For young people, private health insurance is a costly trap

Commonwealth policy settings that date back to the Howard era means that if young Australians don’t buy private health insurance, they pay financial penalties. Young, often healthy people are forced to purchase “dud” health insurance policies that are expensive and provide minimal coverage. But it hasn’t always been this way, and it doesn’t have to be this way now.  

How does government policy affect young people?  

In 1983, the year before Medicare was introduced, the majority of young Australians had private health insurance, with more than 50% of 15-to 24-year-olds, and 75% of 35-to 49-year-olds. But after Medicare made the public healthcare system a viable option, people left the private system in large numbers. By 1998 less than 17% of 15-24 year olds, and less than 32% of 25-49 year olds, had private health insurance. In fact, the percentage of all Australians with private health insurance decreased from 50% to 30%, as people were able to rely on Medicare to cover their healthcare needs.  

But this trend began to reverse in the late 1990s when, as part of its overall agenda to privatise public services, the Howard Government introduced sweeping reforms to how Medicare works.   

This included the introduction of the “Lifetime Health Cover” policy, which penalises Australians who don’t get private health insurance before they turn 31. For every year they do not take out a private health policy past this age, a 2% loading gets added to their health insurance premiums when they finally do join (up to a maximum of 70%). The logic of the Lifetime Health Cover policy is that young people will opt to buy a health insurance policy now as a way to avoid paying a higher loading when they reach an age that they really need health insurance.   

The problem is that, on average, young people are less likely to use their health insurance compared to older people. This means they end up paying for a product they don’t need. Add to this age-based rebates, which mean older Australians are given more to cover out-of-pocket healthcare costs, and Australia has a system where the young subsidise the healthcare costs of the old.  

The punitive design of the Lifetime Health Cover means that many young Australians opt for the cheapest possible policy, many of which actually cover very little. These “junk” policies can exclude even quite common procedures, require the payment of large excesses, and restrict where care can be accessed. This means that young people are paying private health insurers for very little in return. When they do get sick, they either pay high out-of-pocket costs or rely on the public system for help. 

Since the Lifetime Health Cover policy was introduced, the proportion of health insurance policies with significant excesses and co-payments has soared from 30% to more than 88%. Meanwhile, the Commonwealth now gives over $7 billion in rebates to help people pay for private health insurance. This is money that could instead go directly into the public healthcare system.  

What now? 

Private health insurers are the only ones benefiting from these Howard-era policy settings.  

The early history of Medicare shows that, when given the choice, most young Australians prefer not to take out private health insurance. Instead, the Commonwealth’s Lifetime Health Cover policy means that younger Australians are paying the medical bills of older Australians. For a demographic already facing housing and cost-of-living struggles, being forced to take out private health insurance is a considerable financial burden, all for a product they will not use.  

This is why it is essential to repeal the Lifetime Health Cover, including the 2% loading, so that young people can choose whether they want private health insurance and make decisions that best suit their needs.