Australia’s private health industry is too complex and drives consumers to lower-priced policies which lack adequate coverage, the Australian Competition and Consumer Commission (ACCC) has found.

In its annual report on the industry, the ACCC said there are a number of market failures in private health insurance that impede consumers’ ability to make choices that are likely to be in their best interests.

The ACCC found the complexity of the system was central to most consumer complaints.

“A range of factors contribute to this complexity, including regulatory settings, the sheer number of policies available, the range of benefits and exclusions, preferred provider arrangements, policy variations and differing terminology between funds which makes comparison difficult,” the ACCC said.

Currently there are more than 20,000 different policies in the market being sold by the 34 registered health insurance providers, although more than 80 per cent of the market is captured by the five biggest insurers.

The industry generates revenues of more $21 billion with annual total profit of $1.5 billion.

Despite being the ACCC’s 16th review of the industry, many of the key concerns, such poor communication and information, remain entrenched.

Emphasis on tax, not health

The ACCC found regulatory incentives are driving consumers to lower-priced policies than they would prefer, with an emphasis on tax rather than health outcomes.

“Existing regulatory settings can change consumers’ incentives in purchasing private health insurance and drive insurers to offer products to primarily reduce consumers’ tax liabilities,” the report noted.

“As funds respond to market demand for affordable policies, there are increasing policy limitations and exclusions leading to an increased risk of unexpected out-of-pocket expenses and general dissatisfaction with the system.”

Despite the vast array of policy options in the market, consumers often remain rusted onto existing policies even when dissatisfied or planning a change.

“When faced with such complexity, consumer decision-making is affected and consumers are less inclined to review and change policies; that is, consumers become less engaged market participants,” the report noted.

“Reduced consumer engagement impacts competition as the incentives for suppliers to offer better policies are reduced, and increases the likelihood of decreasing confidence in the perceived value of policies.”

Consumer complaints on the rise

In the past year there has been a 16 per cent rise in complaints to the Private Health Insurance Ombudsman, with a substantial spike centred on the quality and accuracy of advice provided over the phone or in branches.

The ACCC said there is evidence that insurers are encouraging consumers to downgrade their cover to secure cheaper premiums.

“As a result, consumers are finding themselves more often without the cover they expected,” the ACCC said.

Not surprisingly there is a significant disconnection between consumers’ expectations of the services and rebates they are entitled to receive under their policy, and the reality of the benefits their policy provides.

“Complaints to regulatory and complaint bodies about unexpected out-of-pocket expenses and ‘bill shock’ are also rising,” the ACCC said.

ACCC reviewing possible consumer law breaches

The ACCC said it was carefully reviewing many practices that had the potential to breach consumer laws.

These include bold headline claims that are heavily qualified in fine print — such as “no gap” or “100 per cent cover” — when significant qualifications apply.

The ACCC also found there was a growing problem with the use of industry terms or phrases that are inconsistent with plain language or consumers’ understanding of commonly used words and complicated and misleading terms and conditions, exclusions and practices that made comparisons almost impossible.

Being one of a number of regulators with oversight of the private health insurance system, the ACCC made a number of recommendations focussed on consumer protection, rather than a “broad roadmap” of reform.

The recommendations include a review of Standard Information Statement requirements to ensure they are an effective information and comparison tool, standardising policy terminology and introducing an easy to use interactive tool to help calculate out-of-pocket expenses before policies are sold.