A health fund will repay $620,000 in total to tens of thousands of members after an investigation found it had changed the rules on "fixed" dental benefits in likely breach of the law.
An Australian Competition and Consumer Commission investigation found health insurer Australian Unity had changed the way the annual dental limit on couple and family extras policies worked, even though it had made assurances the benefits were fixed for the year.
Originally, members under one policy could choose how they wanted to use and split the annual dental limit, which was between $1600 and $2400 a year. For example, all of it could be used on braces for one child.
After the change, each member was only allowed to claim up to half of the annual limit.
"Insurers just can't move the goal posts by selling members a policy with fixed benefits and then changing the rules midway to reduce the benefits," said ACCC commissioner Sarah Court.
"It left a whole lot of members in limbo land because they had planned how to use the money, like on braces, and suddenly they were then met with out of pocket expenses."
Australian Unity, the country's sixth-largest health fund by market share, has provided a court-enforceable undertaking where it acknowledges it was likely to have made false or misleading representations and engaged in misleading and deceptive conduct in breach of the consumer law.
It sold the affected policies in early 2015, sent a letter to about 25,000 members notifying them about the change in August that year, then made the change in September.
The undertaking reveals it had concocted a plan to deal with complaints on a case-by-case basis. If an affected customer had a dental treatment plan in place, it was willing to delay the introduction of the limit.
If an affected member didn't call to complain, Australian Unity made no offer.
An Australian Unity spokesman said it had begun contacting all potentially affected members to apologise and discuss compensation.
"We are also in the process of contacting all members of the health fund more broadly," he said. "As a consequence, we have conducted an extensive review of its internal operating processes and procedures relating to health insurance product changes."
Ms Court said many complaints had been made to the ACCC and the Private Health Insurance Ombudsman.
She said while Australian Unity's terms and conditions gave it the power to make such a change, it had still made misleading claims to its customers.
She said this case pointed to a problem in the wider health insurance industry.
"The health insurers tell us that so as long as they're compliant with the private health insurance legislation and the black and white letters of those requirements, there are no consumer issues, or the ACCC shouldn't be concerned," she said.
"But we're saying, 'No, you can comply with all that legislation and still engage in conduct that is misleading to consumers'."
The health insurance industry is grappling with skyrocketing consumer complaints, increasing health care costs and falling member numbers.
The federal government recently announced a raft of reforms to keep insurance affordable, including the introduction of gold, silver, bronze and basic categories and cuts to the cost of medical devices on the prostheses list.
The ACCC encouraged Australian Unity policyholders to find out if they are entitled to a refund.