Closing a policy then introducing a new, more expensive but almost identical one is a ‘cheap trick’ and ‘sleight of hand’, and the minister is having none of it.
Health insurers who close a policy to new customers and then launch a new, almost identical policy at a higher cost are perpetrating a “cheap trick” that must stop or the federal government will make it happen, says the health minister.
Today the Commonwealth Ombudsman Iain Anderson said the tactic, known as “product phoenixing”, was a way to circumvent the annual premium approval process applicable to existing policies.
“Insurers do not require approval from the Minister to introduce new policies or to close off policies to new customers,” said Mr Anderson.
“We found that several ‘new’ Gold policies had been introduced by insurers in the same year as very similar Gold policies were closed by that insurer to new customers.
“The effect of this practice is that if a new customer wants to buy a Gold policy from that insurer, or an existing customer wants to upgrade their policy to Gold level, they will pay a significantly higher premium compared with policy holders on the very similar old policy (which had a premium increase approved by the Minister).
“We compared the average premium across all states/territories for closed Gold policies and new Gold policies. For example, at one insurer, in 2023 the average premium of the new policy was 21% higher than the average premium of the closed policy. In 2024, the average premium of the new policy was 14% higher than the average premium of the closed policy.
“These practices may be circumventing premium approval processes, but they are also restricting consumer choice – because any new Gold policy a consumer may want to move to will have a much higher price than their existing Gold policy.
“Also, consumers who may otherwise be unhappy with their insurer may feel compelled to keep their existing policy because of the significant cost of change – even if the policy that they would like to move to is actually very similar.”
Federal minister for health Mark Butler came out all guns blazing in response to Mr Anderson’s statement.
“This ‘loophole’ tactic is a sleight of hand that makes the best value policies disappear and forces customers to take out more expensive policies,” Mr Butler said.
“Insurers are putting a new name on the same policy, with a higher price tag. It’s a cheap trick that makes health insurance more expensive, and it’s got to stop.
“Let me be clear: we will be monitoring this closely.
“If insurers don’t stop this practice immediately, then I will force them to stop.”
In response, Private Healthcare Australia, the peak body for the health funds, said policies were cancelled “usually because those products are making a loss”.
“When more expensive policies are created, the pricing reflects the underlying cost of healthcare, which is increasing every year in an inflationary environment,” it said.
“The ‘Gold, Silver Bronze, Basic’ product tiering system needs urgent review.
“We will raise this in the Private Health CEO Forum appointed by Health Minister Mark Butler to examine options to improve the viability of our private health system.”
Given that nobody from PHA itself has so far been named to the CEO Forum, that might prove challenging.