APRA: 'Continued deterioration in insurance performance'

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Benefits paid by private health insurers rose 3.99 per cent in 2019 with premium revenue rising by just 2.51 per cent.

The Australian Prudential Regulation Authority (APRA) said benefits rose by around $800 million from $20.57 billion in 2018 to $21.38 billion in 2019.

At the same time, premium revenue rose from $24.23 billion to $24.84 billion. 

In a statement, APRA said, "The data shows a continued deterioration in insurance performance with net margins declining from 5.2 per cent to 3.9 per cent in the year ending December 2019. Despite the deterioration in insurance performance, profitability improved due to an increase in net investment income, largely driven by stronger returns in equities in the year ending December 2019."

In a statement, Private Healthcare Australia said the fact growth in benefits outstripped premium revenue enabled insurers to deliver the lowest premium increase in 19 years, "by creating efficiencies and using retained capital."

"This compares with a 6.5% annual funding increase guaranteed to public hospitals until 2025 through the COAG process," it said.

Dr David said health funds remain committed to keeping premiums down and improving value for customers:

“As our population lives longer, and consumer expectations increase, so too does the cost of health care, leading to higher premiums and unexpected out-of-pocket costs. The younger generation is feeling financially squeezed as health funds are paying record claims for hospital procedures in people aged over 55," she said.

“The result – the proportion of Australians with hospital cover has fallen to the lowest level in 12.5 years, and by 2030-2035 could drop to 30%. This will have significant flow-on effects to the public system – blowing out wait lists, reducing choice and access and greater demand for public health spend."

Dr David also restated the association's call for reform, including restoring the full value of the Private Health Insurance Rebate for some Australians, allowing insurers to cover some treatments outside the hospital, and bringing down the cost of medical devices.

According to Private Healthcare Australia, "APRA data released today shows prostheses benefits have risen 6.6% in just three months and up 5.1% in the year to December 2019, wildly out of proportion to the number of surgical procedures performed. Hospital treatment episodes only grew by 0.1% over the year to December 2019. The Quarterly Statistics Report highlights costs are rising at an unsustainable level in the healthcare system."

It said, "Medical device companies are continuing to drive up the volume of sales of their products to offset Government measures to reduce inflated prices. Medical devices funded by PHI have increased by 8.3% in the year to December 2019 compared to hospital utilisation which only increased by 0.1% over the 12 months.  In the past five years, medical devices in the General Miscellaneous category (for items such as sponges and skin glues) has gone from 29.6% to 34.7% of total medical devices funded by insurers."

However, in response the Medical Technology Association of Australia said insurers should "drop their premiums below zero next year so long as national participation rates continue to decline."

"It’s clear private health insurers would rather drop customers than drop their prices and profits,” said CEO Ian Burgess. “Private health insurance premiums have grown faster than national house prices over the past decade."

The Australian Private Hospitals Association (APHA) said the private health insurance sector ended 2018 on a "low note" but Australians are still taking advantage of private care.

“Australians do not have any difficulty identifying where they see value in their private health insurance – it’s the ability to use private hospital care.

“With public hospital waiting lists growing at a significant rate, Australians with private health insurance can rest easy that they have fast access to high quality care, with the doctor of their choice at a private hospital,” said CEO Michael Roff.

He continued, “We have a situation in Australia where the incentives used to encourage people into private health insurance are starting to show cracks. APHA is encouraging the Federal Government to restore the private health insurance rebate to 30 percent for those in the lowest income tier.

“Low-income Australian households face a double whammy of increased premiums and reduced rebates. Every year the value of their rebate goes down, while their private health premiums increase.

“For example, in 2019, a high-income earner who did not receive the rebate would have experienced a premium increase of 3.25 percent. However, low-income earners would have experienced a real premium increase of 3.74 percent. “This isn’t fair, and it’s a relatively easy fix for government,” he added.