Health insurer calls for premium caps
A government cap on health insurance premiums and profits has been proposed to ensure the sustainability of the troubled industry.
The head of Australia's fifth biggest health insurer HBF's John Van Der Wielen has made the controversial call as health funds prepare to slug their members with another above inflation premium rise on Thursday (April 1).
"I believe it is incumbent on every single participant across the health ecosystem to look inward and seriously consider if they are charging a profit margin that ensures the sustainability of Australia's healthcare system over the long-term, " Mr Van Der Wielen told News Corp.
"Some European countries show us that, if we do not take this seriously, then caps on fees and profit margins could well be a reality," he said.
Health fund membership is continuing to decline as premiums rise way in excess of inflation making the product even more unaffordable at the same time as government subsidies decline.
As they prepare to unleash the second premium rise in just six months, for-profit health funds like Medibank and nib have just released major profit rises of 26.8 per cent and 15.9 per cent respectively.
Medibank's net profit after tax for the first six months of the financial year was $226.4 million, and nib announced a $66.2 million profit for the same period.
Last financial year Bupa made a net profit of $224.2 million.
Unlike mutual health funds which return earnings to their members, Medibank and nib pay dividends to their shareholders.
So far this financial year Medibank will return round $159 million in dividends to shareholders and nib around $45 million.
If this money had gone back to their members, premiums could have been between $74 and $88 lower.
For the full financial year 2019-20 both funds paid dividends of twice this amount.
Mr Van Der Wielen, who runs a not-for-profit fund, said for-profit funds should be recording lower returns on capital in a low-interest environment.
When interest rates are high a company's returns should also be higher, as companies should be delivering a return for its investors greater than what investors could earn if they simply put their money in the bank.
HBF did not raise its premiums at all last year and is planning to shortly deliver a cash payout to its members because it spent less on surgery than anticipated due to the COVID-19 surgery lockdown.
The health fund is now offering coverage in the eastern states.
Declining and ageing membership are key threats to the viability of health funds because older people are more likely to claim on their insurance driving premiums up even further.
Ballooning public hospital waiting lists could add to the pressure on health funds if people take out private insurance for 12 months to fast track an operation and then quit after the surgery, Mr Van Der Wielen said.
The government is considering a package of major reforms to health insurance for the May budget.
Originally published as Health insurer calls for premium caps