1
Contemporary Issues in
Private Health Insurance
Nick Stolk
2
A time to keep and a time to throw away (Eccl 3:6)
•
•
•
Contemporary Issues in Private Health Insurance has been prepared biennially since
2001.
p was developed
p
to assist those outside the health insurance industry
yq
quickly
y
The concept
bring themselves up to speed with the key news, regulatory and environmental changes
to Australia’s private health insurance industry.
However, the number of health insurance ‘outsiders’ has decreased at recent
conferences and so it is time to try something a bit different.
3
The session will take this slide deck as read and there will be no
formal presentation
If you are new to PHI...
p
y welcome.
• You are especially
• There will be an opportunity to ask
questions during the session and to talk
g
the
to health actuaries throughout
Summit.
• Feel free to send any questions you have
g the slide deck to the
after reading
author ([email protected]) before or
after the Actuaries Summit.
• Check out the resources listed in
Appendix B.
..and if you are an old hand
• We will use our time to discuss a number
of ‘contemporary issues’.
• Contributors will have 4-5 minutes to
present to the audience. I have invited a
p
number of ‘younger’ actuaries to
contribute a prepared presentation.
g each presentation
p
there will be
• Following
an opportunity for discussion and
questions from the floor.
• Appendix A includes some possible
questions and topic areas as a stimulus
for the presentations and discussion.
4
What’s in this slide deck?
•
•
•
•
•
Private Health Insurance industry structure and statistics
Key stakeholders (incl
(incl. legislative and regulatory developments)
Actuarial interests in private health insurance
The April 2013 Premium Round
2012 & 2013 news and events
•
•
Appendix A: Topics for discussion
Appendix B: Suggested resources for further research
5
Industry
y structure and statistics
6
The Australian PHI industry is unique

Australia’s private health insurance system is different from the health insurance systems of many
other countries. What is more, it has a number of unusual characteristics which make it different to
other Australian insurance markets.

The next slides examine some of these unique characteristics, as well as, features of the market
structure, distribution channels and recent performance. A number of the slides assume some
level of familiarity with the industry
industry. If you are new to PHI I would recommend any of the resources
in Appendix B.
7
A few key things to understand if you are new to PHI
Australia’s private health insurance system is based on community rating.

Community rating is not defined other than in the PHI Act which says that insurers cannot
improperly discriminate”
discriminate due to a range of factors (including age,
age gender,
gender health status etc.).
etc )
“improperly

In practice the community is assessed at the insurer/product/state level.

The industry has a range of products with restrictions and exclusions which have been deemed
acceptable under the governing legislation. However, some have questioned whether this is
discrimination based on health, or indirect avoidance of community rating.

The system lies somewhere between pure community rating and risk rating.

As you might expect of a voluntary community rated system, the industry continues to grapple
y issues,, in this case,, younger
y
g healthier persons
p
are required
q
to support
pp
older,,
with affordability
typically higher claiming persons.

Questions are starting to be asked as to the future of community rating in its current form.
8
A few key things to understand if you are new to PHI

Health insurance in Australia is voluntary, includes guaranteed acceptance (so an insurer cannot
refuse cover to an eligible customer) and portability provisions which allow insurers to transfer between
insurers and retain their length of prior service when considering waiting periods.

The system is supported by a number of legislative sticks and carrots:

The private health insurance rebate – provides government support for premiums depending on a
policyholder’s
i
age and, ffrom 1 July 2012, iincome levels.

Lifetime Health Cover – penalises consumers who delay taking out health insurance until after age
30 by applying a loading to their premiums.

Medicare Levy Surcharge – tax legislation which imposes a tax on those earning incomes above
a certain level if they do not hold a suitable level of health insurance.

The community rated system is supported by ‘risk equalisation’ which transfers quarterly payments
between insurers based on varying shares of actual claim payments of claimants with certain
characteristics. For further detail see PHIAC Annual Report (link in Appendix B).
9
The Australian Private Health Insurance Industry
•
•
•
•
•
•
•
At 30 June 2012 there were 35 private health insurers (ahm deregistered 1 July
2012).
Nine insurers operate on a for-profit basis representing 67.8% of FY12 premium
revenue.
revenue
However the use of the term “for profit insurer” can be misleading:
• BUPA, Australian Unity, Grand United Corporate & Doctors Health are
each part of a mutual organisation;
• Medibank Private (incl. ahm) is government owned;
• NHBA is owned by a charitable trust;
• NIB and health.com.au are p
potentially
y the only
y “true” for p
profit insurers.
Together the five largest insurer groups hold 83.2% market share (total policies).
The next five largest insurers hold a combined 10.2% market share.
g insurers each have less than 1% market share (and
(
in aggregate
gg g
The remaining
hold 6.6% of the market).
Appendix B contains a useful summary of the market by insurer.
10
The Commissioner’s Report
•
•
•
According to the PHIAC Commissioner (the PHIAC Chair)
The industry retained its strong prudential position throughout 2011-12
A year of encouraging signs …
• Development of value-add services by some insurers (including chronic
disease management programs and telephonic health services);
• Expansion into significant new commercial opportunities for the industry;
• Emergence
E
off new competition
titi
with
ith the
th entry
t off first
fi t start
t t up for
f six
i years;
• Continuing steady growth of the number of people covered supported
by strong and measured capital management.
… but some growing areas for concern
• Marked growth in number of policies sold with an excess or exclusion.
Increase in proportion with exclusions is cause for concern.
products have reached their p
price/value limit.
• Full cover p
• Issue is reputational risk for the industry. Insurers need to communicate
clearly and effectively.
11
PHI participation
While the industry
has grown with
overall population
growth it has also
increased its
penetration into a
number of age
cohorts,
h t mostt
notably 20-29 and
55-89.
Growth varies by
insurer (see next
slide).
Hospital treatment participation by age cohort
60%
Jun-00
Jun-12
50%
40%
30%
20%
10%
0%
0-4
5-9
10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94
95+
Total
Westfund
Transport
15.0%
TFH
St Luke's
T
RT
RBHS
QTUH
QCH
Police
Phoenix
Peoplecare
NIB
NHBA
A
Navy
MPL
Mildura
Latrobe
HPL
HP
HIF
HG
HCI
HCF
HBF
GUC
20.0%
GMHBA
A
DHF
Defence
CUA
A
CDH
CBHS
A
BUPA
AUHL
AHM
ACA
12
Net policyholder growth % p.a. (avg whole fund)
FY10
FY11
FY12
FY12 avge
10.0%
5.0%
0 0%
0.0%
-5.0%
13
The rise of
products
d
with
ih
an excess
PHI is often discussed in
the news on affordability
grounds. Excesses are one
way to
t lower
l
premiums.
i
Percentage of policies with excess/copayment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Excess/Copay Insurer 1
Excess/Copay Insurer 2
Excess/Copay Insurer 4
Excess/Copay Insurer 5
Excess/Copay Small insurers
Excess/Copay Australia
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Dec-08
Jun-08
Dec-07
Jun-07
Dec-06
Jun-06
Dec-05
Jun-05
Dec-04
Jun-04
Dec-03
Jun-03
Dec-02
Jun-02
0%
Dec-01
It is interesting to note that
the majority of policies
sold have an excess or copayment and have done
so since at least 2001.
14
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Exclusion/Restriction Insurer 1
Exclusion/Restriction Insurer 4
Exclusion/Restriction Australia
Exclusion/Restriction Insurer 2
Exclusion/Restriction Insurer 5
Sep--12
Mar--12
Sep--11
Mar--11
Sep--10
Mar--10
Sep--09
Mar--09
Sep--08
Mar--08
Sep--07
Mar--07
Sep--06
Mar--06
Sep--05
Mar--05
Sep--04
Mar--04
Sep--03
0%
Mar--03
IIncreasing
i
attention
tt ti
is
i
also given to product
‘value’.
g of
There are a range
consumer views on
policy exclusions. Some
people don’t want to
pay for things they
don’t need, others
believe exclusions
undermine their cover.
Percentage of policies with exclusions and/or restrictions
Sep--02
The rise of
products with
exclusions
and/or
restrictions
Exclusion/Restriction Insurer 3
Exclusion/Restriction Small insurers
15
Industry cost pressures/drivers
Health costs have and are expected to continue increasing at levels higher than the general CPI.
CPI
Claims inflation in PHI is no different and hospital and medical costs typically increase at 6-8% p.a.
Health cost pressures
Health insurance cost drivers
• Health spending is 9.4% of GDP (AIHW)
• Private hospital contracting
• Technological advances
• Increasingly public hospitals looking to
PHI as funding source
• Less invasive, more expensive medical
procedures/treatment techniques
• Preferred provider networks
• Prostheses and other devices
• Success of broader health cover?
• Pharmaceuticals
• Customer expectations/awareness,
ed a reporting
epo g leading
ead g to
o increased
c eased
media
utilisation
• An ageing population
• Community expectations
16
Industry
financial
performance
FY07
FY08
FY09
FY10
FY11
FY12
HIB premium ($m)
11,127
12,189
13,078
14,170
15,421
16,721
Benefits
Expenses
Net margin
9,432
(1,079)
616
10,385
(1,290)
514
11,349
(1,316)
413
12,227
(1,328)
615
13,161
(1,410)
851
14,337
(1,572)
812
672
49
(9)
560
605
457
The net margin (or
underwriting margin) is the
most common measure of
profitability in the industry.
Investment & other revenue
Surplus
Tax
Surplus after tax
1,288
((66))
1,222
563
((69))
494
404
((81))
323
1,175
((222))
953
1,456
((296))
1,160
1,269
((240))
1,029
While the industry results
sshow
o relatively
e a e y stable
s ab e net
e
margin performance, the
smaller insurers, can and
do exhibit significant
y
variability.
GMR
MER
Net margin %
Profit margin %
15.2%
9.7%
5 5%
5.5%
11.0%
14.8%
10.6%
4 2%
4.2%
4.1%
13.2%
10.0%
3 2%
3.2%
2.5%
13.7%
9.2%
4 5%
4.5%
6.7%
14.7%
9.1%
5 5%
5.5%
7.5%
14.3%
9.4%
4 9%
4.9%
6.2%
((12.4%))
18.4%
((10.9%))
40.0%
((13.0%))
11.3%
(
(9.6%)
)
15.7%
0.0%
14.0%
0.0%
13.4%
Net margin %
Industryy low
Industry high
GMR = gross margin ratio = (premium less benefits) / premium
MER = management expense ratio = expenses / premium
17
FY12 financial performance ($m) by open status and by profit status
At an aggregate level
there is little evidence to
suggest an insurer’s open
status impacts their
profitability.
Based on FY12 net margin
performance, the not-forprofit insurers appear to
target a lower level of
underwriting profitability
than their for profit
counterparts.
HIB premium
Open status
Big 5
Restrict
13,716
1,308
Open
1,697
16,721
Benefits
Expenses
Investment and other income
11,757
,
1,292
348
1,144
,
95
45
1,435
,
186
64
14,337
,
1,572
457
9,588
,
1,119
271
4,748
,
453
186
1,015
226
788
114
0
114
140
17
124
1,269
243
1,026
897
243
653
373
0
373
2
790
2
116
0
124
3
1,029
2
655
2
374
14.3%
9.4%
4.9%
5.8%
12.5%
7.2%
5.3%
8.8%
15.4%
10.9%
4.5%
7.3%
14.3%
9.4%
4.9%
6.2%
15.4%
9.9%
5.5%
5.8%
11.9%
8.4%
3.5%
6.9%
HBF profit
Tax
HBF profit after tax
Non-HBF related profit
Insurer profit after tax
GMR
MER
Net margin %
g % ((after tax))
Profit margin
Industry
Profit status
Profit
NFP
11,333
5,387
18
The increase in for-profit funds
has allowed for significantly
higher dividends to be paid in
recent times.
Medibank’s dividend to the
Federal Government has
drawn particular scrutiny. See
later section on News &
Events.
19
FY12 financial position ($m)
Big 5
Open status
Restrict
Industry
Open
Profit status
Profit
NFP
Health benefits fund
Assets
Cash & interest bearing assets
Equities and property
Other assets
Total assets
5,597
1,123
1,724
8 444
8,444
935
136
106
1 177
1,177
1,157
151
185
1 493
1,493
7,689
1,410
2,015
11 114
11,114
4,200
714
1,362
6 276
6,276
3,488
696
653
4 838
4,838
Liabilities
Unearned premium liabilities
Outstanding claims
Other liabilities
Total liabilities
2,452
1,157
691
4,300
210
117
61
388
333
122
117
572
2,995
1,396
868
5,260
1,960
970
599
3,529
1,035
426
269
1,731
Net assets
4,144
789
921
5,854
2,748
3,107
314
6
0
320
314
6
2,563
(2,259)
4,153
4,458
43
9
743
795
19
13
890
922
2,625
(2,237)
5,786
6,174
2,582
(2,315)
2,794
3,061
43
78
2,992
3,113
17.7%
14.3%
13.4%
16.6%
21.3%
12.0%
1,628
2.55
103
7.67
178
5.19
1,908
3.07
1,224
2.25
684
4.54
Non - health benefits fund
Net assets
Private Health Insurer Equity
Contributed equity
Reserves
Retained profits
Total equity at 30 June 2012
Return on equity
Solvency reserve
Solvency risk multiple
Industry financial
position
The capital adequacy risk multiple is
the preferred measure of financial
strength in the industry, however, it is
not published publicly at the insurer
level As a result I have shown the
level.
solvency risk multiple.
The respective risk multiples suggest
that the for-profit
for profit insurers operate a
leaner capital structure.
This is also shown in the return on
equity – both groups made a similar
profit margin in FY12 but on very
different capital bases.
20
A new entrant
•
•
•
•
•
Health.com.au Pty Ltd commenced trading on 16 April 2012.
They are the first new entrant to the PHI industry since 2006/07.
Their CEO has stated that they “would
focus on providing a highly transparent
H lth
Health.com.au
Hospital
H it l SEUs
SEU
product that solved people's health
20,000
insurance needs.”
Health.com.au Pty Ltd utilizes iSelect as its
16,000
primary distribution channel
channel.
12,000
PHIAC made their registration as a health
insurer subject to a number of conditions
8,000
for their first three years of operation
i
including:
i
4,000
•
Monthly PHIAC 2 reporting;
•
Actuarial sign-off on quarterly
0
p
December
March
June
September
PHIAC 2 returns; and
2012
2012
2012
2012
•
Not applying for a transfer of assets.
Hospital SEUs
Approx hospital market share
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
March
2013
21
Stakeholders
The following slides briefly discuss:
•
The key stakeholders in the PHI industry
•
The rise of aggregators in the market
g
•
The PHI regulators
•
IFRS developments
•
A brief look ahead at upcoming regulatory developments
22
PHI stakeholders
DoHA
PHIAC
PHIO
ACCC
Privacy
Commissioner
ATO
Regulators/Government
Doctors/
Specialists
Private
hospitals
Actuaries
Institute
Investment
managers
Prosthesis
suppliers
Public
hospitals
Technology
providers
Brokers &
aggregators
Allied health
sector
Insurers
Consumer
represent’n
Rating
agencies
Others
Media
Providers
Customers/policyholders/members
The industry associations are Private Healthcare Australia (21 insurers covering 95.3% of the industry) and
HIRMAA (18 insurers, 9.0%).
g
organisations
g
conduct their contract negotiations
g
directly
y with private
p
hospitals
p
and
The five largest
medical practitioners; the rest of the industry is served either by the Australian Health Service Alliance (25
insurers) or the Australian Regional Health Group (4).
All but the largest insurers use one of 3 health insurance software suppliers: Civica, HAMBS and Paragon21.
23
Aggregators
A quick web survey reveals at least 11 comparison
sites now featuring health insurance…
Brokers ‘driving up costs’
SMH, 15 April 2013
This article represents a lot of the recent industry debate…
Medibank claims:
• Growth of comparison sites have led to higher premiums
• Industry-wide surge in advertising costs
• “Haven’t changed the dynamics of affordability”
iSelect claims:
• Increases the size of the PHI market
• Helped match people to appropriate insurance
• Is explicit about commissions
• “Funds wouldn’t use us if we weren’t an efficient form of
distribution for their products.”
iSelect, the largest of the aggregators in PHI, has
been mooted for ASX listing for some time –
expected listing in 2013.
24
PHI regulation
The Private Health Insurance Branch of the Department of Health and Ageing maintains the
regulatory framework in relation to policy matters affecting PHI (see PHI-circulars).
The Private Health Insurance Administration Council regulates statistical and prudential matters
(PHIAC-circulars).
e primary
p a y legislation
eg s a o governing
go e
g private
p a e health
ea insurance
su a ce in Australia
us a a iss the
e Private
a e Health
ea
The
Insurance Act 2007, which operates with a number of Rules. The Act sets out the role of PHIAC:
“To achieve an appropriate balance between three objectives:
• Fostering an efficient and competitive PHI industry;
• Protecting
P t ti
the
th interests
i t
t off consumers; and
d
• Ensuring the prudential safety of individual private health insurers.”
25
Events at PHIAC (since we last met)
During 2011 PHIAC issued one Standard Operating Procedure (Information Acquisition Powers) and
amended The Private Health Insurance (Insurer Obligation) Rules 2009 (amendment) to include
provision for the new professional standard for Appointed Actuaries on FCRs.
During 2012 PHIAC’s Outsourcing Standard became law and PHIAC issued its fourth SOP,
Appointing an Inspector to a Private Health Insurer.
PHIAC initiated consultation on proposed changes to the capital standards applicable to the PHI
industry; paper, tech-note. At the time of writing the industry was still waiting for the second round
of consultation although PHIAC has indicated that implementation will be pushed back to 2014.
PHIAC became the primary source of advice to the Minister for Health on premium applications
from the April 2013 premium round.
The tenure of three PHIAC directors including the Commissioner, expires November 2013.
26
PaCU

The 2012 Budget provided funding for the creation of a PHI Premium and Competition Unit (PaCU) within
PHIAC. Funding is from the industry not the government.

PaCU will enhance PHIAC
PHIAC’ss capacity to:
“PaCU
o
Engage with the industry around products, pricing strategies, premium applications, administrative
costs and competition issues;
o
Assist the Government with understanding cost drivers, opportunities for savings under the rebate
and competitive pressures; and
o
Support the interests of consumers by fostering increased competition in the industry and increasing
the sophistication of the scrutiny of premium increases.”

Initial discussion paper on competition released late 2012 resulted in 27 submissions from stakeholders.

PaCU has identified four priority projects for research and consultation in 2013 – portability, risk
equalisation, barriers to entry and exclusions & excesses.
27
PHIO
The Private Health Insurance Ombudsman provides health insurance policyholders with an independent
resolution service for health insurance complaints and enquiries. The Ombudsman can deal with
complaints from policyholders, health insurers, private hospitals or medical practitioners.
PHIO publishes an annual State of the Health Funds Report, quarterly bulletins and manages the
‘privatehealth.gov.au’ website which provides standard information statements including premiums for the
products of all private health insurers.
From PHIO media release, 28 March 2013:
“Private health insurance was very much ‘front of mind’ for consumers during the reporting period,
due to the introduction of income testing of the Australian Government Rebate on private health
insurance from 1 July 2012 and the associated publicity campaign to inform members about the
changes. This in turn increased the demand for PHIO’s information and advice services, with the
consumer website www.privatehealth.gov.au receiving its highest number of unique visits in July
2012 since it went live in April 2007.”
28
IFRS developments
•
•
In 2011 when we last met…
PHI was facing an issue with the Contract Boundary – the 2010 ED considered PHI to be a longterm contract and would require insurers to project until expected contract/policy expiry.
Since that time there has been a (non-binding) Board decision to update the proposal:
“An additional point would affect contracts whose pricing of premiums does not include risks
related to future p
periods. The contract would not confer any
y substantive rights
g
on the
policyholder when the insurer has the right or practical ability to reassess the risk of the
portfolio that the contract belongs to and, as a result, can set a price that fully reflects the
risks of that portfolio.”
This revision is intended to address, amongst others, the concerns affecting PHI.
•
Under the current timetable the new standard will not be fully implemented until 1 January
2018.
29
Coming and potential regulatory changes
Timing
Changes
May 2013
budget
Potential for further changes to the PHI rebate to be announced. Some lobby groups have proposed the
removal of the rebate for general treatment cover. Any amendment is likely to face challenges in being
legislated given the September election.
July 2013
& beyond
The effects, if any, of income testing the PHI rebate on lapses and product downgrades should start to be seen
as pre-payments are fully earned and people complete their FY13 tax returns.
1 Jan 2014
Chief Medical Officer to provide
pro ide his re
review
ie of nat
natural
ral therapies
therapies. Those nat
natural
ral therapies fo
found
nd not to be
clinically effective will not be eligible for the PHI rebate. Some uncertainty as to how insurers will respond to any
changes – for example, some have suggested creating new products at negligible cost.
2014
Implementation of new PHIAC Capital Standards. While the detail of the draft standards is not yet available the
consultation
l i
paper fforeshadowed
h d
d a number
b off changes
h
iincluding
l di
the
h need
d ffor iinsurers to d
develop
l
aC
Capital
i l
Management Policy which included integration of risk appetite, pricing philosophy, investment plans linked to
capital levels and greater Board engagement.
?
If legislation is passed, the effects of removing the PHI rebate from LHC loadings.
?
If legislation is passed, the effects of indexing the PHI rebate to CPI rather than premium increases.
30
Actuarial interests in PHI
The following slides briefly discuss:
•
Some of the work that actuaries perform in PHI
•
Which insurers employ actuaries
•
The recent work of the Health Practice Committee, an Institute committee
designed to support the development of actuarial practice and promote
opportunities for members working in health (including PHI).
•
The PHI newsletter
31
The Appointed Actuary role
•
•
•
•
•
The Appointed Actuary (AA) role in health insurance was created in 2004. Enhancements to
the role and its powers were included in the Private Health Insurance Act 2007.
PHIAC has supported the AA role to the industry, both in writing and verbally, and has
communicated
i t d it
its expectations
t ti
off th
the role
l to
t the
th profession
f i
over time.
ti
Under the PHI Act 2007, the AA is required to draw to the attention of the insurer, or of the
directors of the insurer, any matter that comes to the attention of the actuary and that the
actuary thinks requires action to be taken by the company or its directors to avoid a
contravention of this Act.
Health insurers are required to notify their Appointed Actuary (AA) of “notifiable
circumstances”.. These include but are not limited to changes in premiums, changes in
circumstances
benefits, changes to the business plan, changes to the risk profile, development and changes
of the capital management plan and significant business diversification activity.
The role of the AA includes certification of methodology and assumptions supporting premium
increases; advice on new products, preparation of an annual financial condition report and
advice on risk margins, insurance liabilities, investments, and mergers and acquisitions.
32
Where do actuaries work in PHI?
•
•
At the time of writing, there were 13 unique Appointed Actuaries – three internal, ten external
consultants.
Institute members were employed on the staff of 13 health insurers (as per below), as well as, a
number of consultancies and PHIAC.
PHIAC
33
The Health Practice Committee
•
•
•
•
In June 2011, the Actuaries Institute issued a Professional Standard (PS600) covering financial
condition reports for private health insurers and in August 2011 issued an information note on
the proposed means testing of the private health insurance rebate
rebate.
In 2012, the Actuaries Institute issued Practice Guidelines for Pricing and Financial Projections
(PG699.01) and Valuation of Health Insurance Liabilities (PG699.02).
In conjunction with the Actuaries Institute the committee has been developing relevant public
policy and working on ways to promote the work of actuaries working in health. This work has
resulted in an increase in the number of Actuaries magazine articles on health related topics,
as well as, two radio interviews and a TV appearance.
The Health Practice Committee put forward to Council two ‘health’ focused Part III Pathways
to Fellowship. Now approved, the UK ST1 course and the South African Health Insurance course
(from 2014) when combined with the Australian PHI CPD course provide an alternative Module
1 of the Institute’s Part III program.
program We know of at least two students who have completed this
module.
34
The Health Practice Committee
•
•
•
•
•
•
The HPC has made submissions to PHIAC’s consultation package on risk management, PaCU’s
consultation on competition and the Senate’s inquiry on extreme weather events.
The HPC has organised a number of networking events
events, including a presentation from Peter
Broadhead from DoHA on his experience working with actuaries, and is looking at the best way
of reaching the increasing membership base in Melbourne.
The Committee has been refreshed with some new members over the past year and now also
includes representation from PHIAC. Thanks to Ben Ooi, Andrew Gale and Kirsten Armstrong for
their contribution to the committee.
The HPC continues to support, update and mark the Institute’s online PHI education course. The
course has been offered since 2007 and is open to all those with an interest in learning more
about PHI.
The Institute congratulated John Walsh on his appointment as a Member of the Order of
A t li ffor service
Australia
i
tto th
the community
it iin th
the areas off di
disability
bilit and
d health
h lth policy.
li
The HPC congratulated Andrew Gale on being awarded the A M Parker prize for his paper
“Growing Pains: Selection Effects in Private Health Insurance.”
35
The PHI newsletter
•
•
•
•
•
At the Summit the Health Practice Committee’s PHI newsletter will celebrate the publication of
its 250th edition.
The newsletter exists to promote the role of actuaries to the private health insurance sector by
providing a newsletter that is relevant, factual, timely and non-subjective.
The PHI newsletter has a circulation of 1,800; more than half of whom are from outside of the
Institute, while 20% of readers are from overseas.
The newsletter includes sections on Department of Health and PHIAC circulars, Institute health
interests, topical news items, forthcoming health events; and reports, publications and
technical hints.
The newsletter undergoes peer review prior to its publication to ensure that accuracy, quality
and probity issues are appropriately addressed. The review panel consists of members of the
Health Practice Committee, a PHIAC representative and a Department of Health and Ageing
representative.
t ti
36
The April
p 2013 premium
p
round
37
The April 2013 premium round
•
•
•
The annual premium round, where all insurers submit their proposed premiums for the following
April at the same time for Ministerial approval, has become convention. There is no legislation
requiring the process happen in this manner.
The premium round and approval process has been the subject of significant discussion in the
industry in recent times. Medibank released a paper, “The future of private health insurance
premium-setting: Seeking integrative solutions”, in November 2012.
Findings from that paper of interest to the author…
author
• “Funds have an incentive to ‘game’ the current approach in order to maximise profit by
‘pricing up’ to an expected regulatory threshold.”
• “There
There is also a reduced incentive for funds to minimise management expense since cost
savings simply induce the regulator to grant lower premium increases.”
• “Denied an incentive to compete on price, funds have responded by competing on their
product offerings.
offerings ”
• Under proposed next steps, “Horizon 4: Move to price monitoring regulation [not
approval].”
38
Historical premium increases
Average Premium Rate Increase
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2002
Industry 6.90%
2003
2004
7.40% 7.58%
2005
2006
7.96% 5.68%
2007
2008
4.52% 4.99%
2009
2010
2011
6.02% 5.78% 5.57%
2012
2013
5.06% 5.60%
39
35%
30%
25%
This chart
demonstrates
the historical
variability in the
premium rate
increases over
the past twelve
years.
20%
15%
10%
5%
0%
2002
.
2003
.
2004
5th percentile
2005
2006
IQR (25th - 75th)
2007
2008
95th percentile
2009
Min
2010
2011
2012
Industry average (published)
2013
Max
40
Premium increases by insurer April 2013
8.00%
7.00%
Industry average = 5.60%
For profit average = 5.99%
NFP average = 4.79%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
41
April 2013 premium rate increase by insurer category
Big 5
Open Mid Tier
Restricted Access
Big 5 avg
Open Mid Tier avg
Restricted avg
RBHS
R
HCI
Transsport
ACA
Pho
oenix
DHF
Navy
Police
P
RT
QTUH
Q
CBHS
C
Deffence
TFH
CDH
Health.com
NHBA
N
Milldura
QCH
St Lu
uke's
0.0%
CUA
0.0%
People
ecare
1 0%
1.0%
HIF
1 0%
1.0%
H'Parttners
2.0%
Lattrobe
2.0%
Westtfund
3.0%
GM
MHBA
3.0%
GUC
4.0%
AUHL
A
4.0%
NIB
5.0%
Healthg
guard
5.0%
HBF
6.0%
HCF
6.0%
BUPA
B
7.0%
MPL
7.0%
Industry average
Shaded
bars
represent
for profit
insurers.
42
9.00%
2,500
m rate increase %
Premium
8.00%
2,000
7.00%
6 00%
6.00%
1,500
5.00%
4.00%
1 000
1,000
3.00%
2.00%
500
1.00%
%
0.00%
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Industry surplus before tax and abnormals excluding investment and other income (FY)
Investment and other income (FY)
Rate increase (April)
2012
Industrry surplus before tax and ab
bnormals ($M
M)
Premium rate increase % vs industry surplus before tax and abnormals ($m)
43
The author’s understanding of the 2013 premium round process (PHIAC’s approach)
APRIL 2013 PREMIUM APPLICATION PROCESS
MARKET CONDITIONS

INSURER CREDIBILITY

MATERIALITY

PHIAC TESTING

NO
NO
YES
Is the insurer
operating
i in
i a
competitive market
Close to their target
net margin in PHIAC's
view (based on high
level checks)
NO
Is the requested
i
increase
materially
t i ll
lower than historical
gross margin
inflation?
YES
NO
Is the projected net
margin close to or less
than PHIAC's estimated
sustainable
bl net margin??
PRUDENTAL SAFETY CHECK
PHIAC forms a view on
acceptable net margin *
YES
YES
PRUDENTAL SAFETY CHECK
ACCEPT
* PHIAC did not provide information in our meeting on the process they followed if the insurer was considered to not be operating in a competitive market.
YES
YES
CLOSER LOOK
REQUEST FURTHER
INFORMATION
PRUDENTAL SAFETY CHECK
ACCEPT
(PHIAC HAPPY TO
DISCUSS DIFFERENCES
WITH INSURERS)
YES
ACCEPT
(PHIAC HAPPY TO
DISCUSS DIFFERENCES
WITH INSURERS)
44
News & events of 2012 and 2013
The following slides briefly discuss:
•
Some highlights of the PHI newsletter from the past two years. All articles can be
found in past editions of the PHI newsletter from the Institute website or
forwarded from the author.
•
Key news items in respect of the five largest health insurers, as well as, brief
excerpts from their most recent annual reports.
•
The ‘One Big Switch’ campaign supported by News Limited.
45
News highlights
•
•
•
•
The premium round – results and process – continues to attract the most media attention.
Media reporting tended to focus on affordability, coverage (and the rise of exclusionary
products) and product complexity.
On 16 March 2012 legislation was passed to income test the private health insurance rebate
and to increase the MLS for high income earners from 1 July 2012. This resulted in more than
140,000 PHI policyholders pre-paying their premiums in the lead up to June 30; article.
There was and continues to be significant debate between the industry and Treasury as to the
impact that these changes will have on the industry; Industry report, Minister’s release.
Discussion of the privatisation and potential listing of Medibank has occupied significant
column space over the past year.
year In summary,
summary the Coalition have said they will but have not
indicated timing for a sale, the Greens say they will support if the proceeds go to the public
health sector and the Labor Government has no plans to sell.
46
News highlights
•
•
•
•
•
•
•
•
M&A activity appears to have slowed in recent years:
• The Doctor’s Health Fund was acquired for $30m by Avant, the largest provider of
medical indemnity insurance in Australia, on 30 March 2012.
• The Board of Southern Cross (NZ) rejected an offer from Medibank in May 2011; article.
BUPA commenced legal action against iSelect over what it asserted were misleading claims in
its TV advertising; article, iSelect. iSelect agreed to temper its advertising claims; article.
Westfund announced, in an Australian first, they will return $4m to long-term members; release.
The internet’s use as a PHI distribution channel has increased by 50%, but still only accounts for
10.3% of all policies; release.
A recent interview with iSelect’s CEO discusses the origins and potential listing of iSelect; article.
HPC members shared their opinions on raising PHI premiums for smokers; opinion.
BUPA and Healthscope announced the details of their private healthcare partnership; release.
The Gov’t introduced the National Disability Insurance Scheme Bill 2012; legislation, release.
47
News from the major
j players
p y
48

July 2011 – won sole provider rights for the
Commonwealth Govt’s after hours GP helpline

May 2012 – launched Mi Health, a range of on
demand health support services

“Stand for better health and we want to build a

services to serving ADF personnel; release.
better health system.”1

June 2012 – won contract to provide all health
“… our progress in becoming a unique

Appear to be lobbying for changes to PHI
healthcare insurance company, offering both
o
health insurance and health solutions: we call it
health

paper on premium setting.
assurance.
assurance ”1
o
“... moved significantly towards becoming an
integrated healthcare services
Commissioned Deloitte Access Economics
Submissions and media interviews have
proposed indexing of excesses allowed under
provider.”2
g with restricted
MLS,, raised challenges
products
1. Annual Report 2012 Page 1
2. Annual Report Chairman’s Report

Potential for privatisation
49

Acquisition of Innovative Care’s aged care
business for $250m (1,114 beds on the
eastern seaboard). Now the largest age
care provider in Australia (5,600 beds).

Acquisition
i iti
off Dental
t lC
Corporation
ti
ffor $2
$270m
0
– 190 clinics, 560 dentists.

Has expressed
p
an interest in managing
g g the
operations of public hospitals; article.

Part of ‘BUPA 2020’ global strategy to
become an integrated healthcare
organisation.

We believe “in being a healthcare partner
and treating people as individuals”.
50

My Health Guardian – online health support
p og a .
program.

My Home Doctor – GP service providing inhome consultations after hours. Provided at
no charge
h
to
t members
b
with
ith hospital
h
it l cover,
delivered through Family Care Medical

Not for profit.

Member focussed “More for members” –
Services.

My Global Specialist – provides eligible
returned as benefits 91 cents in every $ in
members with access to a network of
FY12.
p
who review medical records
medical experts
and proposed treatment plans.

More for Eyes, More for Teeth, More for
Muscles – various programs designed to
make it easier for members to proactively
look after their health.
51

“ … in the future HBF aspires to do more than deliver
financial protection from the increasing costs of
health care. We are embarking on an ambitious plan
to transform HBF from a health insurer alone into a
valued health partner for our members.
members ”

“From health insurer to health partner.

very simple communication strategy. Drawn attention
This strategy redefines both HBF’s
HBF s
to a set of irrefutable facts that confirm that HBF’s
Purpose and Vision: our Purpose is now
health insurance offering to members is superior to
to both “protect” and “support” our
major competitors in WA where it matters: % of
members in leading healthier lives, while
members’ premiums returned as total fund benefits; %
our Vision is “to create a unique
hospital related charges covered; % of fully covered
community where members are
in-patient medical services.
renowned for being healthier and
happier people.”
Determined to remain WA’s leading health insurer –

Capitalising on recently acquired pharmacy network
to provide GP type services.
52

Share price has outperformed the market since
we last met.

Purchased Tower’s NZ health insurance business
for A$81m – second largest health insurer in NZ.

Still looking for acquisitions.

Continue to lobby for changes to the risk
equalisation system due to increasing payments
over the past few years, reflecting growth in
younger membership.

NIB announced a strategic alliance with US
insurer United Healthcare; announcement,
article

Exploring finance/administration of medical
tourism; article.
53
Media campaigns
p g
54





One Big Switch is a “next generation consumer
network” that turned its sights on health insurance in
2013
2013.

PHI legislation allows health insurance funds to offer
discounts to any “contribution group” they define in
their fund rules. In the past contribution groups have
included, for example, specific employers,
government departments, members of specific
industry super funds etc
etc.


The Big Health Insurance Switch was a campaign to
form a group of ordinary consumers who also
wanted access to these types of discounts.
The campaign set out to obtain a discount of 10%.
After a substantial media campaign,
campaign in partnership
with News Limited, registrations for One Big Switch
reached 114,476.
ahm (Medibank) agreed to provide One Big Switch
registered consumers with a 10% discount; article,
terms & conditions.
Under the terms of the deal One Big Switch earned a
commission of up to 15% of the first year’s premium
for each ‘switch’ to ahm.
The conditions suggest that One Big Switch may later
publish statistics on overall take-up rates.
55
Appendix A
Questions for Summit Discussion
56
Rules for the Summit discussion
•
•
•
•
•
•
Presenters will have a maximum of 5 minutes to make their presentation.
Presenters will have access to any of the slides in this deck and may, in advance, provide a
small number of additional slides to the presenter ([email protected]).
No ‘walk-ups’ – please do not bring a USB or presentation on the day.
Following each presentation there will be an opportunity for questions from the audience.
Given time limitations, the convenors request that question time be limited to questions or brief
remarks only. If a presentation inspires you to a longer response we ask that you continue it in
afternoon tea or after the Summit.
A brief agenda of the session will be made available at the Summit. At the time of writing
presentations
t ti
are expected
t d on:
• Actuarial involvement in broader health cover initiatives;
• First impressions of the industry from a new Appointed Actuary;
• The development of principles for actuarial involvement in PHI reform; and
• A brief ‘mythbusters’ session on PHI.
57
Suggestions & stimulus for Summit discussion
1. PHIAC Capital Standards
2. The premium round
3. Current policyholder & distribution issues in PHI
4. The future for actuaries working in PHI
Stimulus q
questions are p
provided for each of these topics
p on the following
g slides.
58
PHIAC Capital Standards
1. Should approaches to the capital stress test be varied from QIS 1? How should actuaries
balance practicality, ease of communication and delivering a robust but appropriately
dynamic model?
2. How can actuaries best engage with Boards over the coming months to ensure the
stress test and the Board’s obligations are well understood?
3. How will the stress test work on an ongoing basis? How frequently will it be reviewed?
How and when should it be documented? Should timing be standardised across the
industry?
4. Are there risks to the profession from adopting a more technical approach to the stress
test?
59
The premium round process
1. What have actuaries contributed to the premium setting process in the PHI industry? Are
actuaries adding rigour to the analysis/process/thinking?
2 From your experience
2.
experience, is the current actuarial role in premium setting adequate? What
could be improved?
3. Taking the 2013 process as given, what should actuaries be going back to PHIAC with as
opportunities for process improvement? Data collection/timing/communication etc.
4. Do you believe there needs to be a different process or a different way of thinking from
the pricing regulator to deal with premium applications from not-for-profit insurers
compared with for-profit insurers?
5. Now the industry is subject to 8 different rebate levels what considerations should insurers
be making when pricing excess variants of the same product? Can price still be used to
manage customer behaviour?
60
Current policyholder and distribution issues
1. One of the features of PHI has been its direct sale to policyholders (which has reduced
costs) and policyholder stability. Is this feature valuable and should it be maintained?
2 There is considerable debate in the industry as to the value of brokers and aggregators
2.
brings. What effect do you think this is having (good, bad, otherwise) and what will PHI
distribution look like in 5-10 years?
3. What changes can be made within a community rated structure to encourage
increased responsibility for a person’s health status? Is individual responsibility
fundamentally inconsistent with community rating?
61
The future for actuaries working in PHI
1. What have actuaries achieved in the time they have worked with health insurers?
2. Are there lessons we can learn from the evolution of the AA role in life and general
insurance? What lessons should be passed on to non
non-health
health AAs?
3. Do we need to attract more young actuaries to health insurance practice? Is there a
‘next generation’ of Appointed Actuaries being trained? “Have we built a career
path?” – Stuart Rodger’s 2011 paper “Seven Up”.
4. What and where are the main opportunities for actuaries working in PHI? What are the
most significant threats?
5. What do you think the Institute’s Health Practice Committee should be focusing on now
to ensure we remain ‘sought after’ in the future?
62
Appendix B
Further information for those
new to PHI
63
What can the Health Practice Committee offer?
•
The Institute’s online PHI education course
http://www.actuaries.asn.au/EducationandProfessional/CPD/EducationCourse.aspx
•
The PHI CPD page
http://www.actuaries.asn.au/EducationandProfessional/CPD/HealthPractice.aspx
•
The PHI newsletter circulated via the Institute. Non-Institute members subscribe at:
http://www.actuaries.asn.au/Library/HTMLEmail/Images/2012/Health%20Practice%20Ne
wsletter%20Subscription%20Form%20for%20Non-members.pdf
•
Links to a number of other useful PHI papers (next page)
•
A useful one page summary of the industry by insurer and their FY12 performance
64
Further reading
•
The Operations of Private Health Insurers Annual Report 2011-2012, November 2012, PHIAC
•
Medibank - The Future of Private Health Insurance Premium Setting: Seeking Integrative Solutions,
November 2012,, Deloitte Access Economics.
•
Should private health insurers be more competitive?, May 2012, Finity.
•
Growing Pains – Selection Effects in Private Health Insurance, Andrew Gale (2011).
•
When too much is not enough: capital in a mutual health fund, Peter Carroll (2011)
•
Adventures in Health Risk: a History of Australian Health Insurance, Andrew Gale, David Watson (2003).
Industry snapshot - FY2012 - All Figures $'000
Private Health Insurer
Open
Restrict
For-Profit
access
NFP
HPPA
Alliance
Industry Ass'n
Industry
Big 5
MPL
AHM
Medibank Private Ltd
Australian Health Management Group Ltd





Gross
margin
MER
14.3%
9.3%
PHA
PHA
13.3%
18.1%
Net margin
Total assets
% assets in
equities &
property
Total equity
Solvency
capital/risk
multiple
Whole fund
Contributors
4.9% 11,114,211
17%
6,174,480
3.10
5,936,660
10.2%
10.5%
3.1%
7.6%
2,772,861
328,756
33%
7%
1,649,810
217,940
1.97
4.18
1,610,147
174,965
Market
Share
Market
Share
(cons.)
Rank
27.1%
2.9%
30.1%
1
7
BUPA
BUPA Australia Health Pty Ltd

PHA
16.7%
9.5%
7.3%
2,122,665
0%
767,505
2.61
1,584,162
26.7%
26.7%
2
HCF
The Hospitals Contributions Fund of Australia Ltd


PHA
9.3%
7.3%
2.0%
1,423,861
25%
785,381
2.52
636,351
10.7%
10.7%
3
HBF
HG
HBF Health Funds Inc
Healthguard Health Benefits Fund Ltd




PHA
PHA
13.8%
16.8%
9.0%
11.6%
4.7%
5.2%
1,127,567
111,646
15%
9%
712,850
82,860
4.77
8.29
453,380
30,726
7.6%
0.5%
8.2%
4
16
NIB
NIB Health Funds Ltd


PHA
14.6%
8.6%
6.0%
556,391
16%
241,186
2.41
451,647
7.6%
7.6%
5
Open
AUHL
GUC
Australian Unity Health Ltd
Grand United Corporate Health Ltd




PHA
PHA
AHSA
AHSA
17.6%
23.3%
10.7%
16.3%
6.9%
7.0%
312,411
106,361
15%
10%
112,606
35,996
2.62
1.90
190,097
25,344
3.2%
0.4%
3.6%
6
20
AHSA
AHSA
ARHG
AHSA
AHSA
AHSA
AHSA
PHA
ARHG
HIRMAA
AHSA
PHA & HIRMAA ARHG
AHSA
AHSA
PHA
ARHG
11.8%
13.5%
9.7%
13.8%
16.3%
11.8%
15.8%
19.1%
18.5%
12.7%
22.5%
-13.7%
11.1%
10.8%
9.2%
9.5%
8.9%
11.7%
8.8%
10.9%
12.3%
11.1%
7.2%
9.1%
80.3%
10.8%
1.0%
4.2%
0.2%
4.9%
4.6%
3.0%
4.8%
6.7%
7.4%
5.5%
13.4%
-93.9%
0.4%
210,362
137,988
151,078
99,914
87,126
67,181
57,240
85,017
73,599
72,894
13,749
9,291
9,190
3%
4%
8%
28%
14%
12%
0%
11%
10%
7%
0%
0%
5%
122,570
95,575
120,747
77,413
63,841
42,673
46,495
66,777
55,890
62,313
7,432
4,469
6,849
5.18
7.75
9.18
8.32
7.04
5.49
8.19
8.39
10.69
9.87
3.85
1.98
4.25
106,650
44,804
42,571
37,684
35,748
28,249
26,402
22,621
15,961
14,347
5,094
3,456
2,734
1.80%
0.75%
0.72%
0.63%
0.60%
0.48%
0.44%
0.38%
0.27%
0.24%
0.09%
0.06%
0.05%
9
12
13
14
15
17
18
21
24
26
29
33
34
11.3%
10.8%
10.6%
14.6%
18.9%
16.6%
14.0%
20.9%
8.9%
8.6%
11.3%
20.8%
18.0%
6.9%
5.6%
5.7%
8.7%
11.1%
6.3%
10.4%
12.1%
8.8%
8.3%
9.0%
12.8%
13.5%
4.4%
5.2%
4.8%
5.9%
7.8%
10.4%
3.6%
8.8%
0.0%
0.2%
2.3%
8.0%
4.4%
299,035
277,018
187,722
100,118
60,212
46,735
72,008
53,840
21,589
19,685
13,030
14,987
11,082
6%
10%
12%
30%
28%
12%
21%
0%
0%
0%
0%
5%
0%
204,645
195,518
118,023
74,554
37,322
30,840
50,900
24,448
14,856
15,001
8,886
11,673
8,637
8.03
11.82
7.77
7.60
3.31
7.74
8.28
5.24
5.96
7.98
4.34
5.61
4.79
107,963
95,937
77,122
25,612
22,546
17,880
15,066
9,722
6,584
4,657
4,414
3,911
2,106
1.82%
1.62%
1.30%
0.43%
0.38%
0.30%
0.25%
0.16%
0.11%
0.08%
0.07%
0.07%
0.04%
8
10
11
19
22
23
25
27
28
30
31
32
35
14.3%
15.4%
12.5%
9.4%
10.9%
7.2%
4.9%
4.5%
5.3%
2.55
5.19
7.67
4,941,378
601,762
393,520
83.2%
10.1%
6.6%
GMHBA GMHBA Ltd
Westfund Westfund Ltd
Latrobe
Latrobe Health Services Inc
HP
Health Partners Ltd
HIF
Health Insurance Fund of W.A.
PeoplecareLysaght Peoplecare Ltd
CUA
CUA Health Limited
St Luke's St Luke's Medical and Hospital Benefits Association Ltd
QCH
Queensland Country Health Ltd
Mildura
Mildura District Hospital Fund Ltd
NHBA
National Health Benefits Australia Pty Ltd
HPL
Health.com.au Pty Ltd
CDH
Cessnock District Health Benefits Fund Ltd
























PHA
HIRMAA
PHA
PHA & HIRMAA
PHA
HIRMAA



Restricted Access
TFH
Teachers Federation Health Ltd
Defence Defence Health Ltd
CBHS
CBHS Health Fund Ltd
QTUH
Queensland Teachers' Union Health Fund Ltd
RT
Railway & Transport Health Fund Ltd
Police
South Australian Police Employees' Health Fund Inc
Navy
Navy Health Ltd
DHF
The Doctors' Health Fund Ltd
Phoenix Phoenix Health Fund Ltd
ACA
ACA Health Benefits Fund Limited
Transport Transport Health Pty Ltd
HCI
Health Care Insurance Ltd
RBHS
Reserve Bank Health Society Ltd













22







PHA & HIRMAA
PHA & HIRMAA
PHA & HIRMAA
PHA & HIRMAA
PHA & HIRMAA
HIRMAA
HIRMAA
HIRMAA
HIRMAA
HIRMAA
PHA & HIRMAA
HIRMAA
HIRMAA






13
9
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
AHSA
26
Big 5
Mid tier/Regionals
Closed
PHA
HIRMAA
PHA & HIRMAA
AHSA
ARHG
For profit
14
10
8
18.5%
10.2%
11.6%
96.9%
9.0%
6.5%
25
4
15.9%
1.4%
68.3%