Call for urgent inquiry

Stability of private insurers ‘under threat’

THE prudential regulator has warned only three private health insurers will have a sustainable business model by 2022 as young health fund members dump their cover.

The Australian Prudential Regulation Authority has also called for an urgent government review into the future of private health insurance as insurers continue to punish policyholders with increased exclusions and higher premiums.

Despite repeated warnings from the regulator to shore up their businesses, APRA executive Geoff Summerhayes said the industry was “seemingly waiting for the government to find a miracle cure” for the headwinds facing the sector.

He said an independent inquiry must investigate whether insurers should be able to continue to subsidise older policyholders with cheaper younger members, the way hospitals and doctors charge insurers, and the role of mental health in private health cover.

“The situation isn’t yet critical; for now, I would describe it as ‘serious but stable’, however that stability is under threat,” Mr Summerhayes said.

“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.”

Mr Summerhayes said APRA was drawing up plans to force smaller, unsustainable private health funds out of the industry through mergers with bigger companies – Medibank Private, NIB, and HCF – which are likely the only ones to continue to have a viable, wellcapitalised business model.

There are 35 health insurers, and many are smaller, community-focused health funds.

Private health cover has declined to its lowest level since 2007 as policyholders continue to leave insurers amid everincreasing premiums and fewer benefits.

Five years ago, 40 per cent of people aged 20 to 39 had hospital cover. Now that figure has dropped to 34 per cent. At the same time, an ageing population is claiming more on its insurance than ever.

APRA predicts the level of hospital cover will have dropped another 1.6 per cent, or 184,000 policyholders, by 2025.

This will be driven by the loss of another 345,000 persons in the 20-34 age group, which APRA expects will be partially offset by the addition of another 298,000 members in the 70-84 age category.

“A new approach is urgently needed, and it must be a whole-of-industry response,” Mr Summerhayes said.

“One option that APRA would support is an independent review of Australia’s private health insurance system.”