Product Cycling in Private Health Insurance: Understanding Market Dynamics and Policy Implications

As premiums for Gold hospital products continue to rise, the practice of product cycling has become a critical response to sustainability challenges in the health insurance market. While insurers argue that cycling helps manage risks, it raises concerns about consumer choice and market transparency.

This article launches an examination of these issues and will explore key topics, including:

1. Product Cycling: Understanding out-of-cycle product changes
2. Risk Equalisation: System design and effectiveness issues
3. Hospital Product Tiers and Community Rating: Structural reform options
4. Waiting Periods and Policy Duration:  Behavioural incentives and anti-selection

Gold premiums increased significantly between 2020-2024^[1], substantially exceeding average increases across other health insurance products. Market dynamics, including demographic shifts, claims patterns and consumer behaviour, have created sustainability challenges for comprehensive coverage products.

Health insurers have responded through various mechanisms, including “product cycling”, where health insurers withdraw current products from sale to new customers and launch similar products at higher prices, typically outside annual premium approval cycles. This practice has received unfavourable attention from community and government stakeholders. This article explains the background and drivers that have led to this outcome. 

Understanding product cycling

Health insurance product cycling has also been termed "product phoenixing", reflecting concerns about market transparency and consumer choice. Unlike unlawful corporate phoenixing, product cycling is legal. Ministerial approval is still required for premium increases on existing policies, but not for new product launches.

This practice creates affordability challenges for some consumers while benefiting others. Insurers report that existing long-term Gold customers are protected from higher price increases that would be required to maintain viability of their product; hence, product cycling serves a risk management function within current (reportedly under review) regulatory constraints.

While the practice maintains customer protections for some, it creates market dynamics that adversely affect consumer choice and portability across the health insurance system.

Market context and evidence

Between 2020 and 2024^[1], Gold hospital products experienced premium increases ranging from 32% to 43% (analysed by excess category), compared to 16% average across all health insurance categories. The number of Gold products offered by unrestricted funds declined significantly.

These trends reflect both annual adjustments and out-of-cycle changes, illustrating multiple factors contributing to Gold premium movements.

Underlying Market Dynamics

Demographic and risk pool changes

Research indicates demographic shifts in Gold membership, with higher proportions of new entrants and younger members^[2]. Simultaneously, older Australians have migrated to Silver Plus products better meeting life-stage requirements, excluding psychiatry, weight-loss surgery and maternity care.

Claims experience

Data shows^[3] concentrated claims in clinical categories only in Gold products. Research shows significant psychiatric claims occur shortly after obtaining Gold coverage, illustrating timing-related behaviours likely reflecting the psychiatric waiting period waiver, allowing a one-time upgrade without waiting periods.

Consumer behaviour impact

Focus on "value for money" and purchasing only needed coverage has created rational individual behaviours that, when aggregated, reduce risk-pooling benefits and create systemic challenges for comprehensive insurance products.

Regulatory framework

Australia’s private health insurance regulatory structure creates a spectrum of incentives and constraints. Annual premium approval processes apply to existing policies, while new product launches have less onerous requirements, balancing consumer protection with market functionality.

Product cycling represents one response to these parameters, alongside other risk management strategies to ensure the sustainability of private health insurance products. Any changes to regulatory requirements should allow insurers to retain risk management functions without constraining product innovation and competition, which are essential for a well-functioning and sustainable health insurance system. 

Stakeholder impact analysis

Protected groups:

• Existing Gold members avoid premium shocks from closures, protecting their risk pool
• Bronze and Silver customers benefit from reduced cross-subsidisation pressures, through less subsidisation of  Gold portfolio losses
• Health funds maintain portfolio sustainability and the ability to manage growth according to their risk appetite.

Adversely affected groups:

• New Gold customers face higher premiums and limited choice
• Existing policyholders seeking to switch funds encounter reduced portability
• Consumers upgrading coverage face price barriers
• Market transparency becomes more complex.

Operational considerations

Potential restrictions on product cycling timing could create operational challenges, including:

• Concentration of product development into single annual windows
• Reduced market responsiveness to changing healthcare costs
• Limited consumer choice if products are withdrawn, but replacement launches are restricted.

These disruptive impacts require consideration alongside constraints to insurer activities that benefit consumers. Insurers have been observed to launch products at lower prices in between the premium increase cycle to be more competitive. Consumers would lose out if such launches are restricted.

International context

Australia is not unique in grappling with open enrollment and community-rated insurance complexities. Other systems address similar challenges through regulated product standardisation, enhanced risk adjustment, mandatory participation and modified community rating. Each involves different trade-offs between choice, affordability, and sustainability.

Risk equalisation

Current risk equalisation arrangements include a high-cost claims pool, but this has limited impact in addressing product cycling-related market dynamics. This is examined in our upcoming analysis.

Policy implications

Potential consequences of legislation restricting product cycling without addressing underlying market dynamics include:

Market response scenarios:

• Insurers might withdraw products without replacing them for extended periods
• Cross-subsidisation pressures could increase premiums across all product tiers
• Market consolidation could reduce competition and innovation
• New market entrants will face additional barriers.

System-wide effects:

• Premium price shocks during annual cycles might replace gradual adjustments
• Risk pool deterioration could accelerate if comprehensive products become unviable
• Consumer choice could become even more limited.

Framework for analysis

Addressing these challenges requires examining interactions between community rating principles, product tier structures, risk equalisation mechanisms and consumer behaviour incentives. Solutions require comprehensive rather than piecemeal approaches. The fundamental challenge involves balancing community rating objectives with market segmentation and consumer choice expectations.

Looking forward

Product cycling reflects complex interactions between regulatory frameworks, market dynamics and consumer behaviours, representing one symptom of broader structural challenges. While creating legitimate concerns about affordability and choice, it serves risk management functions within current system constraints.

Solutions require considering underlying dynamics and developing policies that address root causes while maintaining system functionality. Our forthcoming articles will examine policy mechanisms, including risk equalisation, waiting period, and community rating refinements. Each will consider stakeholder impacts and implementation challenges alongside potential benefits.

The Actuaries Institute invites engagement from all stakeholders as we work toward evidence-based analysis of these critical system challenges.

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This article was prepared by the Actuaries Institute Gold Hospital Products Working Group. Views expressed here aim to inform policy discussion and do not constitute formal Actuaries Institute positions. The Working Group welcomes feedback and alternative perspectives as part of constructive dialogue on these important issues.

References

^[1] Source for Gold Hospital Premium Increases (32-43% between 2020-2024)

Primary Source:

• Department of Health and Aged Care: "Private Health Insurance Reform Data" released 15 April 2024 (this is the actual government dataset)

Secondary verification sources:

• CHOICE: "Insurers hiding soaring increases to top-level health cover" (May 2025) - provides independent analysis
• APRA: Quarterly private health insurance statistics (various quarters 2020-2024)

^[2] Source for Demographic Shifts Statement: "Research indicates demographic shifts in Gold membership, with higher proportions of new entrants and younger members"

Primary Source:

• PHIIA: "State of the Sector Survey 2023" - Important caveat from the source: The survey data only accounts for around a quarter of total industry sales, and many funds do not offer Gold tier products through major intermediaries. Hence, the data may not be reflective of overall industry trends.

^[3] Source for Psychiatric Claims Statement: "Research shows significant psychiatric claims occur shortly after obtaining Gold coverage"

• Source: Research commissioned by a private health fund and conducted by Insight Actuaries. This analysis was provided to the Department of Health and Aged Care.