What is community rating?
Private health insurance is community rated. Community rating means that every person is entitled to buy the same health insurance products or renew the same products for the same price as any other person (except where Lifetime Health Cover loading applies). A health fund cannot charge one person more – or refuse to cover them – based on what health conditions they have or how often they have claimed on their health insurance in the past.
Where someone has to pay Lifetime Health Cover (LHC) loading because they did not have private health insurance after they turned 30 years old, the loading charge makes their insurance premiums more expensive than anyone else with the same health cover.
Having said all that, of course premiums for the same level of cover vary from health fund to health fund. That’s why we research and rate hundreds of health insurance policies every year to find out which offer patients the best value for money and the best coverage. Compare your options for health insurance using our website:
Whilst everyone is entitled to buy health insurance, there are some things that mean you may not be able to get insurance from every single provider on the market. A health fund can be “Open”, meaning they provide policies to anyone in the general public, or “Restricted”, meaning they only provide policies through specific employment groups, professional associations, or unions. In addition, many health funds only operate in a particular state or region.
Why we have community rated health insurance
The community rating system was created through the Private Health Insurance Act 2007. The government introduced the community rating system because they viewed it as unfair that someone with a higher number of claims in the past or a higher level of health problems should have to pay more to get the same treatment.
To put it another way, it would be unfair for your little old grandma to pay the same for a basic, entry-level Hospital Cover policy as her grandkids would be paying for the same cover. Based purely on her age, your grandma has a higher probability of ending up in hospital after a bad flu season or after having a fall, but she shouldn’t have to pay more because she is unlikely to be able to afford to pay more.
People of certain ethnicities or racial backgrounds have a higher probability of having certain health conditions, and to charge them more because of this would amount to racial discrimination.
And what about those people who develop chronic conditions that require ongoing treatment? If community rating were not in place, they would progressively be charged more and more in insurance premiums for the same level of cover – until it became completely unaffordable.
The alternative to community rating: risk rating
Private health insurance is different to life insurance, trauma cover, total and permanent disability (TDP) insurance, or income protection insurance, which are all “risk-rated”. Being “risk-rated” means if a person represents a higher risk of making a claim, insurance providers can refuse to cover a person, or lower the level of cover and benefit provided if that person makes a claim, or make that person’s insurance premiums more expensive. These types of insurance are not a substitute for private health insurance.
There are those who argue that health insurance should use the risk rating system rather than the community rating system. Currently, people who do not drink, smoke, take drugs, or engage in other self-destructive behaviours are paying higher premiums to account for the fact that insurance claims are being made by people who do engage in those risky behaviours.
Paying tax so that other people can receive Medicare benefits in the public system is one thing, but when someone is choosing to pay extra money to obtain private health insurance – so the argument goes – why should they subsidise the bad behaviour of others?