Medibank takes swipe at ALP’s proposed health insurance premium cap

Medibank’s boss has warned that the ALP’s plan to cap increases in health insurance costs at 2pc is not sustainable.

Medibank CEO Craig Drummond during their AGM in Melbourne last year. (Aaron Francis/The Australian)

Medibank boss Craig Drummond has warned that Labor leader Bill Shorten’s plan to cap the annual increase in health insurance costs at two per cent is not sustainable.

The chief executive of the health insurance giant (MPL) said today that the issue of affordability needed collaboration across the healthcare sector and not just “pointing the finger at one particular part of the segment”.

“Everyone needs to participate in this, including government, but it has to be sustainable and I don’t think the two per cent cap addresses the underlying issues,” Mr Drummond said at a Macquarie conference today.

Opposition Leader Bill Shorten has made it clear that attacking health insurers will form part of his campaign to be elected Prime Minister of Australia. He has promised to cut annual premium increases at two per cent for the first two years of a Labor government. Mr Shorten has also consistently highlighted the profit margins enjoyed by the large health insurers.

Mr Drummond said today that he was in absolute agreement that premiums needed to rise at the lowest possible rate and that costs needed to be removed from Australia’s healthcare system. But he added that he was concerned that a “good chunk” of the private health insurers, which were operating on low margins and ran as not-for-profits, would struggle with a two per cent cap.

“Some (smaller funds) do have surplus capital but it is not a great business model to run operating losses at an underwriting level and rely on your capital base to fund your business. I don’t think that is a sensible or sustainable proposition,” he said.

Mr Drummond also pointed to a speech made earlier this year by Australia Prudential Regulation Authority executive board member Geoff Summerhayes, who outlined that the fundamental forces pushing premiums higher was the claims costs being experienced by insurers.

“We hear a lot about (insurer’s) profits from some stakeholders but the industry margin, which is about 5.25 per cent, is unchanged over the last 10 years,” Mr Drummond said.

The Medibank boss also outlined today that the health insurer had recorded stable policyholder numbers in the March quarter.

“We haven’t been able to say that for a long period of time,” Mr Drummond said.

“I don’t want to make too big a point as the March quarter isn’t the most important, the June quarter is but we have seen a better performance in the March quarter from the Medibank brand.”