APRA: Pandemic has had a 'material effect' on private health insurers

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The COVID-19 pandemic had a "material effect" on the performance of the private health insurance sector in 2020, says the Australian Prudential Regulation Authority (APRA).

The prudential regulator said the sector reported "negligible premium growth and weaker investment earnings" during 2020. It said this led to a decline in profitability with net margins down to 1.9 per cent significantly driven by the deferral of the April 2020 premium increase and other concessions provided to policyholders.

"Reflecting these, industry net profit after tax fell 61.2 per cent to $558.2 million," it said.

APRA reported a decline in the proportion of the population with private hospital coverage - 44 per cent to 43.9 per cent - despite the fact the number of people covered by a policy increased by 103.179. The growth was significantly driven by people aged over 50. 

The number of Australians with hospital coverage rose by 34,801 in the final three months of 2020.

Private Healthcare Australia said this growth demonstrates consumer support for private health in the wake of the COVID-19 pandemic.

"The flexible options introduced by the private health insurance industry during the COVID-19 pandemic, including telehealth and hospital services provided in the home, have further enhanced the value proposition," said CEO Dr Rachel David.

"Health funds acted quickly during COVID-19 to ensure members could continue to get value from their private health insurance by funding telehealth across a broad range of general treatment areas and offering a range of financial support measures to members impacted by the pandemic."

Members Health CEO Matthew Koce said, “This is the second consecutive quarter of growth in private health insurance numbers,” said Matthew Koce, CEO of Members Health, the peak body for not-for-profit health funds.

“According to the APRA data, well over half the Australian population have health insurance, with 13.7 million people holding some form of coverage."

Dr David said private health insurers paid $22.15 billion in benefits in 2020, with each fund returning an average of $0.89 in premium revenue.

She said the pandemic has highlighted the importance of maintaining Australia's mixed public and private health system.

"This is especially true now as public hospital waitlists blow out to over 1.5 years for common elective procedures, with some media reports suggesting a staggering ’10-year wait’ for some procedures in the public sector," she said.

“Pressure on our health system is increasing as the needs of a large baby-boom population grow, and demand for inpatient mental health services escalates. Private health cover must be more affordable for Australian consumers to maintain balance in our system. Despite the efforts of health funds, premiums continue to rise due to outdated regulation putting upward pressure on health costs.”

Dr David said the sector supports further reforms to the pricing of medical devices, including the adoption of an episodic diagnosis-related group-based prosthesis funding model. This proposal, which is thought to currently have the government's support, would involve the independent setting of reimbursement amounts based on the 'bundled' prosthesis component of a procedure. 

The Medical Technology Association of Australia (MTAA) has argued these reforms will restrict access to new technologies. A joint statement from four groups earlier this week, including the MTAA, called for a range of alternative reforms to the Prostheses List.

Private Healthcare Australia has also recommended restoring the private health insurance rebate to 30 per cent, the reform of second-tier default benefits, removing some outdated regulations and increasing the Medicare Levy Surcharge.

Dr David said, “It was deeply disappointing to see the benefits growth in medical device (prostheses) claims at 3.9 per cent outstrip claims for medical services at 3 per cent over the quarter, despite the best efforts of the Australian Government and the health funds to rein this in."

The Australian Private Hospitals Association said the APRA data confirmed the number of patients seeking care in private hospitals was slowly beginning to "bounce back" toward the end of 2020.

“This data shows us an increase in episodes of care in the private sector - some of which will be helping public hospitals battle their large elective surgery waiting lists - but it is still 10 per cent lower than the same period pre-pandemic. There is still some work to be done before the sector is fully recovered,” said CEO Michael Roff.

Mr Roff said it was pleasing to see the continued uptick in Australians taking up private health insurance but this might change when JobKeeper ends next month.

“This continued increase is good, though it is not as high as in the September quarter. However, there may yet be another blow for health insurance as COVID-19-related income supports are withdrawn. This highlights the need for the Federal Government to assist households to keep their insurance by restoring the rebate for low-income earners in the Budget."

Catholic Health Australia responded to the new APRA data by backing a number of its own proposed reforms.

“Allowing young people to remain on their parents’ plan for longer could be the real shot in the arm for private hospitals. Our system should recognise that young people are living at home longer, getting married later, and starting families well into their 30s," said spokesperson Stephanie Panchision.

“We have been pushing for this rule change for some time and it was good to see the government recognise this in the Budget in October but we need to see more detail so that the health sector can prepare for this change.

“This policy change can’t come soon enough as we need to stop the drift of young people away from private health insurance and, more importantly, encourage them to access private health care. Our health system needs a health private sector to take the burden off the public system.”