Should health status come into play when calculating premiums?

A recent online survey revealed that two in three Australians think that smokers should pay higher health insurance premiums than non-smokers.

It’s a tricky issue. At Westfund, we simply want everyone to lead healthier lives no matter what their lifestyle choices. But there is no hiding from the fact that the health implications of smoking eat up an enormous amount of resource. Smoking related illness account for approximately $600 million in hospital and health expenses each year.

This issue is further complicated by the fact that private health insurance in Australia is directed by a concept called ‘community rating’. It means that all Australians are charged the same premium for health insurance policies regardless of their health status. So regardless of how much you exercise or smoke, health insurance companies are not permitted to take that into account when calculating your premium.

The thinking is that this helps ensure that all Australians have equal access to affordable and effective private health insurance. An inevitable consequence of this policy though, is that non-smokers end up subsidising the health insurance premiums of smokers. We also lose an important opportunity to provide an additional incentive for smokers to quit.

At Westfund we’d love to be able to provide our non-smokers with a lower premium while simultaneously providing an important new incentive for smokers who are thinking of quitting.

It seems to us that softening some of the provisions in the “community rating” policy would be consistent with Australia’s national policy on preventative health. It could increase participation in private health insurance by allowing premiums to be reduced in the long term.

And if we were allowed to increase the premiums of smokers (even by just a marginal amount) then this extra money could be used to develop programs that help smokers to quit.

Seems like a classic “win/win” to us.