More trouble for private health funds after financial markets crashed due to coronavirus
The coronavirus pandemic has plunged the already troubled private health insurance industry deeper into crisis, with funds losing money in the first three months of the year as financial markets crashed.
Australians continued to turn away from private health insurance as investment income diminished, continuing a long-term trend that experts say has the industry locked in a “death spiral”.
The tide of financial red ink washed away any benefits the industry might have enjoyed from a 2.4% fall in insurance claims due to the cancellation of elective surgery.
Insurance companies usually invest in both company shares and debt instruments such as bonds, both of which have been smashed by the coronavirus crisis.
Australian Prudential Regulation Authority (Apra) data released on Tuesday shows that, across the industry, investment income plunged 450% from a total of $82m in the December quarter to a loss of almost $290m.
The industry’s total profit tumbled 115%, from a profit of $370m in December to a loss of almost $54m.
And the percentage of Australians with private health insurance continued to slide, falling from 44% to 43.8%. It was as high as 47.4% in 2015.
Stephen Duckett, the head of the health program at thinktank the Grattan Institute, said the industry’s longterm decline in membership would probably get worse as the economic shocks of the coronavirus lockdown continue after the restrictions themselves are eased.
The dramatic fall in investment income “will bounce back eventually, presumably,” he said.
“That’s a Covid-19 impact, and then it’s whatever your views on where the market’s going over the next six months.
“The big risk for insurance is the decline in numbers that’s just going on.
“A hundred people a day dropping out over the last quarter, and young people more than old people.
“That’ll probably get worse with higher unemployment.”
In April, the Australia Institute estimated that the fall in elective surgery and other procedures due to coronavirus could save private health insurers more than $3.5bn.
And Duckett said the cancellation of elective surgery in March and April left the funds “cashed up”.
“The problem with their cashflow is that with hospital care, a significant proportion of those people are going
to want to have their procedure in the second half of the year.
“Although they’re cashed up now they’re going to have to spend a significant amount of that in the second half of the year.”
Experts have been warning for more than six months that the private health insurance industry was in a death spiral due to soaring premiums that encourage healthy young people to stay out of the system.
In February, before the coronavirus pandemic hit Australia, Apra member Geoff Summerhayes warned that if funds carried on with business as usual, hoping for a government hand-out, there would be just three left with a viable business model within two years.
“He might be right, he might have been generous,” Duckett said.
“Six funds are 80, 90% of the industry so he might be a bit ambitious, but it certainly won’t be the 30-odd we see now.
“If I were government you would want to be managing the whole economy, not worrying too much about the health insurance industry.
“In the post-pandemic world I don’t think it’s a priority for government.”