Catholic Health Australia Submission: Outlawing private health insurance product phoenixing

Background

The issue of product “phoenixing” in private health insurance (PHI) represents a major loophole in the current regulatory framework under the Private Health Insurance Act 2007. While section 66-10 of the Act requires insurers to seek ministerial approval for premium increases on existing products, insurers are not required to obtain approval when introducing new products. This loophole enables insurers to close existing products — often those with lower premiums — and reissue near-identical policies under new names at substantially higher prices. The practice allows funds to circumvent the annual PHI Premium Round and avoid public interest scrutiny of price increases.

The Commonwealth Ombudsman has raised significant concerns about the practice of product phoenixing in the private health insurance market, identifying it as a key driver of rising costs and consumer confusion. In its monitoring of insurer behaviour, the Ombudsman found that some insurers have been closing existing health insurance products and reissuing near-identical ones at higher prices, effectively bypassing the regulated annual premium approval process. In one notable example, the Ombudsman reported that an insurer’s newly released product in 2023 carried an average premium 21 per cent higher than the closed policy it replaced, and that even a year later, the replacement product remained 14 per cent more expensive than the original. The Ombudsman warned that this practice undermines transparency and fairness in the PHI market by disguising price increases as product innovation. It also noted that phoenixing restricts consumer choice, since closed products are no longer available to new members, and makes it difficult for policyholders to compare options or understand why their costs are rising. These findings have reinforced the view that stronger legislative and regulatory controls are needed to prevent insurers from exploiting this loophole and to protect consumers from unregulated premium inflation.

The Department’s consultation proposes to close this loophole by amending the PHI Act so that premiums for new products must also be subject to ministerial approval against a public interest test, mirroring the existing process for premium increases on current products. Insurers would be encouraged to submit applications for new products during the annual Premium Round, and only in exceptional circumstances outside this cycle. The reform is expected to take effect within the 2026 Premium Round year. For hospitals, these changes are critical. Product phoenixing creates financial and operational instability: it alters product design unpredictably, disrupts patient coverage, and complicates hospital–insurer contracting. A stronger, more transparent premium approval process will support both system sustainability and patient access to care.