Private health insurers are split on the need for a big hike in premiums this year to keep pace with rising health costs, as low claims and soaring policyholders reflect a sector in rude good health.
Two of Australia’s largest private health insurers, Medibank and Nib, delivered full-year results last week that show Australia’s private health insurance industry had a great year, buoyed by a post-pandemic environment where customers prioritise their health.
Nib’s earnings soared as it grew policyholder numbers by 4.7 per cent for the year ending June 30, 2023 – nearly doubling the private health insurance sector’s growth for the year. And the worst hacking event in corporate history failed to stop Medibank, our largest private health provider, from adding new customers in the June quarter – barely six months after the attack.
The growing base of young customers, combined with a pandemic-induced dip in customer claims for health expenses, increased the gross profit margin for the industry by 17.6 per cent last year, according to data released last week by the Australian Prudential Regulation Authority.
The regulator said claims costs increased just 2.4 per cent last year compared to premium growth for the sector of 3.3 per cent driven by membership growth.
Nib chief executive Mark Fitzgibbon has clearly flagged to investors and analysts that the sub-3 per cent premium rises of recent years will no longer be possible in a health environment where inflation is starting to bite. He will need to convince the federal health minister Mark Butler, to approve any premium increase.
Conversely, Medibank’s David Koczkar is not convinced claims growth is recovering from its COVID-induced malaise just yet. “I can’t speak for others, but when I look at our underlying claims, growth of 2.6 per cent expectation for FY24, that will be the basis upon which we review our premium increases,” he said.
“Unless there’s a significant change in that, I expect the premium increases will remain relatively lower than where they were, as an industry, four or five years ago, which was about five or six per cent.”
Medibank’s customers topped four million for the first time after its policy numbers grew in the June quarter – the first growth since last year’s hacking attack which exposed sensitive customer data.
The health insurer reported a 30 per cent rise in net profit to $511 million for the year ending June 30, 2023.
“The cost-of-living pressures are real in the community, but people are prioritising their health and wellbeing. And we’ve seen 12 consecutive quarters of growth in the industry and actually the highest growth in customers with hospital cover under 30 (years of age) in a decade,” Koczkar said.
Nib is now forecasting a claims environment moving back to pre-COVID levels, which equates to a 4 to 6 per cent rise. And Fitzgibbon says providers will need to price rationally.
“I don’t want to pre-empt the minister’s discretion on this (but) we’ve just had two periods of extraordinarily low increases, 2.7 per cent or thereabouts for two years. Now, that was appropriate. It reflected a lower claims environment,” Fitzgibbon said.
“No question, healthcare spending will return to some new normal. My best guess is that it will be somewhere between 4 per cent and 5 per cent. We know the hospitals in particular are under economic pressure, and will be looking for greater compensation,” he said.
Analysts are backing Medibank’s line.
“Overall, we anticipate strong earnings growth again in fiscal 2024 on policyholder growth and subdued claims inflation,” Morningstar analyst Nathan Zaia said.
But some are keeping an eye out for signs of rising costs.
“There is a risk that claims inflation, particularly relating to hospital, start rising given broader economic inflationary pressures,” said JP Morgan’s Siddharth Parameswaran after Nib’s result last week.
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Source: Thanks smh.com