The only way for the private health insurance industry to avoid a “demographic death spiral” is by slashing the rates for younger, healthier consumers, a think tank has warned.
According to the Grattan Institute, the industry is facing a crisis as costs for older people rise and younger people leave the private health insurance industry.
Under the current system, older and younger Australians pay the same rate due to a concept known as “community ratings”.
By removing community ratings for members under 55, health insurers could reduce premiums for young Australians.
Grattan Institute health program director Stephen Duckett believes younger consumers are spending more on private health insurance and are getting less bang for their buck.
“Red tape has created an administrative nightmare that discourages the industry from innovating to reduce costs.
“Over-regulation has created a complacent industry that is over-reliant on direct or indirect taxpayer subsidies,” Dr Duckett said.
The remedy for a complex, ineffective system of carrots and sticks is not more regulation, but less, he noted.
The think tank proposed that a range of private health insurance regulations should be phased out or reduced, such as subsidies for extras insurance, Lifetime Health Cover, the Medicare Levy Surcharge and risk equalisation.
“Unlike self-interested ‘zombie’ reforms that are sometimes floated in the media, these are practical proposals that will help make the private insurance industry more sustainable and will ultimately benefit all members,” Dr Duckett said.
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Article courtesy of Nestegg.
