Private health insurance in Australia: Current issues · Private health insurance in Australia:...

Private health insurance inAustralia: Current issues

Adam JuppMay 2016

Agenda

Introduction

Health system in Australia

Private health insurance in Australia

Making community rating work

The carrots and the sticks

What drives premium increases?

Current hot topics

Prostheses pricing

Complexity

Junk cover

2May 2016Private health insurance in Australia: Current issues

Introduction


Who am I?

2003 Bachelor of science (Actuarial Science) at Curtin University (1st intake!)

2004 WA Department of Health graduate program, over next three years worked way up to Systemmodeller

2007 PwC

2010 Fellow of Institute of Actuaries of Australia

2013 Health Practice Committee member

2015 Appointed Actuary to two health insurers and one general insurer

Mandatory disclaimer – these views are my own and do not necessarily reflect those of my employer orthe companies I work with.


Health system in Australia


Health system in AustraliaWho pays for what?


AIHW, Health expenditure 2013-14

Health system in AustraliaWhere does the money go?


AIHW, Australia’s Health 2014

Health system in AustraliaInternational comparison


OECD. (2015), Life expectancy at birth and health spending per capita, 2013 (or latest year), inHealth at a Glance 2015, OECD Publishing, Paris.

AUS

USA

GBR

CHN

SWENZL NORCAN

JPN

ESP

70

75

80

85

0 2,000 4,000 6,000 8,000 10,000

Life expectancy vs health spending per capita

Lif

ee

xp

ec

tan

cy

iny

ea

rs

Health spending per capita (USD PPP)

AUS

USA

GBR

CHN

SWENZL

NOR

CAN

JPN

ESP

70

75

80

85

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Life expectancy vs GDP per capita

Lif

ee

xp

ec

tan

cy

iny

ea

rs

GDP per capita (USD PPP)

Private health insurance in Australia


Products offeredComplying health insurance products

Hospital

Services provided in a hospital inpatientsetting covered by Medicare(e.g. have a MBS item)

Minimum level of rehabilitation, psychiatricand palliative care treatment

Minimum 25% of MBS fee for doctors’services

Provides choice of doctor and setting

General treatment

Dental and allied health services provided in anon-hospital setting where there is not aMedicare benefit available

Subject to an annual limit

Insurer sets rebate levels or % back per item


Historical coverage trendsHospital treatment


0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Hospital Treatment Coverage (insured persons as % of population)

Introduction of Life TimeHealth Cover from 1 July2000

Commonwealth medical benefits at 30% flatrate restricted to those with at least basicmedical cover from September 1981

Introduction of Medicarefrom 1 February 1984

Medibank began on 1 July 1975. Aprogram of universal, non contributory,health insurance it replaced a system ofgovernment subsidised voluntary healthinsurance.

Introduction of 30% Rebatefrom 1 January 1999

Higher rebates for olderpersons from 1 April 2005

1 July 1997. A Medicare LevySurcharge (MLS) of 1% oftaxable income is introducedfor higher income earners whodo not take out private healthinsurance.

31 October 2008. Increase inMLS income thresholds,subject to annual adjustment.

Introduction of 30%Rebate meanstesting from 1 July2012

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Hospital Treatment Coverage (insured persons)

Introduction of Life TimeHealth Cover from 1 July2000

Commonwealth medical benefits at 30% flatrate restricted to those with at least basicmedical cover from September 1981

Introduction of Medicare from1 February 1984

Introduction of 30%Rebate from 1 January

Higher rebates for olderpersons from 1 April

1 July 1997. A Medicare LevySurcharge (MLS) of 1% of taxableincome is introduced for higherincome earners who do not takeout private health insurance

Medibank began on 1 July 1975. Aprogram of universal, non contributory,health insurance it replaced a system ofgovernment subsidised voluntary healthinsurance.

31 October 2008. Increasein MLS income thresholds,subject to annualadjustment.

Introduction of 30%Rebate meanstesting from 1 July2012

Medicare had a negative impact on privatehealth insurance in Australia.

The policy decisions (and marketingcampaign) in 1999-2000 reversed this trend.

Percentage covered is starting to plateau but sitsat approximately 47% of the population.

State based covered30 June 2015


Hospital General treatment

55.2%

39.9%

45.3%

46.2%

48.1%

45.0%

45.1%

58.2%

66.7%

40.8%

46.9%

55.8%

52.7%

43.7%

48.1%

60.6%

Total: 47.4% Total: 50.9%

(excludes hospital-substitute treatment, CDMPand hospital linked ambulance)

APRA Private Health Insurance Membership and Benefits

Coverage by age30 June 2015

0%

10%

20%

30%

40%

50%

60%

70%

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+

%o

fp

op

ula

tio

nin

su

re

d

Private health insurance coverage by age and product

Hospital

General treatment

Private health insurance in Australia: Current issues13

May 2016

Industry structureP&L over 2014/15


May 2016

21.3billion

1.1billion

18.1billion

Revenue Benefits Profit

APRA Insight Issue One 2016

Industry structureBalance sheet at December 2015


May 2016

11.8billion

5.6billion

4.9billion

Assets Liabilities Excess capital

APRA Insight Issue One 2016

Capital above liabilities and theminimum regulatory capital

amount

Industry StructureNot for profit vs For profit

0

5

10

15

20

25

30

35

Market share at 30 June 2015 (% of all policies)


May 2016

At 30 June 2015:34 insurers9 for profit (68% market share)25 not-for-profit (32% market share)

Market share of top five insurers: 81%

Industry StructureOpen versus restricted

0

5

10

15

20

25

30

35Market share at 30 June 2015 (% of all policies)


May 2016

Regulation and legislationLegislation


May 2016

Private health insurance Act 2007

Aim of Act is to:

(a) provides incentives to encourage people to have privatehealth insurance; and

(b) sets out rules governing private health insuranceproducts.

Private Health Insurance (PrudentialSupervision) Act 2015

Registration process

Imposes requirements about how PHIs conduct healthinsurance business

Deals with other matters in relation to the prudentialsupervision of private health insurers.

Regulation and legislationRegulation


May 2016

Department of Health(& Minister forHealth)

Approval of annual PremiumRound application

Medicare Benefits Schedule andother minimum benefits

Changes to rebate / MLS / LHC

Australian PrudentialRegulation Authority

Since 1 July 2015, previously thePrivate Health InsuranceAdministration Council

Responsible for prudentialsupervision

Administration of riskequalisation trust fund

Regular data collection andreporting on schemeperformance

Private healthinsuranceombudsman

Independent arbitrator

AustralianCompetition andConsumerCommission

Since 1999 prepare annualreport for senate on anti-competitive and other practicesby health insurers and providers

Regulation and legislationAppointed Actuary role


May 2016

Appointed Actuary

Established in 2004 (after general insurance in 2002)

Statutory role as per 106(1) of the Private Health Insurance(Prudential Supervision) Act 2015

Requirements outlined in HPS 320 Actuarial and RelatedMatters

Professional Standards PS600 (FCRs) and GuidancePG699.01 (Pricing & projections) and PG699.02(Insurance liabilities)

Main duties

- Method to calculate insurance liabilities

- Annual valuation of insurance liabilities including riskmargins

- Annual Financial Condition Report

- Opinion on annual Premium Round application

- Notifiable circumstances (any proposed change thatmay have a material impact on the health benefit fundor its policyholders)

Making community rating work


Community rating


May 2016

Age

Gender

Occupation

Family history

Lifestyle factors (e.g. smoking)

Pre-existing medical conditions

Prior claims history

Suburb (beyond state)

Community ratingRisk equalisation

Mechanism

State-level zero-sum calculation

Based on benefits paid (hospital only) in last quarter only

Quarterly zero-sum retrospective risk equalisation

Aged based pool (97% of payments)

Increasing proportion of hospital benefits based onpolicyholders age shared across industry

High cost claimants pool (3% of payments)

Claimants who have claimed over $50,000 in a year(not indexed)

82% of benefits paid above the $50,000 shared across industry

Applied after ABP


Age% eligible for

ABP

0 - 54 0%

55 - 59 15%

60 - 64 42.5

65 - 69 60%

70 - 74 70%

75 - 79 76%

80 - 84 78%

85 + 82%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Mar

20

10

Ju

n2

010

Sep

20

10

Dec

20

10

Ma

r2

011

Ju

n2

011

Sep

20

11

Dec

20

11

Ma

r2

012

Ju

n2

012

Sep

20

12

Dec

20

12

Ma

r2

013

Ju

n2

013

Sep

20

13

Dec

20

13

Mar

20

14

Ju

n2

014

Sep

20

14

Dec

20

14

Ma

r2

015

Ju

n2

015

Sep

20

15

Dec

20

15

Bil

lio

ns

Eligible benefits (LHS) Total benefits (LHS) Percentage equalised (RHS)

Risk equalisationPros and cons

Advantages

Community rating can be sustainable

Protects small insurers from high costclaimants

Limited benefit in targeting specificdemographics

Can assist to subsidise high cost claimants andtop level cover

Disadvantages

Risk equalisation mechanism isn’t perfect

No material incentives for insurers to improvehealth outcomes of policyholders

Product structure is main way of controllingprice


The carrots and the sticks


Carrot and sticksAKA The three pillars


May 2016

Medicare levysurcharge

July 1997

1% of taxable income if above$50,000 and no hospital cover

October 2008

Threshold increased to $70,000 andsubject to indexation

July 2012

Size of MLS varies by incomethreshold

Lifetime health coverloading

July 2000

+2% each year over 30 and didn’thave health insurance

July 2013

LHC loading do not receive rebate

Rebate

January 1999

30% government rebate on hospitaland general treatment products

April 2006

Higher rebates for 65+ and lowincome earners

July 2012

Rebate means-tested

April 2014

Rebate reduced relative to CPI

Income Tier

Standard Tier 1 Tier 2 Tier 3

Taxableincome

(Singles)≤$90,000

$90,001-105,000

$105,001-140,000

≥$140,001

Rebate 26.79% 17.86% 8.93% 0.00%

MLS % 0.00% 1.00% 1.25% 1.50%

What drives premium increases?


Annual premium round process1 April


May 2016

5.59%

6.18%6.20%

5.60%

5.19%

5.94%

4.5%

5.0%

5.5%

6.0%

6.5%

201620152014201320122011

Industry rate protected increase

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-5% 0% 5% 10% 15% 20% 25% 30%

Ra

tep

ro

tec

ted

inc

re

as

e

Market share at 30 June 2015

2016 Premium Round increase

Average

For Profit

Not for profit

Key drivers

Utilisation

Ageing population

Medical technology advances

Changing lifestyle

Benefit averages

General inflation

New technologies


May 2016

Medibank Private, PHI Consultation 2015-16 Position Statement

Drivers of health care costs 2010-2014

Hot topics


Prostheses pricingThe issue

Device makers have 'siphoned off' $1b a year, says Nib CEOMark FitzgibbonAFR, April 26, 2016

Ms Ley said there were examples where the current Governmentpricing process meant the same pacemaker cost double theprice – or $26,000 more – if it was delivered through the privatesystem rather than public.5 February 2016, Minister for Health


May 2016

Prostheses pricingA timeline

1985 – 2001 Department of Health setProstheses prices

2001 Industry partially de-regulated. Allowedinsurers to negotiate with providers / suppliersbut under restriction that no gaps be chargedto consumers

2005 Prostheses List was introduced bygovernment to control benefits

2010 Prostheses Listing Advisory Council(PLAC) established.


May 2016

PHA, Costing an arm and a leg, 2015

Prostheses pricingPLAC


May 2016

Main Roles of the Prostheses List Advisory Committee

• Provide advice to the Minister for Health in a timely manner about prostheses submitted for inclusion on theProstheses List, having regard to comparative qualitative clinical function and effectiveness, comparative costeffectiveness and comparative safety.

• Provide advice to the Minister for Health in a timely manner about the grouping and description of prosthesesincluded on the Prostheses List, having regard to whether listed prostheses have comparable qualitative clinicalfunction and/or similar technical attributes.

• Provide advice to the Minister for Health in a timely manner about appropriate private health insurance benefits forproducts included on the Prostheses List, having regard to comparative qualitative clinical function and effectiveness,comparative cost effectiveness, comparative safety and whether clinically relevant superiority vis-à-vis similarprostheses has been established.

• Refer evidence of identified concerns about the safety of prostheses in a timely manner to the Therapeutic GoodsAdministration for action.

• Provide advice about other matters as requested by the Minister for Health.

PLAC, Terms of Reference

Prostheses pricingImpact of reform

PHA estimates of impact of reforming prostheses pricing

In the Budget, Federal Government committed $3.2 million establish a Private Health SectorCommittee to implement reforms such as this, and will also establish a new Prostheses ListAdvisory Committee to further develop and advise on the implementation of therecommendations of the Industry Working Group on Private Health Insurance ProsthesesReform created earlier this year.


May 2016

45% reduction inprice

$800M savingsper annum

$150 reduction inannual premium

PHA, Costing an arm and a leg, 2015

The Checkout’s take on thisShort break

https://www.youtube.com/watch?v=YqPm6IV19Bk


May 2016

Why so many products?The issue

"The main issue I think is that it's a really complex market - there's over 48,000 healthinsurance products on the market, they're all different, they're all hugely variable," Ms Wellssaid.

http://www.abc.net.au/news/2016-01-08/many-people-with-private-healthcare-unsure-of-their-policy/7076202

Most insurers have 3-4 core hospital products and 3 core general treatment products, so withjust over 30 insurers there should be about 500 product options.

So how do we get to 48,000?


May 2016

PwC

ComplexityHealthy Helper example

Healthy Helper


1

PwC


Healthy Helper

$0 XS $500 XS$250 XS


1

3

PwC


Healthy Helper

$0 XS $500 XS$250 XS


1

3

12

PwC


Healthy Helper

$0 XS $500 XS$250 XS


1

3

12

84

Junk coverThe issue


May 2016

https://www.choice.com.au/money/insurance/health/articles/junk-health-insurance

Junk coverWhat is it?

Covers for:

• Minimum default benefits only for rehabilitation, psychiatric care and palliative care

• Cover for only a handful of elective procedures to remove unnecessary body parts or patchyou up e.g. wisdom teeth, appendicitis, tonsils, gall bladder, joint reconstructions

• Emergency accident cover, but may only cover individual in a public hospital setting.


May 2016

Junk coverResolution

Most stakeholders are advocating for:

• Changes to the Standard Information Sheet structured to assist consumers understand whatthey are / aren't covered for

• Change in the definition of minimum benefits

• Shift to an inclusionary model for product development (rather than exclusionary model)

• Limiting rebate to products which provide a specified level of cover


May 2016

Questions?

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