Sussan Ley's attack on health premiums favours big funds, threatens non-profits

Health Minister Sussan Ley's crackdown on health insurance premium increases threatens the viability of smaller funds and may help big players such as Medibank and Bupa take over their smaller competitors, non-profit funds say.

Ms Ley, who is overseeing a review of the $19 billion private health insurance sector, wrote to health funds on Friday asking them to either lower their requested premium increase or justify their initial request.

Matthew Koce says caps on health insurance premiums will force smaller non-profit funds out of the market.
Matthew Koce says caps on health insurance premiums will force smaller non-profit funds out of the market. Photo: James Boddington

"Putting the blame on us might get the minister some good headlines, but it could do long-term damage to the industry and force health funds to the wall," said Matthew Koce, spokesman for the not-for-profit Australian Health Service Alliance and chief executive of non-profit fund lobby group HIRMAA.

"Some funds might decide to fold and leave the marketplace or consolidate with others."

The not-for-profit Australian Health Service Alliance comprises 22 mutual funds, including Police Health, Defence Health, Teachers Health Fund and Australian Unity.

Slim margins

On a combined basis, the 22 funds cover some 2 million members, about 20 per cent of the market. They typically operate with slim margins, and a number that are operating on negative margins rely on investments to supplement premium income.

The big for-profit Australian funds, Medibank, Bupa and nib, have market share of about 30 per cent, 28 per cent and 8 per cent respectively.

Ms Ley said the Australian Prudential Regulation Authority will ensure that premium increases don't put insurers out of business.

"Consumers have made it clear they don't believe they're getting value for money from their private health policies and we're simply working with insurers to see if there is room to lower premiums based on their full financial position, not just their claims and benefits paid out," Ms Ley said.

"If there are extenuating circumstances as to why an insurer can't lower their premiums, then we are simply asking on behalf of consumers for the evidence to back this up, and APRA will make a judgement accordingly.

"My message to insurers big and small is simple – this is just one part of a broader private health reform discussion and we're committed to working with the sector to improve a range of areas that could lead to better value for money for consumers." 

nib managing director Mark Fitzgibbon said on Monday that he expects the government to rein in rampant inflation in the cost of healthcare if premium increases, which offset the rising cost of care, are crimped.

Shaw and Partners analyst David Spotswood said pushing down premium increases will make the strong health funds stronger and weaken the bottom end of the market.

"If the health minister is saying 'well you can't have premium increases', what happens to the guys who haven't got the scale and efficiency of a Bupa or a Medibank?" he said.

"Their profitability will be decimated and it will consolidate the industry."

Mr Koce said that unlike the big listed players – Medibank and nib – non-profit funds cannot access debt and equity capital to see them through a bad year or two.

He said many of the member funds are based in smaller regional centres such as Launceston, Burnie, Townsville and Mildura.

Possible job losses

"The minister's gone into uncharted territory in terms of government intervention in the marketplace. It could mean job losses in places like Launceston and Mildura if funds can't pass on growing provider costs to the consumer," he said.

He also said that not-for-profits often provide dental and optical services in regional areas such as Broken Hill that wouldn't be there otherwise.

"You struggle to attract dentists to places like that," he said.

Average health insurance premiums rose by more than 6 per cent in 2014 and 2015, and affordability is becoming critical. 

About 500,000 Australians downgraded or cancelled their private health insurance cover in 2015.

Ms Ley has declared her intent to halt spiralling premiums and protect consumers from "junk" policies that are hard to understand or have problematic exclusions.

Ironically, denying health funds premium increases might result in higher excesses and a shift to more exclusionary policies to protect margins.

One industry source, who asked not to be named, said it is unusual to ask insurers to lower their premiums at such a late stage in the process and issue a press release broadcasting the move.