Health cap to leave insurers on the brink

Labor’s proposed 2pc cap on health premium increases would lead to eight insurers operating at a loss, an analysis finds.

Opposition health spokeswoman Catherine King says the proposed cap would save an average family $340 over two years. Picture: AAP

Labor’s proposed 2 per cent cap on health insurance premium increases would lead to eight insurers operating at a loss in the first year and put three on the brink of insolvency in the second, according to an industry analysis.

The biggest health policy from Bill Shorten to date — capping premium increases at roughly half the current rate for two years to allow for another inquiry — would also put the more dominant health funds at a competitive ­advantage.

Slashing premium revenue would likely prompt insurers to reduce benefits and payments, undermining several years of reforms before a Labor government would even be in a position to ­respond to an inquiry by the Productivity Commission.

Industry body Private Healthcare Australia commissioned an analysis of Australian Prudential Regulation Authority data on the sector and the potential impact of Labor’s proposed cap. The analysis suggests eight insurers would be in deficit, or running at a loss, at their current level of expenditure growth in year one of such a cap. In year two, 15 funds would be in deficit — three on the brink of insolvency if hit with high growth in costs or claims.

“This proves false the contention that profit margins would ­enable funds to bear the price cap regardless of health inflation on the supply side,” the analysis says.

When Mr Shorten announced the policy earlier this year, he slammed insurers for increasing premiums despite having a “stack of cash in the bank and profits in the billions”.

PHA chief executive Rachel David last night said the industry wanted both parties to help ­address input costs to keep costs down. But she said Labor’s ­proposed cap would need to be ­accompanied by a strategy to deal with the inevitable pressure on the smaller, regional funds most at risk. Opposition health spokeswoman Catherine King last night said the proposed cap would save an average family $340 over two years.

“Of course the insurers don’t like it,” she said. “But it will ultimately help the industry by slowing the private health ­insurance exodus.”

Ms King said Labor was willing to work with smaller insurers to ensure they were not unduly affected by a cap, but overall the industry was extremely profitable.

Mr Shorten had said he was “fed up with the private health insurance industry treating Australians like mugs, gouging people on the basis of a con”.

Soon after his policy ­announcement, however, APRA official Geoff Summerhayes declared insurers were “under duress”, with rising costs forcing up premiums, leading members to drop their cover.

While acknowledging the ­industry’s “healthy level of profitability”, Mr Summerhayes reiterated that capital levels were neither too high nor the cause of rising premiums. APRA is now reviewing prudential requirements out of concern for some funds. “The underlying cost of Australia’s health system is the ailment; rising insurance premiums are just a symptom,” Mr Summerhayes said at the time.

“Specifically, the fundamental forces pushing premiums up are higher claims costs experienced by insurers, through such factors as a greater uptake of medical services among policyholders and the rising cost of treatments and procedures.”

Dr David said Labor should outline its plans for reform, not just leave it to an inquiry.

Health Minister Greg Hunt last year announced a package of reforms intended to reduce cost pressures and improve transparency. One of the reforms, the planned introduction of Gold, Silver, Bronze and Basic categories in April, is running a month behind schedule. A reform committee has considered new modelling on category definitions and the impact on premiums, however it has not been released.

Labor is also promising to strip the rebate from so-called “junk” policies.