Bupa blunder: Health insurer pays price for restricting hospital options
AUSTRALIA’S biggest health insurer tried to dictate which hospitals its customers could use, US-style. Now it has emerged that the company paid a heavy price as the strategy backfired spectacularly.
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THE biggest health insurer in Australia, Bupa, has admitted the controversial changes it made to paying for out-of-pocket medical expenses prompted customers to flee.
The health insurance and aged-care titan quietly made the concession in its home country of Britain this month as it handed down a flat profit update.
Bupa’s blunder came as low wage growth and falling demand for health insurance among young people also weighed on the fund.
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The revelation coincides with rival Medibank Private posting its first increase in market share in a decade and smaller player Nib reporting strong growth in customer numbers.
Bupa Australia, led by managing director Richard Bowden, told doctors last year that its policyholders would only qualify for gap cover if they were treated at a Bupa-contracted hospital or day-stay facility.
Gap cover pays for out-of-pocket expenses incurred by patients for medical treatment received in hospitals.
The change sparked a backlash from customers and a scathing slapdown from the Australian Medical Association, which warned Bupa was trying to introduce “US-style managed care” — where insurance companies determine where patients are treated.
It also prompted federal Health Minister Greg Hunt to order the Private Health Insurance Ombudsman to investigate the fund.
Bupa, which argues public hospitals bill health fund members for treatments they could have received without charge, backtracked on most of the changes earlier this year.
The UK-listed group’s financial report for the six months to June says it made a “number of changes” to its policy in Australia “with the aim of improving product transparency and reducing out-of-pocket costs for customers”.
“However, a negative response to these changes contributed to higher-than-expected customer churn in the second quarter, and we are working to address this,” the report, released this month, says.
Medibank last week reported it had notched up its first growth in market share in a decade, up a slim 0.05 percentage points — 4800 policy holders — to 26.9 per cent in the second half of the reporting period.
“We were losing consistently 100 to 120-basis points of market share a year, (so) to be able to grow it is a really significant improvement,” Medibank chief Craig Drummond said.
Nib revealed it had grown its customer base by 3 per cent in its flagship health insurance division during the year to June.
Originally called the British United Provident Association, Bupa forged into the Australian market in 2002 with a $600 million buyout of the HBA and Mutual Community health funds.
It expanded in 2008 with a $2.4 billion takeover of MBF, and rebranded all three funds under its own name in 2011.
Bupa has more members in Australia than any other insurer, and provides health insurance to 4 million people across Australia and New Zealand.
It is also the biggest privately-owned residential aged care provider in Australia, boasting 6900 residents across 72 centres.
Over the six months to June, the group lifted its revenue in Australia and New Zealand by 2 per cent, compared with the same period a year earlier, to £2.32 billion ($4.07 billion). Health insurance premiums totalled £1.9 billion.
Underlying profit, a measure which strips out one-offs such as asset sales or writedowns, rose 1 per cent £154.0 million.
“Conditions in the Australian private medical insurance market remain challenging, with the economy and wages growing slower than medical expense inflation,” the company said in a statement.
“This is affecting health insurance demand, especially among younger people. We responded to continued pressure on private medical insurance affordability with our lowest annual health insurance premium increase in 16 years.
Net profit for the group, which also operates in Latin America and Asia, rose 11 per cent to £256.6 million.
It did not provide a statutory profit figure for its Australia and New Zealand operations.
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