Program: Mornings
Date: 22/08/2019
Time: 9:24 AM
Compere: Gareth Parker
| GARETH PARKER: | Now, a couple of profit results from the private health insurance companies in recent days. This morning Medibank Private, their profit $459 million – so call it 460 if you like – $459 million, up 3 per cent. Last week NIB, $200 million, up 9 per cent.
So profits are growing for the private health insurers which is interesting given that the number of people taking out private health insurance is falling. It’s down below 50 per cent. It’s down I think at about 44, 45 per cent was the latest figures that came out earlier in this week. Premiums go up higher than inflation, number of people willing to pay them is falling, yet profits for the private health insurers seem on the evidence of that to be healthy. Amid all of that there’s new analysis today by an economist that is commissioned by the medical device makers. So we’ll make that point and that’ll become important in a moment. But they say that if the private health insurers didn’t spend so much on advertising, didn’t spend so much on overheads, didn’t spend so much on administration then your premiums would be cheaper. We wanted to speak to the economists who had done the analysis, Andrew Charlton, he’s unavailable this morning. But the CEO of Private Health Insurance Australia who represents the insurers is Rachel David. Rachel good morning. |
| RACHEL DAVID: | Morning Gareth. |
| GARETH PARKER: | Despite all of the claims of a death spiral the corporate profits seem to suggest that your industry is in rude health. |
| RACHEL DAVID: | Well look, I’ll make a couple of points and the first thing is that Medibank and NIB, the two listed companies, the two Australian listed companies that have reported are extremely well managed including their investment. And basically that has been able to pass that profit on to their members in terms of a premium increase that’s much lower than it otherwise would have been.
You would have noticed that the headline premium increases. We’ve had an, as an industry has been going down, last year being the lowest in 17 years because of the good and strong management of these funds. The other point I’d make is that profit, health fund profits, and bearing in mind about half the funds are not for profit, but health fund profits are not the driver of premium increases and the Prudential Regulator has been very clear about that. Premiums go up because health funds are paying for more health care as the population ages. And as premiums go up the benefits paid to members have also gone up in proportion. We’ve paid back 86 cents in the dollar for every dollar of premium that the consumer spends which is way higher than any other form of insurance. In Credit General Insurance which is at 67 cents in the dollar. |
| GARETH PARKER: | Okay. So the claim that’s being made that premiums could be even lower if you weren’t spending so much advertising trying to compete for customers? |
| RACHEL DAVID: | Look that is just not borne out by the facts, Gareth. The management expenses have remained absolutely stable over the last 15 years and the only time when it went up slightly was when we had to do a massive transition to implement the Government’s reforms over the last couple of years which were aimed at making it easier for consumers to choose a new for health insurance. So the only reason that we’ve spent the money on communicating with consumers is because our regulators required us to do so. |
| GARETH PARKER: | So what? The transition to gold, silver, bronze and all that sort of stuff, you reckon, means that you got to spend more money. |
| RACHEL DAVID: | [Talks over] That’s correct. It was a major, major undertaking that cost tens of millions of dollars. But that being said it has improved the system by helping consumers understand their health insurance and choosing an appropriate product. So health funds are keeping an eye on their management expenses and doing everything they can to keep premiums down for consumers. But sometimes our Regulators require that we invest more in communication with people and with our members and that’s exactly what we’ve done. |
| GARETH PARKER: | Another aspect of this analysis I’d be interested in – I mean I don’t necessarily think you would disagree entirely with this – but there is a call to tighten up the payouts on some of the extras care, some of the add ons. I know for example HBF in your state have been doing that anyway. I mean is that part of the story? |
| RACHEL DAVID: | Yeah well look, the Government has tightened up on the regulations around some of the wackier natural therapy and that’s had a small, a very small impact on savings that was passed through in full to customers in the last premium round. But I have to say that extras cover is a major reason why a number of people take out health insurance. Health funds pay for 42 million dental services every year and that’s been increasing at close to 4 per cent a year as government services for dental have been decreasing.
So a greater proportion of the community actually relies on a health fund to provide free dental checks and reduce costs for dental services in particular, let alone all of the physio and the other allied health services that help people get on their feet after injury. This is not inconsequential to the health system and is an essential reason why people actually take out health insurance. |
| GARETH PARKER: | Okay. For all of those explanations the reality remains that premiums continue to increase and that the proportion of the population prepared to pay for them is decreasing. That can’t continue without affecting the sustainability of the industry. What do we do about it? |
| RACHEL DAVID: | Well look I think there- the first principles, we have no difficulty whatsoever in selling health insurance to people aged over 55 because they’re getting value for money. Health funds are paying out more in benefits this year than they ever have before and it’s because people – that large baby boom population hitting that age – is now requiring far more medical interventions, more medical devices than ever before. The trouble is the populations following that are smaller and they’re having to work harder to support that ageing population and they’ve been paying more in premiums and perceiving that they’re not getting enough back.
Under the community rating system that we have for health insurance in Australia we cannot give big discounts to younger people, we have to charge the same premium to people regardless of whether they’re sick or well. So there’s really only a couple of things we can do, Gareth. We can take costs out of the system by working with the Government to reduce the amount we’re spending on inflated prices for medical devices, and to tighten up on some of the payments we’re making. Or we can think about readjusting some of the subsidies into private health insurance and maybe looking at ways of funding younger people a little bit more because we know that private health insurance is a highly efficient way of providing elective surgery, mental health care and dental care to the community. |
| GARETH PARKER: | Rachel, thank you for your time. |
| RACHEL DAVID: | Thanks Gareth. |
| GARETH PARKER: | Rachel David, CEO,. Private Health Insurance Australia. |
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