PHI rethink urgently needed: APRA

The sustainability of the private health insurance (PHI) industry, particularly not-for-profit funds, is under serious threat, APRA member Geoff Summerhayes warned Members Health Directors Professional Development Program today.

A new approach is urgently needed to rethink the role of Australia’s private health insurance (PHI), was APRA member Geoff Summerhays’ “blunt message” to a gathering of Member Health Alliance directors today. Two years after his first warning about the industry’s sustainability, Summerhayes said little had changed. Not-for-profit funds were particularly at risk as the growing gap between rising PHI claims costs and premiums continued to threatened sustainability. Unless changes were made, by 2022, only three health insurers would be left, of which none would be smaller, not-for-profit funds.

APRA forecast that, by 2025, the level of hospital cover would have dropped another 1.6% or by 184,000 policyholders. That decline was expected to be driven by the loss of another 345,000 members in the 20-34 age group, which would be partially offset by the addition of 298,000 members aged 70-84. Summerhayes said: “A new approach is urgently needed, and it must be a whole-of-industry response.”

One option APRA would support was an independent review of Australia’s PHI system, led by appropriately qualified experts and involving all main stakeholders. APRA believed all important policy and regulatory settings should be discussed, including the continued viability of the community rating model, what services could be covered, the way premiums were set and the way prices were set between health insurers and medical providers.

Summerhayes said PHI’s role in mental health had to be looked at, the rules around out-of-hospital treatment and the management of chronic health conditions. “We’ve reached the point where some hard decisions need to be made if PHI is to remain an essential part of the Australian health system,” he said. “Unless the root causes that are driving up premiums and costs and pushing down coverage levels are (tackled), all APRA is really doing is just buying time for vulnerable PHIs, and delaying the inevitable mergers and exits to come.”

Summerhayes said APRA had been disappointed by the industry’s progress in responding to the “sustainability challenge”. Too many health insurers seemed to be waiting for the government to find “a miracle cure”. In response, APRA now required all private health insurers to submit “a robust, proactive recovery plan”, including a “Plan B”’, with “at risk” PHIs asked to sound out a potential merger partners in case their plans would not succeed.

Summerhayes said reversing the PHI decline would require “difficult conversations and even tougher decisions…no single stakeholder can fix the issues in isolation”. “When not even substantial taxpayer subsidies and the Medicare levy surcharge can convince a growing number of policyholders that PHI represents value-for-money, it’s time for a rethink,” Summerhays said.

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