because those products are making a loss,” it said in a statement.

“When more expensive policies are created, the pricing reflects the underlying cost of healthcare, which is increasing every year in an inflationary environment.”