Health insurance faces radical surgery as pandemic strikes

NIB managing director Mark Fitzgibbon. Picture: Hollie Adams

If there was ever a business that needs a plan, it is insurance. In private health, COVID-9 has put best-laid plans through the shredder. There are calls for insurers to cut premiums drastically and even suggestions that COVID-19 should be the death knell for the sector.

NIB chief executive Mark Fitzgibbon sees it very differently. The crisis will force a rethink of the healthcare system as Australians look for other ways to cope than heading to hospitals and face-to-face appointments with their GPs. And he believes that private health needs to step up to meet this new demand. In the fog of COVID-19, there is as yet no clear exit strategy. “It will happen in one of two ways,” says Fitzgibbon. “Either a vaccination or the herd immunity approach. It is anyone’s guess when this all ends and we get beyond COVID-19. We think at least for the remainder of this year, the impact will be quite profound and we won’t really see any return to ‘normal’, if there’s such a thing, until well into 2021.”

NIB, a fast-growing listed health insurer with 1.6 million customers, including international students and travel insurance, has recently dropped its guidance. Like other health insurers, it has deferred any hike in premiums for customers for six months. But news that elective surgery in hospitals and the associated claims are also to be deferred until after the crisis has dialled up the pressure on the sector to give back more. The Australia Institute’s research puts the savings in the sector at between $3.5m and $5.5m. Choice wants to see a 50 per cent drop in premiums.

“I expect we will do much more than simply freezing premiums if the savings that have been projected materialise.” Fitzgibbon puts an emphasis on the word “if”. These are anticipated cost savings, he explains. “First, the savings thus far are very modest. Secondly, Australian insurers are already incurring costs relating to COVID-19: costs associated with the premium freeze, we are providing rebates to our members in financial hardship, we are allowing them to suspend cover. We expect we will have a number of COVID-19-related treatments; in fact we have expanded cover into those products which currently exclude COVID-19-related treatment to make sure that all our members are properly protected. Of course, there is a real possibility we’ll get a surge in deferred elective surgery once the COVID-19 crisis is behind us.”

This last point, that a surge in deferred elected surgery is coming post-crisis, is surely a strong justification of maintaining premium levels. Comparing the recently announced deferrals of bank dividends with the deferral of health insurance premium increases is instructive here. On the one hand, it is hard to see the big banks, currently eating into their capital buffers to prop up the Australian economy, later topping up their shareholders with the dividend payout levels of old. In contrast, surely the deferral of health insurance will be just that? Premiums will need to rise, because elective surgery will return in force, accompanied by the ­expense claims. Yet COVID-19 may change that outcome too, as the virus pushes all Australians to reflect on how they want to engage with the health system. “Perhaps Jack doesn’t need his knee replaced,” Fitzgibbon proposes. “Perhaps Jack can achieve as good an outcome in terms of mobility and pain relief by losing weight, physiotherapy and some pharmaceutical. So there is now this concern around hospitalisation and disease. We will see new norms of behaviour as a consequence.”

If he is right, elective surgery may well reduce and with it, the accompanying claims. This will require private health to look beyond the hospital. “Nobody is celebrating the tragedy that is COVID-19, but it is an opportunity for private health insurance to step up.”

Telehealth is presenting as one of the opportunities for insurers to provide cover for members outside the hospital system. Government may pay for the telehealth consultation but who, Fitzgibbon asks, will provide the connectivity or the IoT diagnostic devices for the GP to take a patient’s temperature or blood pressure? “People will be more inclined to have their healthcare issues treated outside of a traditional hospital environment, if it can be demonstrated to be clinically appropriate and not compromising health outcomes. I think it will be very strange for our great grandkids to hear that once upon a time we saw a doctor face-to-face. They’d think, what? What about the risk of infection, the waiting room which is full of sick people?”

Just as the pandemic has accelerated the shift to a cashless society, Fitzgibbon sees potential for change in many health areas. “One of the great oddities of the Australian system is that the same doctor who we can pay for while she operates on you in hospital we can’t pay for when she sees you in her private rooms.”

Perhaps above all, mental health will be impacted by the new public awareness of contagion. Last year’s government reform allows private health insurers to offer automatic cover for mental illness. “But just like a major joint replacement,” Fitzgibbon argues. “I think we will see a shift away from treatment for psychological conditions in hospitals to lower-cost, more community-based settings. To the extent that COVID-19 drives that shift and change of behaviour, I welcome that and perhaps it allows us to be even more creative in how we mitigate the dreadful risk to mental health in so many people.”

Last week, the ACCC granted a conditional interim authorisation to private health insurers to co-ordinate during the pandemic to offer financial relief to policyholders and to include COVID-19 treatment, telehealth and medical treatment provided at home. Such co-operation did not extend to pricing. As to any near-term cut in premiums, Mark Fitzgibbon is firm. “Calls for any reimbursement or compensation by private health insurance to their members? I think they are reasonable in the long run, but right now, they’re very premature. We need to establish exactly what these savings are.”