Health Minister’s warning to private health insurers: ‘Stop this practice immediately, or I’ll force you to stop’

Millions of Australians are being slugged with skyrocketing private health insurance premiums due to dubious practices by health insurers, according to a damning report released today by the Commonwealth Ombudsman. The report uncovers a widespread tactic dubbed “product phoenixing,” which allows insurers to inflate costs under the guise of introducing new policies.

In February 2024, Choice Magazine revealed that some insurers were stealthily increasing premiums far beyond anticipated levels, despite industry announcements of modest average premium hikes for 2023. The Ombudsman’s investigation confirms the existence of a deliberate loophole: insurers close existing policies to new customers and introduce nearly identical ones at significantly higher costs.

This sleight-of-hand leaves new customers paying hundreds more each year in premiums and excess fees while forcing existing customers to cling to older, marginally cheaper options.

“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,” stated Commonwealth Ombudsman Iain Anderson in a statement.

“I have therefore raised my concerns with the Hon Mark Butler MP, Minister for Health and Aged Care, and his department. 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.”

Analysis by the Department of Health and Aged Care reveals that product phoenixing has become alarmingly pervasive, with health insurers using it to inflate the price of gold-tier policies by over 30% on average in just three years.

An investigation by the Actuaries Institute found a staggering reduction in gold-tier singles-only policies in Victoria. Between July 2020 and mid-2024, the number of such policies plummeted from 112 to just 73, with only 29 available online. For new customers, premiums have risen by $38 per month on average, while excess fees have surged by $184 annually.

Brett Heffernan, CEO, Australian Private Hospitals Association (APHA), told Health Industry Hub, “Is anyone surprised insurance companies are gouging their members like they gouge hospitals? The health insurers have raked in $5 billion in record profit in just three years. Over the same time, they have shortchanged hospitals to the tune of $3 billion. That’s the gap between what it costs to provide care, versus what the insurers cough up. Enough is enough.”

The Ombudsman’s report accuses health insurers of “circumventing premium approval processes” and “restricting consumer choice.” By artificially inflating the cost of comparable policies, insurers leave consumers with fewer affordable options, eroding the fairness principle that underpins private health insurance.

When CHOICE compared gold hospital policies from the five biggest insurers in 2021 with those available in 2024, the increases were jaw-dropping:

• HBF’s Gold cover surged by 46.9%
• Medibank’s Gold cover climbed 43%
• NIB’s Qantas Gold cover rose 36.4%
• Bupa’s Gold cover jumped 35.3%
• HCF’s Gold cover increased 34.4%

Federal Health Minister Mark Butler did not mince words, describing the tactic as “a cheap trick.”

“I share the Commonwealth Ombudsman’s concerns that this practice may be circumventing the premium approval processes and restricting consumer choice,” stated Minister Butler. “This ‘loophole’ tactic is a sleight of hand that makes the best value policies disappear and forces customers to take out more expensive policies.

“Insurers are putting a new name on the same policy, with a higher price tag. 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,” warned Minister Butler.

Heffernan further asserted, “The Minister needs to do more than ask the health insurers to stop it. If insurance companies are indeed unscrupulously profiting by gouging their members, they need to pay their ill-gotten gains back to their members.

“The Australian hospital system is in crisis. Public hospital waiting list are getting longer and deeper, while private hospitals are closing their doors entirely or shutting down services because insurance companies are breaking their pact with their members to fully fund their care. These issues cannot be put off until after next year’s federal election. They have already festered too long. It’s time the Federal Health Minister engaged in the hospital crisis, which is burning around him.

With private hospitals teetering on the edge of oblivion, private health insurers refusing to meet the shortfall, and desperate actions eroding the value proposition of private healthcare, the government faces an urgent call for immediate action.

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