The latest statistical release from the Australian Prudential Regulation Authority (APRA) has revealed that the private health insurance sector recorded a significant fall in profitability for the final three months of 2022.
According to the quarterly report, the industry reported a 33.6 per cent fall in the December quarter to $1.2 billion, compared to the corresponding period in the previous year.
"This decline was driven by a large fall in investment income throughout the year," said APRA.
Premium revenue increased 1.8 per cent to $26.9 billion while benefits rose 1.6 per cent to $22.2 billion.
The prudential regulator said the increase in premium revenue was driven by a combination of rising membership and premium increases.
"These increases were tempered by some insurers delaying premium increases in order to fulfil their commitments not to profit from COVID-19," it said, adding that the increase in benefits was largely due to the easing of COVID-19-related restrictions in private hospitals.
Gross margins remained stable compared to the prior year whereas net margins fell over this period, it said.
Investment income fell from $448.6 million in the year to December 2021 to $207.1 million in the year to December 2022, driven by falls in the values of interest-bearing investments and equities.
Hospital treatment membership increased by 2.2 per cent or by 250,311 people during the year to December 2022.
"The growth in membership was broad-based, with membership in the 50+ age group increasing by 2.4 per cent or 111,906 persons and membership among the younger population (insured persons aged 20 to 49) increasing by 2.2 per cent or 92,799 persons," added the prudential regulator.
Private Healthcare Australia welcomed the tenth consecutive quarter of membership growth since June 2020.
“Australians are turning to private health cover in record numbers to access timely surgery and mental health treatment, even in the face of escalating cost of living pressures," said chief executive Dr Rachel David.
"While health funds are doing everything they can to keep premium increases as close to zero as possible, healthcare inflation will be sticky, and must be tackled head on by government and the sector.”
The association used its 2023-24 pre-Budget submission to call for a range of reforms, including the pricing of medical devices, new action to combat claims fraud, the abolition of second-tier default benefits, more protection for consumers and changes to encourage more people into cover.
In response, the medical device sector rejected the need for further reforms to reduce the prices paid for medical devices.
“It is clear, in black and white, that insurers have the capacity to help drive premiums down by cutting back on their own ‘management expenses’, corporate perks and executive bonuses," said Ian Burgess, the chief executive of the Medical Technology Association of Australia.
He said the association calls on policyholders to adopt the AMA’s proposal to establish an independent private health authority to review the financial practices of private health insurers.