Surcharge on smokers a no go
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.