Health insurance: can anyone be trusted?

Policy providers are letting consumers down in droves, and insurers can get away with an awful lot.

ASIC is bringing Medibank Private to court over “misleading and unconscionable conduct”

It may not be that hard to pick a health insurance stock — after all, there are only two: NIB and ­Medibank Private. But try picking a health insurer — that’s a whole different exercise.

There are at least 20,000 policies in the market among more than 30 providers, and the extreme deficiencies of the sector have just been dramatically brought to light with the Australian Securities & Investments Commission’s audacious announcement it is bringing Medibank Private to court over “misleading and unconscionable conduct”.

ASIC’s dramatic move might just be the start of a long-awaited crackdown in this sector, which most investors must access each year, whether they like to or not, as failing to take out private health insurance means you may face an elevated Medicare levy.

Stuart Oldfield, principal at market intelligence group Field Research, says: “The selling of health insurance is, to be frank, relatively unregulated, though I would like to think this is about to change.”

Part of that change will be the recent handover of health ­insurance oversight to the Aus­tralian Prudential Regulation Authority, the banking regulator that takes over from a division of the Department of Health.

But the clean-up has yet to come in any meaningful way. For the moment, the selling of life insurance remains exempt from the more onerous regulations around financial advice.

At its worst, it means the insurers can get away with an awful lot when it comes to ­marketing their products.

No less an expert than former ACCC chairman Graeme Samuel recently joked that although he is on the board of several health ­bodies, he was totally confounded when it came to picking a new health policy.

For most of us the problem is twofold: selection and identification of product.

How to pick a health insurer

At a recent industry conference Samuel put forward the idea of a government-funded research website, available to the public, that would rate insurers and their various policies from bronze to gold. It’s an excellent idea and hopefully will replace the miserable affair now on offer from the government. There are, of course, private providers such as iSelect. But in ­common with mortgage brokers, there are commissions here, and comparisons are only among products that have gone on the books of the comparison site — that’s no good for a full view of the industry. Consumer organisation Choice has a service within its overall subscription model that has merit, although industry members regularly criticise aspects of the service. The Choice product would have to be the most attractive among a series of unattractive arrangements.

How to pick a product from your chosen insurer

Unfortun­ately this challenge is no easier than picking insurers. A recent survey by Choice decided to name and shame the worst health insurance policies. Products from big names such as Australian Unity, Defence Health, Medibank and HCF were all branded “junk” in the survey. The working criterion for selection in this shame file was that the policies covered less than 1 per cent of services available in hospital.

One of the most disappointing outcomes of the survey was that mutual or non-profit insurance companies appeared to be just as capable of letting you down as ­listed for-profit companies.

That said, in terms of customer service, the two listed companies, NIB and Medibank Private, ­regularly appear at the bottom of the tables.

But poor customer service is just one of the problems for Medibank Private, as ASIC takes it to the Federal Court, claiming it suppressed changes to policies in the run-up to the float.

ASIC says Medibank Private failed to notify policyholders it had cut back severely on coverage of common hospital tests such as X-rays and blood tests.

Separately, the bad news is feeding into Medibank’s stock, which fell 5 per cent in one day after the ASIC announcement.

Meanwhile, this poorly regulated sector may find custom just drying up — the numbers signing up for private health are the lowest in years.

Turning hordes away from ­private health may not hit the listed stock sector if investors cherry-pick, but it does mean premiums can only rise or the Medicare levy has to be lifted again.

Just about everyone loses, if that happens.