Health insurers ‘sit on pot of gold’, say private hospitals

Private hospitals say health insurers must reduce premium hikes or pay cash back to consumers after an expected bounceback failed to materialise.

Australian Private Hospitals Association CEO Michael Roff is calling on the Australian Prudential Regulation Authority to publish how much in deferred claims liabilities each insurer holds. Picture: AAP

Private hospitals say health insurers must promise to reduce premium hikes or pay cash back to consumers after an expected bounceback in elective surgery following COVID-19 failed to materialise, leaving the funds with a $1.8bn cash pile of member contributions.

The health funds put the $1.8bn aside to pay for an expected increase in operations following the end of lockdowns but claims have been fewer this year than prior to the pandemic and private hospitals say they have no intention of increasing their activity.

Insurers are beginning a “monitored release” of the cash piles they had recorded as future liabilities into their profit and loss statements, but insist the funds will eventually be returned to members as benefits or premium reductions.

Australian Private Hospitals Association CEO Michael Roff is calling on the Australian Prudential Regulation Authority to publish how much in deferred claims liabilities each insurer holds and says the funds should be returned to members.

When the pandemic hit, APRA introduced an accounting mechanism that provided guidance to insurers on how to treat the liabilities that were expected to arise for operations that were deferred due to COVID-19. The mechanism was designed to stabilise premiums at a time when the forecast for the level of hospital activity was uncertain.

The combined total of the liability calculated by the nation’s health funds was $1.8bn, based on what they expected they would have to pay out in higher claims.

But rather than incurring higher claim costs, benefits paid to members have not on the whole increased, and premiums collected during COVID-19 when elective surgery was suspended remains in insurers’ accounts.

“If these deferred claims are not going to be realised, as appears likely, health funds should commit to returning that money to members either through a direct refund, or they should use the funds to offset premium increases for next year,” Mr Roff said.

“I think the regulator needs to be more transparent. APRA could publish the details of how much in deferred claims each fund is holding and they could tell the public over what period they’re expecting this to be expended and what they expect the funds to do with this money.’’

APRA said it “expects” health funds to honour their promise not to profit from the pandemic. “The method and timing of the return of any COVID-19-related profits is a matter for the insurer’s board and senior management.”

Private Healthcare Australia CEO Rachel David denied the health funds were sitting on a “pot of gold”.

“It’s not extra money, and it’s not the intention that this is some kind of pot of gold for health funds. It’s about ensuring there’s not wild fluctuation in premiums because claims are unstable,” Dr David said.

Hospital claims in the first quarter of this year were 0.7 per cent lower than in the first quarter of last year, according to APRA’s latest data. But PHA said some elective surgery procedures had increased markedly by the end of December last year compared with 2019 levels, including breast surgery, cataract surgery, gynaecology, joint replacements and dental surgery in hospitals.

Mr Roff said private hospitals had no immediate plans to increase elective surgery.

“There’s natural constraints on the system, especially in terms of workforce,” Mr Roff said. “Our private hospitals are working very hard to get back to normal and treat as many people as possible, but private hospitals can’t just run at 150 per cent of normal capacity.

“But even with increased activity, it’s difficult to see how the $1.8bn in deferred claims liability could be spent by the end of this year.”

Health economist Stephen Duckett said the onus was on federal Health Minister Greg Hunt to ensure health funds were not able to increase premiums next year.

“What the minister needs to say is that that money should entirely go to reducing the need to increase premiums in the next premium round, rather than some of it going towards reducing premiums and some of it going to increasing shareholder dividends,” Professor Duckett said.

“It’s actually $1.8bn. I don’t know how big it has to be before you describe this as a pot of gold, it is a lot of money.”

Some funds, such as the not-for-profit HBF and insurer AIA, have moved to rebate cash to members, in line with promises from the industry not to profit from the pandemic. HBF is returning $40m, while AIA is giving rebates of about $200.

Listed insurer NIB recently reported a substantial lift in profits in its half-year results. NIB is now retaining $60m of members’ funds in deferred claims liability.

“If claims turn out to be less than what we estimated we will look to return that value back to our members in lower increases in future premiums or benefits,” NIB chief executive Mark Fitzgibbon said.

Medibank chief executive David Koczkar said “any permanent net” savings would be returned to customers.