Profit claim 'misleading'

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The profitability of Australian health funds has remained largely unchanged over the past decade, according to Private Healthcare Australia.

According to CEO Dr Rachel David, Labor leader Bill Shorten's claim during this week's National Press Club address, that “some of the biggest health insurance providers pocket a return of over 20 per cent”, was misleading and painting an inaccurate picture.

The organisation said health fund margins have remained stable at around 4.5-6 per cent over the last decade. They have also consistently returned 86 cents in the premium dollar to members in the form of benefits.

“Quoting selectively the ROE (return on equity) as a measure of health fund profits does not provide a true picture. ROE is only one financial measure reported by some funds and it is not the same as profit," said Dr David.

"While ROE can provide security to members of funds that their health cover comes from a well-run business which can manage claims risk, looking solely at ROE does not provide an indication of the benefits private health insurers deliver for their customers and the broader health system.

“PHA member funds operate using a variety of business models including not-for profit, private for-profit, publicly listed for-profit and combinations of the above. Regardless of the business model, health funds must be run successfully, manage risk appropriately, and abide by regulatory guidance on prudential standards. Net profit margins calculated by the industry regulator APRA confirm that margins have remained stable below 6% in recent years.

“This is a modest return when compared with other forms of insurance and significantly below the returns made by private hospital groups and medical specialist practices. There is only one reason premiums increase and that is because health funds are paying for more healthcare. There is no other explanation. There’s no pot of gold for the Leader of the Opposition or for others to find in Australian health funds,” added Dr David.