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The Young and the Uninsured: Private Health’s Public Problem

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by Liam Harrison
May 21 2020

The Health Insurance industry is in dire straits, with COVID-19 accelerating the trend of young people deciding not to buy private insurance. The falling membership rate of young people is a serious problem for health insurance providers, as the system relies on younger demographics to subsidise the costs of older members. Membership in the 20-34 demographic has declined at an annualised 2.9% over the five years through 2019-20.

The economic downturn as a consequence of COVID-19 is likely to cause further issues for private health insurance providers, as weakening economic activity and rising unemployment make private health insurance unaffordable for more Australians.

‘The cancellation of elective surgeries during the lockdown has placed further pressure on insurers, as members find less value for money from their insurance,’ says IBISWorld Senior Industry Analyst, Liam Harrison.

The industry employed over 13,000 people and earned $25.3 billion in revenue in 2018-19. A significant decline in the industry could cause thousands of job losses over the next several years. These losses could occur both directly in the industry and from private health providers which rely on insurance claims as part of their income streams.

Unhealthy trends

One of the greatest challenges facing industry operators, and one that existed prior to COVID-19, is the decline of private health insurance coverage among younger demographics. The insurance system isn’t viable unless the costs of supporting the elderly and frail are offset by the revenue generated from young and healthy policy holders.

‘Younger Australians in particular are opting not to have private health cover, placing upward pressure on the price of health insurance premiums and risking pricing more people out. This trend causes even greater price rises and further declines in coverage,’ said Mr Harrison.

This potential worst-case scenario has been described as a death spiral for private health services in Australia. Prices increase when young people do not purchase private health insurance, which in turn incentivises more young people to leave.

Winning back the young

Private health insurance providers have attempted to attract younger Australians back with offers such as greater variety of extras covered and expanded coverage for non-conventional services. However, this strategy has had limited success, as the rising expense of insurance has increasingly become a cost that younger Australians have decided they can either no longer afford or no longer require.

‘The attempts to encourage younger Australians back into the private health system have been largely ineffective, as the biggest driver of the exodus is cost, which providers have little ability to change,’ said Mr Harrison.

Value for money

Unlike other types of insurance, such as home or contents insurance, where the risk remains relatively flat over time, the risk of health issues rises as the body ages. This factor skews the perception of value, as younger Australians are unlikely to benefit strongly from insurance until they’re older.

‘Younger Australians have left the private health system, finding the public system adequate enough to take care of any medical emergencies that they might have. While this is fine for younger Australian’s, this exit of younger members raises the cost of all remaining members, which insurers have struggled to battle with as they attempt to control cost growth’ said Mr Harrison.

Outlook

Under current circumstances, industry operators are likely to face significant challenges over the next five years. The unattractiveness of private health insurance for young Australians is likely to continue, as the growing cost pressures of day-to-day living push private health cover further down as a priority on the average Australian household budget. Different suggestions have been made to assist in resolving the issue, such as increasing the private health subsidy, removing the community rating restrictions or introducing harsher Medicare loading penalties for not having private health insurance.

‘There are potentially dozens of ways to resolve the current crisis facing Australia’s private health system, but one thing’s for sure; the industry can’t survive by simply staying the course,’ said Mr Harrison.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647

Email: mediarelations@ibisworld.com