Rising premiums have prompted an increasing number of Australians to drop their private health insurance and more are expected to follow.
Australians are increasingly shunning private health insurance, particularly young generations as premiums climb.
According to the latest Australian Prudential Regulation Authority data, the number of people aged 20 to 29 with hospital cover and general health insurance has dropped by 8 per cent and 5 per cent, respectively, over the past three years.
To combat higher claims, rates have risen each year over the past decade, and premiums are now more than 70 per cent higher than in 2010.
Average wages, however, have only grown 32 per cent over the same period.
S&P Global Ratings says the affordability problem has resulted Australians reducing their level of cover or dropping private health insurance altogether, and it was expected to worsen over the next five years.
“Without structural change, we expect participation rates to continue to fall, likely led by younger members,” Craig Bennett, a credit analyst for the ratings agency, said.
“A decline in younger premium holders will contribute to diminishing cross-subsidy benefits between older and younger members, further hitting the industry’s long-term viability.
“With fewer new and younger policyholders, we expect health insurers to experience further profit and capital pressures, potentially leading to voluntary industry consolidation or funds forced to merge at the brink of failure.”
S&P says the Australian health industry is saturated with more than 30 players – but with the top five taking in nearly 80 per cent of insurance premiums and about 85 per cent of profits.
Many smaller health insurers are member-owned mutual organisations with very limited access to capital.
A consumer sentiment survey by comparison website Finder shows 26 per cent of Generation Y don’t believe their health insurance represents good value for money.