Health fund collapse: Only three will remain by 2022
Australia's 38 health funds are in a death spiral and only three of them could be financially viable within two years, the financial regulator APRA has forecast in a dramatic call for action.
And it has warned it is poised to force smaller funds to merge to avoid a financial catastrophe that could leave some health fund members without cover if their insurer folds.
Young people are quitting health funds while older sicker people are joining pushing up costs while at the same time the government is holding premium rises below the rising costs of care, the regulator said.
"Right now, strong and persistent headwinds are blowing private health insurance ever closer to the point where the majority of PHIs are unsustainable," APRA member Geoff Summerhayes has told smaller health insurers in a major speech.
"We've reached the point where some hard decisions need to be made if private health insurance is to remain an essential part of the Australian health system," he said.
Health fund membership has already plunged from 47 to 44 per cent of the population and this will continue, he said.
"On current trends, we forecast the level of hospital cover will have dropped another 1.6 per cent, or 184,000 policyholders, by 2025," Mr Summerhayes said.
This calculation is based on the loss of another 345,000 persons in the 20-34 age group who help keep premiums down.
At the same time another 298,000 members in the 70-84 age category will join forcing up premiums because they are more likely to use expensive hospital care.
APRA has already demanded at risk smaller health funds submit plans on how they plan to avoid financial strife.
These were handed to the regulator in December.
Larger health funds have to tell the regulator how they plan to manage the crisis by March.
The regulator says funds have been lazy, hoping for a miracle cure to their problems to be provided by the federal government but they need to get moving on mergers now.
APRA wants independent review of Australia's private health insurance system and said all key policy and regulatory settings should be up for discussion.
This would include reviewing the community rating model which means sick people don't pay higher premiums than healthy people.
What services can be covered, the way premiums are set, and the way prices are set between health funds and medical providers should also be reviewed.
The starting point of any inquiry should be "what is the role of private health insurance in Australia?" he said.
"What we do have a firm position on is that the industry's current trajectory is unsustainable; and that while private health insurers may be the ultimate victims of the so-called death spiral, policyholders will be the first casualties through higher premiums and reduced benefits," Mr Summerhayes said.
Medical Technology Association of Australia CEO Ian Burgess said APRA's warning was proof insurers would rather "destroy their own products than lower premiums using their own profits".
"The only way to stop private health's death spiral is to stop the exodus of customers. The only way to do that is to force the 'Big 4' insurers to drop their premiums below zero," Mr Burgess said.
"Private health insurers are self-destructing and the government must step in and save private health from itself."
The medical device industry said three of the 'Big 4' insurers - Medibank, Bupa and HCF, who own about two-thirds of the market between them - all came in with premium increases above Health Minister Greg Hunt's target of 3% this year.
Private Health Premiums grew on average 71% over the past decade - faster than national house prices (49%), Mr Burgess said this was even though on February 1 2020, about 7000 medical devices were slashed in price for millions of Australians with private health insurance, including pacemakers, hips, knees, diabetes and eyes. Private health insurers did not pay one extra cent for medical devices over the past two premium years, despite raising premiums twice-inflation and banking nearly $1 billion in profits between them.
Private Health Australia Chief Executive Dr Rachel David said comments by APRA's Geoff Summerhayes were a wake-up call to insurers but she rejected calls for another inquiry into the sector.
"The problems in the sector are well-documented, there is no need for another major review, now is the time for action and proactivity on the part of the funds and health industry stakeholders," she said.
She said key reforms that will go a long way to improving affordability and quality of care include:
• Holding multinational medical device companies to account by bringing down the cost of inflated medical devices
• Cutting red tape; and
• Reinstating the rebate to 30 per cent for low- and middle-income earners.