What is community rating?

A key pillar that underpins private health insurance in Australia is called "community rating".

As we know, affordability and access are always at the forefront of our minds when it comes to taking out health insurance.

With an ageing population, more of us are living with chronic disease leading to an increased cost in providing medical services, therefore we need to continue to be nimble so that services are both sustainable and affordable into the future.

Unlike other types of insurance, like the risk rated system where what you pay takes into account an individual’s risk, health insurance in Australia is based on a system of community rating.

So what is community rating and what does it mean for me?

Community rating was developed by the Australian Government when the National Health Act was introduced in 1953, and it is the envy of the rest of the world.

The stated aim is to ensure that all Australians are provided with equal health care regardless of age, sex, state of health or an individual’s claiming pattern with a health fund.

The Act, which was moved to the Private Health Insurance Act 2007, states that it is unfair for someone with a higher number of claims or ill health to pay more for health insurance to cover their medical care and treatment costs than others.

The result of this is that all members pay the same premium for the same private health insurance product and health funds cannot discriminate against members based on their health status, age, pre-existing conditions or claims history.

Because of this system, private health funds, like the government’s Medicare system, cannot refuse to insure an individual or refuse to sell a policy based on a person’s health and how likely they are to claim.

For example, a single 20-year-old in good health will pay the same health insurance premium as a single 35-year-old receiving cancer treatment if they are on the same policy.

Health data compiled through phone apps, fitness trackers, your medical practitioners and other platforms like My Health Record cannot be used by funds to dictate the price you will pay.

The community rating system allows private health insurance to be accessible to anyone who needs it and enables health insurers to take the burden off an already over-stressed public health system.

It is a good platform for the equalisation of risks that people invariably face at different stages of their life and allows health insurance to be more affordable and thus more accessible across the board than a “risk rated” system.

What’s the alternative?

Some may argue that private health insurance should use alternative methods when setting premiums.

One is the risk rated system that is used by general insurers when they set car and home insurance.

The American system, which is risk rated, allows funds to discriminate based on areas such as age, medical history, weight and whether they are a smoker or non-smoker, and puts private healthcare out of the reach of those whom need it most.

The result of the risk rated system is that those ageing policyholders and those with ill health will pay a much higher premium, eventually creating more stress on the public health system when they are unable to afford private health insurance and private medical care.

Because of this, elective surgery waiting lists and emergency department wait times would be stretched longer than they already are.

Another alternative to a risk rated system is to use a partial community rating system where factors like tobacco use, high body mass, blood pressure, alcohol use and physical inactivity are taken into account… but again more stress would be placed on the public system.

A fair go for all

Private health insurance funds, like St.LukesHealth, are always looking for ways to put our members first while making sure the level of cover suits your lifestyle and financial needs. 

The community rating system ensures that private cover is equally accessible to anyone who needs it while helping to relieve a stressed public health system.

It is about providing a fair go for all. 

- Paul Lupo

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