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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:
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.
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.
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.
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.
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.
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.
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 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.
Potential restrictions on product cycling timing could create operational challenges, including:
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.
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.
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.
Potential consequences of legislation restricting product cycling without addressing underlying market dynamics include:
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.
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.
[1] Source for Gold Hospital Premium Increases (32-43% between 2020-2024)
Primary Source:
Secondary verification sources:
[2] Source for Demographic Shifts Statement: "Research indicates demographic shifts in Gold membership, with higher proportions of new entrants and younger members"
Primary Source:
[3] Source for Psychiatric Claims Statement: "Research shows significant psychiatric claims occur shortly after obtaining Gold coverage"