Health funds cash call

FRESH bans on elective surgery have sent shares in private health insurers surging, sparking calls for greater transparency on how the health funds return their $1.8bn cash pile from delayed or cancelled operations to members.

Private hospitals – set to lose tens of millions of dollars after NSW and Victoria reinstated elective surgery bans – have demanded the federal government introduce a formal mechanism and oversight on how health funds return “Covid savings” to policyholders. It follows the Australian Competition and Consumer Commission putting health funds on notice about underestimating their Covid savings, and therefore the amount of cash they refund policyholders.

Suspending elective surgery across Australia’s two biggest states is expected to bolster the profitability of health funds, given the amount of total benefits paid is expected to fall as Omicron rages.

Shares in Medibank, Australia’s biggest health fund, jumped almost 6 per cent to $3.60 on Friday and eased 5c to $3.55 on Monday. Shares in rival NIB also bounced 3.7 per cent to $7.23 on Friday before easing to $7.04 on Monday.

The pandemic has already fuelled a dramatic rise in net profits across the entire private health insurance sector, totalling $1.8bn last year – a 212 per cent rise on 2020.

While the Australian Prudential Regulation Authority told health funds they needed to set aside enough cash to fund a backlog in claims, Michael Roff, chief executive of the Australian Private Hospitals Association, said the expected rebound in surgeries had failed to materialise. He said the government must provide greater oversight on how health funds return Covid-led savings.

“There needs to be some formal government monitoring of health fund balance sheets to determine how much money they’re collecting that they thought they’d pay out – but they’re not – and how do we actually ensure that that gets back to members?” he said. “Up to date, there’s been no process and it’s been less than transparent.”

Heath funds have returned Covid savings to members in various ways. Not for profits, such as HBF, have given members cash. Medibank has instead deferred its annual premium increase of 3.1 per cent for five months.

HBF chief executive John Van Der Wielen said he supported a mechanism to determine how Covid savings are returned to policyholders, saying it would help enhance trust across the sector.

“There could be small funds that have had no savings, and so I don’t think everyone should be giving back cash. People should give back cash if it’s there to give back, and as an industry I’d like to see us unite and have one transparent calculation,” he said.

Medibank chief executive David Koczkar said deferring premium increases would return about $135m to members. NIB, which will increase premiums by 2.66 per cent this year, is also considering delaying the hike to return Covid savings.

ACCC deputy chair Delia Rickard said she supported the health insurers returning Covid-created profits via credits or direct payments but was concerned the funds were being “too conservative”.