Private Health insurers have been put on notice to end “product phoenixing” or risk Government intervention.
An investigation from the Commonwealth Ombudsman confirmed providers were using a loophole to increase premiums above what was allowed under the annual premium review process.
Federal Health Minster Mark Butler said the Ombudsman’s report found private health insurers had been using the loophole to charge millions of Australians more for private health cover, with secret premium increases above what was allowed.
Minister Butler said the secret premium increase occurred when an insurer closed a policy to new customers and then launched a new, almost identical policy at a higher cost, a practice known as product phoenixing.
He said this meant new customers taking out gold tier policies were paying hundreds of dollars more than existing customers each year, and hundreds more in excess fees if they ever needed to go to hospital.
“Analysis by the Department of Health and Aged Care suggests product phoenixing is widespread.”
Minister Butler said the Ombudsman’s report found these practices may be circumventing premium approval processes and also restricting consumer choice, by ensuring that when customers shopped around for a better deal and a cheaper policy, they were unlikely to find one.
“It also undermines the fairness principle in private health that two people should pay the same price for the same policy, regardless of age or background.”
He said the loophole was a sleight of hand that made the best value policies disappear and forced customers to take out more expensive policies.
“We will be monitoring this closely. If insurers don’t stop this practice immediately, then I will force them to stop.”
Commonwealth Ombudsman Iain Anderson said private health insurers could apply once a year to raise the premiums for their private health insurance policies, with each premium rise needing to approved by the Health Minister.
Mr Anderson said his investigation found insurers engaging in product phoenixing were not breaching health regulations and it was a “matter for government” whether regulations were amended to stop this practice.
“As the Private Health Insurance Ombudsman, I have a role in raising concerns about the fairness of practices and procedures in the health insurance industry, even when no law has been breached.
“I also encourage insurers and stakeholders to act on my concerns, as this practice does not appear to be in the long-term interests of consumers.”
