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Surcharge on smokers a no go

Date

Lesley Parker

Flat rate ... Australia does not discriminate on lifestyle choices  when it comes to charging for private health care. Illustration: Rocco Fazzari.

Flat rate ... Australia does not discriminate on lifestyle choices when it comes to charging for private health care. Illustration: Rocco Fazzari.

Making private health insurance more expensive for those with unhealthy lifestyles isn't as simple a fix as it sounds.

As the federal government defends its plans to trim the private health cover rebate, saying it will mean only a small increase in cost for most people, a new survey suggests support for what would be much more expensive health insurance surcharges for smokers, heavy drinkers and the obese.

According to the annual Private Health Insurance Report by financial services researcher CoreData, most Australians think those who lead unhealthy lives should have to pay more for private health insurance, something the federal government doesn't allow.

CoreData's online survey of 1213 people found 73 per cent believed smokers should have to pay higher health insurance premiums than non-smokers. Just more than 60 per cent thought heavy drinkers should have to pay more, while 53 per cent said obese people should pay extra.

Three-quarters of the respondents had some form of private health insurance. The survey responses were weighted to reflect the demographics of the Australian population.

However, a health insurance industry actuary, Peter Carroll, says respondents might be underestimating how much extra money smokers already pay in the form of taxes on cigarettes.

And with the dispassionate, mathematical approach of an actuary, Carroll argues smokers are not as great a burden on the hospital system as people think because the diseases they contract tend to kill them quickly.

Also, they tend to die at a relatively young age, so they're less of a burden on the government age pension.

''So the benefit for the community as a whole [of surcharging smokers] isn't as much as it looks,'' he says.

''The cost-benefit analysis is not as attractive, from an actuarial point of view, as you'd think.

''It's not worth upsetting the community rating system for just that one thing.''

UNDERMINING COMMUNITY RATINGS

Carroll is referring to Australia's government-mandated system of non-discrimination in health insurance.

Under community rating, health insurers must offer the same product at the same price to everyone (though with provision for single, couples and family pricing), regardless of the state of their health. And if you want cover, they must sign you up.

In addition, you must be allowed to move from one health fund to another without penalty - if you have served waiting periods with one insurer, those must be recognised by your new insurer.

This contrasts with life insurance, which is ''risk rated''. Here, premiums can be topped up with loadings if you're at higher risk of making a claim, perhaps because of your age or medical history. The insurer might say they don't want to cover a particular condition, or they might even refuse to provide insurance. ''Once you allow smoking [as an exception to community rating], it opens up a whole range of things of a similar kind, and which are just as significant in terms of going to your doctor, going to hospital,'' Carroll says.

People who abuse alcohol, for instance, do tend to go to hospital a lot and can live into old age, he says.

Ultimately, you would undermine community rating and potentially end up with a life insurance-style system where people's risk is assessed via questionnaire or even medical examination - a process known as underwriting - before insurance is offered. Some people could end up paying perhaps three or four times what they pay now because the risk would no longer be spread evenly across a pool of people that includes the young and the old, the sick and the healthy.

130 comments

  • Higher insurance rates based on high BMI would be fair, administratively feasible and practically enforceable. Politically though they need to do this ASAP before more than 50% of us are grossly obese. Judging by the crowd at the food court trough I am guessing we will pass this milestone sometime next week. I imagine detecting who is a heavy drinker would be harder and as the actuaries suggest smoking should be encouraged to save pension payments (?).

    Commenter
    Alan
    Location
    Melbourne
    Date and time
    October 31, 2012, 10:24AM
    • The BMI has been variously criticised as not applicable to various categories of people (athletes among them), so would the superfit be penalised along with the obses? Also what about the significantly underweight? Should they be penalised since some of them may suffer Anorexia Nervosa and that places a significant burden on the health system with repeated hospitalisations?

      So where do you stop? Should higher rates also be charged for people who undertake risky activities? What about mountain bike riders? Commuter cyclists? Mountain climbers? Scuba divers?

      Commenter
      JC
      Date and time
      October 31, 2012, 10:53AM
    • BMI is outdated - and it is only a basic indication. I play badminton with someone who has a BMI of 30 (which is overweight bordering on obsese) according to the BMI scale - but he is an extremely well built athlete due his well defined muscle mass. So if we use BMI as an indicator, you will penalise some of the fittest people out there.

      Commenter
      Phillip Parker
      Location
      Frankston
      Date and time
      October 31, 2012, 11:45AM
    • There are "healthy" fat people. There are "healthy" smokers. There are "unhealty" skinny non smokers. Many factors contribute to health.

      People who get sick alot, whatever their lifestyle is, should pay a surcharge.

      Commenter
      Davis
      Date and time
      October 31, 2012, 12:35PM
    • @Davis:"Fat people" are not healthy. These days there are so many deluded fat people who think that they are healthy, yet in reality they are likely to die early from a variety of conditions, such as CVD.

      BMI wouldn't be a good measure though, considerating that healthy people with a high percentage of muscle are overweight according to the BMI scale.

      Commenter
      James1993
      Date and time
      October 31, 2012, 2:37PM
    • size doesn't necessarily reveal health. This would not be something measurable and it would be discriminatory. It is basically saying skinny people have a right to be unhealthy- over eat and live a lazy lifestyle- while the fat have to pay more even if they are healthy- eat properly and live actively.

      Commenter
      LC
      Date and time
      October 31, 2012, 4:52PM
    • How often do you suggest we all get weighed, Alan

      Commenter
      BeachBoy
      Date and time
      October 31, 2012, 4:59PM
    • It should be easy. Make smoking illegal. No ifs or butts (pun intended).
      In this new world any one caught smoking would get an on the spot fine.
      The revenue from people smoking "chop chop" will offset the lost tobacco revenue.
      Time to get serious!. If it is generally accepted that smoking is dangerous to the health of both the smoker and the people in close proximity then ban it.

      Commenter
      The Bigger Picture
      Location
      Maccas
      Date and time
      October 31, 2012, 5:03PM
    • I thought the idea of insurance was to make it affordable for each and every participant should something well out of the reach of their normal finances occur whether that be house fire, bushfire, flood, car accident, sports injury, medical emergency or even a cut finger, smoking and drinking alcohol. Insurance companies want to pick and choose who they insure to ensure they pay out to no-one after collecting whopping premiums. If the Jail the Jailwalkers mentality out there had their way none of us would get insurance. Lets factor in the people who live in the inner suburbs with massively more cars to hit. Their insurance should be $10,000 a year. How about the people who live near rivers, the sea or the bush? They should pay 10 times more. How about people who play sport? Shouldn't their medibank premium be 10 times higher? I don't play sport. As a result no broken bones or torn ligaments. I don't drink alcohol so no punch to the head last Saturday night. I smoke a little. Maybe I should pay ten times the premium whilst the rest of you P it up against the wall

      Commenter
      Jode
      Location
      Melbourne
      Date and time
      October 31, 2012, 5:12PM
    • Without even venturing to deal with the moral issues here, let us just consider the science.It is not proven that BMI or body fat plays a causative role in higher mortality. It is not even a good correlation.Many population studies show that being overweight (BMI 25-30) predicts the best mortality outcomes. Skinny people with a BMI <20 have the worst mortality outcomes.http://www.nature.com/oby/journal/v18/n1/abs/oby2009191a.htmlhttp://jama.jamanetwork.com/article.aspx?articleid=200731If we were to make ridiculous assumptions about body fat being caused by lifestyle and directly affecting mortality, then overweight people should pay the least, and skinny people will have to pay the most. Now that would be truly contraversial!

      Commenter
      Gordon Rouse
      Location
      Yinnar South
      Date and time
      October 31, 2012, 5:13PM

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