Australia: Young people cancelling health insurance despite ongoing pandemic

| 13 Oct 2020

In Australia, an increasing number of young people are cancelling their private health insurance even though the world is still in the midst of the COVID-19 pandemic.

According to information released by the Federal Government of Australia, more than 29,000 Australians cancelled their private health insurance from March to June 2020, since the pandemic started.

In the early phase of the pandemic, people felt that COVID-19 mostly threatened older people, largely sparing the youth. Also, many elective surgeries and routine services like dental and eye appointments had to be cancelled.

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As such, people did not have access to services that their insurance would typically cover. This turned out to be a pressing issue for many Australians, sometimes in unexpected ways.

Many young Australians felt that their insurance was not worth the money. According to ABC Australia, insurers paid about $3.3bn in hospital benefits during the last quarter, which was about 12.9% less than the previous three months.

Hence, many Australians did not see the point in investing in health insurance as much as they did in previous years — despite the health risks that come with the pandemic.

Additionally, the industry is losing more and more of its young and healthy users while gaining older, more prone to disease, expensive users.

The news website reported that even before the COVID-19 pandemic, Australians had been abandoning in large numbers their medical insurance. According to federal data, in the year up to June 2020, 56,000 Australians aged 20 to 49 years had cancelled their cover. However, during the same period, more older Australians applied for private healthcare insurance.

For the industry, these developments resulted in net profit after tax falling by 45.3% as of June 2020.

To help the insurance industry tide over the situation, the government has announced funding and a review of policies deterring young people from taking out private cover. The government has set aside $2.4m for a review into the community rating system, part of a wider $20m package meant to help the struggling private health insurers.

Community rating is the principle that all policyholders should pay the same premiums regardless of risk. It means, essentially, that low-risk young members subsidise higher-risk older members. Private Healthcare Australia estimates this cross-subsidisation is costing younger members $900 a year.

However, this system is pricing younger people out of the sector. In an explanatory memorandum in early October, the Department of Health said the planned review would “highlight whether any changes to these policy settings could improve value and effectiveness for consumers”.

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