Fewer than 40% of the population will be covered by private health insurance by 2030 unless reforms are made, according to a report from the public policy thinktank the Grattan Institute.

The report, led by the health economist Stephen Duckett, recommended partially deregulating premiums to allow insurers to charge younger people less than older people for the same level of coverage, but said premiums should remain regulated and should not vary by age for people 55 and over.

The system faces a death spiral younger and healthier consumers get a bad deal so theyre dropping their insurance, which means premiums need to rise, so even more young and healthy people drop out, and the cycle continues, the report, published on Tuesday night, said.

This youth exodus means the recent moderation of premium increases is likely to end, and premiums will probably return to increasing at 5% or more each year. Young peoples premiums have to get cheaper.

The report proposed a number of other reforms, including redirecting the private hospital insurance rebate towards older patients. The report also recommended that the rebate not be increased, it be withdrawn from low-coverage policies, and the extras insurance rebate be withdrawn.

Part of the proceeds should fund dental care and part should keep hospital insurance premiums for older people at acceptable levels, it said.

The chair of the Australian Health Care Reform Alliance, Jennifer Doggett, said the proposed reforms were not substantial and would merely tweak the numbers to make insurance slightly more attractive to young people.

My biggest criticism is that the paper assumes that the current system of private health insurance is a system worth saving which, in my opinion, is not the case, Doggett, a health policy analyst, said.

They dont address many of the fundamental problems with private health insurance: that it is overly complex, cost-inflationary, has high administrative costs, leads to over-servicing, is inequitable, doesnt help those most in need, and disadvantages people in rural areas although some of these issues are addressed in other Grattan papers.

For the reforms to succeed, enough young people would have to join to effectively cross-subsidise the cost of older people. Consumer behaviour in this area was difficult to predict accurately as peoples decisions about private health insurance and healthcare were not often economically rational.

The paper relies on some significant assumptions about how young people will respond to the reforms. If these are wrong, the changes are not going to have the effect they predict, Doggett said.

However, redirecting the dental component of the rebate into public dental services is a positive as this would deliver much better value although overall the removal of the rebate from ancillary services means that the out-of-pocket costs for allied health and dental services are likely to rise.

Catholic Health Australias chief executive, Pat Garcia, said deregulating premiums for those under 55 would mean junking a fundamental tenet of Australias health system. This risked increasing premiums for young people with chronic disease and mental health issues, leading to those with chronic disease dropping their private health insurance and moving into the public system.

This is the last thing public hospitals need right now.

The chief executive of Private Healthcare Australia, Dr Rachel David, said health funds were prevented from discriminating against members based on health status or claims history.

The latest report from the Grattan Institute highlighted issues of concern in the private health sector previously identified by government and stakeholders, however it failed to offer any workable solutions, she said.

While maintaining a system of community rating [which means the same service is available to everyone for the same price] posed challenges for Australias health system, it was also one of the features which helped Australia maintain its international reputation for fairness in healthcare.

Community rating underpins Australias private health insurance regulations, and changes to a risk-rated system would severely destabilise premiums for older Australians and threaten the future of fair and equitable healthcare.

Generational transfer of risk would mean a lot of Australians would have a very uncertain future.

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Up to 60% of Australians will drop private health by 2030 without reform, report finds - The Guardian