Just three health insurers ‘viable’: APRA

Prudential regulator warns only three private health insurers may survive, as young members dump their cover.

APRA board member Geoff Summerhayes. Picture: Aaron Francis

Only three private health insurers will have a sustainable business model by 2022 as young health fund members continue to dump cover while as more older, costlier members continue to take up insurance, the nation’s financial regulator has warned.

The Australian Prudential Regulation Authority questioned the ongoing viability of Australia’s under pressure private health insurance system and called for an urgent government review into its future.

Despite repeated warnings from the regulator to shore up their businesses in recent years, APRA executive Geoff Summerhayes lashed the industry for “seemingly waiting for the government to find a miracle cure” for the headwinds facing the sector.

He said an independent inquiry must investigate whether insurers should be able to continue to subsidise older policyholders with cheaper younger members, the way hospitals and doctors charge insurers, and the role of mental health in private health cover.

“The situation isn’t yet critical; for now, I would describe it as ‘serious but stable’, however that stability is under threat,” Mr Summerhayes said. “We’ve reached the point where some hard decisions need to be made if private health insurance is to remain an essential part of the Australian health system.”

Mr Summerhayes said APRA was drawing up plans to force smaller, unsustainable private health funds out of the industry through mergers with bigger companies – Medibank Private, NIB, and HCF – which are likely the only ones to continue to have a viable, well-capitalised business model.

There are 35 health insurers, and many are smaller, community-focused health funds.

Private health cover has declined to its lowest level since 2007 as policyholders continue to leave insurers amid ever-increasing premiums and fewer benefits. Premiums have risen 71 per cent over the last decade – faster than wages, inflation and house price increases.

Five years ago, 40 per cent of people aged 20 to 39 had hospital cover. Now that figure has dropped to 34 per cent. At the same time, an ageing population is claiming more on its insurance than ever.

APRA predicts the level of hospital cover will have dropped another 1.6 per cent, or 184,000 policyholders, by 2025.

Private Health Australia chief Rachel David rejected calls for another inquiry and urged the government to incentivise more younger people to take up insurance by subsidising their policies, to allow insurers to cover out-of-hospital care, and to clamp down on the costs of medical devices.

Government subsidies for the industry already top $6 billion.

“The problems in the sector are well-documented, there is no need for another major review, now is the time for action and proactivity on the part of the funds and health industry stakeholders,” Dr David said.

Members Health boss Matthew Koce, who represents smaller health funds, warned the government against fiddling with the community rating model, which allows older customers to be subsidised by younger policyholders.

“Community rating is the cornerstone of Australia’s private health sector because it stops the insurers from discriminating against members based on health status or claims history,” Mr Koce said.

The Grattan Institute has blamed “greedy” doctors and hidden private hospital fees for the rising cost of private health insurance, and issued a report last month with found premiums could be cut by 10 per cent if private hospitals focused on treating patients rather than keeping them in longer to recoup more money.

It identified up to $2 billion a year in savings the sector could be making, helping pass on lower premiums to their customers.

Out-of-pocket costs for hospital treatment quadrupled in the 10 years from 2007-08 to 2017-18 to a total of $3.9bn.