Private health insurance at ‘tipping point’, Australians dropping coverage en masse

Health industry experts warn Australia’s private health insurance industry could be in decline as consumers dropping private health coverage en masse.

The federally-subsidized industry faces crisis as thousands of people, especially those aged 25-29, abandon their private health insurance policies as annual premiums rise well above the cost of living and wages.

Less than half of the population has private health insurance, despite incentives for those who opt out and higher taxes for many who opt out.

Michael Ferrier, 50, is a good example. He thought he and his wife would get gold-plated service from their top-notch private health coverage, but finds that the $ 6,000 he spends each year doesn’t earn him much.

“It’s expensive and it’s getting more and more expensive,” he said.

“We don’t get much value from it, but like any insurance you do have it for emergencies or things you hope won’t happen.”

Mr. Ferrier’s 84-year-old father was caught a few years ago while he was due to undergo prostate surgery.

His parents ended up with reimbursable expenses of nearly $ 12,000 despite high level private health coverage.

“They found out they had a big gap, $ 9,800 gap on the surgery and then on top of that my dad had to have some preoperative MRI’s (magnetic resonance imaging) and there was no coverage for those, not even Medicare coverage, and it was almost $ 2,000 more, ”he said.

Private health ‘tipping point’

Health economist Professor Stephen Duckett examined the value of private health insurance in a recent report by the Grattan Institute, which questioned the value of $ 9 billion in taxpayer subsidies each year.

Professor Duckett said the industry was at a “tipping point” with new figures from the industry regulator, the Australian Prudential Regulation Authority, showing that more than 64,000 people have abandoned private health insurance in 2018.

“The problem for the industry is that the premiums are increasing faster than inflation, they are increasing faster than inflation for eight years, 50% more than inflation, wages are stagnating,” he said. told The Business.

Of the $ 9 billion in public subsidies, Professor Duckett said about $ 6 billion has gone to reimbursement for private health insurance to encourage people to purchase coverage.

Professor Duckett said the discount is unlikely to be removed for political reasons, but the industry could reduce the cost of services such as artificial limbs and private rooms in public hospitals.

“We need to get the health insurance industry, the private hospital insurance industry to look at what can be done to cut costs and make the system more efficient,” he said.

“The Commonwealth, for some reason, makes it better for a state government to admit a private patient to a public hospital than a public patient, so surprise, surprise, the costs go up.”

Professor Duckett said if private health insurance reimbursement were cut, coverage levels would drop from around 45% now to around 30% – the level before the government introduced a tax break in 1999 to encourage more people to take out private coverage.

The government has also introduced big sticks to forcing people to purchase private health insurance, including the Medicare supplement for high income people without private health insurance and the lifetime health coverage rule, which imposes a charge. 2% on the premiums of people over 30 for each year they do not have private health insurance.

Profits “limited” but insurers are unlikely to collapse

Professor Duckett said the removal or potential reduction in subsidies could bankrupt or consolidate some smaller players.

Mark Fitzgibbon, chief executive of publicly traded private health insurer NIB Holdings, agrees parts of the industry are ripe for consolidation, especially more buyouts by global insurers.

“Most of the pressures will come from the regulatory regime, increasing demands, appropriate demands, [insurance regulator] APRA for corporate governance, ”said the boss of the NIB.

Prof Duckett said APRA’s scrutiny will also pressure the industry to crack down on the charges.

“What the regulator is saying to the industry is take care of yourself, watch efficiency, improve yourself, don’t rely on the government to bail you out, time and time again,” he said. .

Shares of Medibank and NIB hit record highs after federal government re-election.

JP Morgan insurance analyst Siddharth Parasmeswaran said it was because insurers faced annual caps on premium increases if Labor was elected.

“The Coalition has not been so forceful in terms of very low cap on contribution rates,” he said.

“These ceilings would have really hurt the profitability of health insurers.

“I think they took a more balanced approach so I think there was a rally of relief behind that.”

Mr Parasmeswaran believes that listed insurers remain healthy – despite the challenges of shrinking customer base and rising healthcare costs, which weigh on profit margins – because they are “well capitalized”.

“We think they are now grappling with weak growth and income pressures, which are at least as big as the inflation they are seeing,” he said.

“We certainly believe that for the next two years the benefits are likely to be limited.”

Mr Fitzgibbon admits the industry is facing problems, but insists there are green shoots as well.

“Look, the industry is going through a tough time right now,” he admitted.

“We need to get more young people into the system, but we’ll just have to respond to them.”

He said NIB tries to woo younger clients by allowing them to customize their coverage so they can get lower premiums and not be forced to pay for extras they may not need.

Under the community rating system, everyone has the right to buy the same product at the same price.

However, the impact of this rule is that healthy young people effectively subsidize older people with more expensive health care needs, leading many young people to opt out.

Medicare is a ‘weirdo’, says NIB CEO

Mr Fitzgibbon has recently been criticized and has been accused of calling for the end of Medicare.

In an interview with the ABC, he denied that he wanted the dismantling of the universal health care system, rather than for people to have a complete “choice” of insurer, with the possibility of going 100% private rather than ‘be forced into the Medicare system.

“This idea that the insurance part of the delivery of this system should be monopolized by the government and this idea that I should not be able to choose between a public social insurance system and a private social insurance system which can be my only one. funder is just a little weird for me, ”argued Mr. Fitzgibbon.

Mr Fitzgibbon said reimbursable costs in Australia were almost double what they were in the predominantly private US healthcare system.

However, the United States does not have a universal health care system comparable to Medicare, and millions of people either have no insurance or are underinsured.

He also claimed that indigenous people living in remote communities would prefer private health insurance over Medicare if private health coverage was free.

“Ask some of our remote indigenous communities how well the current health insurance system serves them. They would be happy to purchase private health insurance if, for public policy reasons, it was available to them,” M wrote. Newcastle Herald.

Policy holder Michael Ferrier said customers just want value for money.

“People need to feel that this is proper insurance. Plus, I think people are feeling a bit skeptical about the constant increases and maybe even tightening of coverage at the same time,” he said. he declares.

“So they feel like they’re paying more for less all the time.

“I don’t know what you are doing about this system, but it looks like it needs a pretty big overhaul.”