Contemporary Is s ues in Private Health Ins urance Health Practice - - PowerPoint PPT Presentation

Contemporary Is s ues in Private Health Ins urance

Health Practice Committee: Andrew Gale Ben Ooi David Watson

Outline

• Membership trends, price increases
• FY10 State of the Industry
• Mergers and acquisitions activity
• Cost pressures on health and health insurance
• Political influences
• PHI stakeholders
• PHIAC activities & other developments
• HPC activities

Members hip Trends

Source: PHIAC Membership trends

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 Time Health Cover from 1 July 2000 Commonwealth medical benefits at 30% flat rate restricted to those with at least basic medical cover from September 1981 Introduction of Medicare from 1 February 1984 Medibank began on 1 July 1975. A program of universal, non contributory, health insurance it replaced a system of government subsidised voluntary health insurance. Introduction of 30% Rebate from 1 January 1999 Higher rebates for older persons from 1 April 2005 1 July 1997. A Medicare Levy Surcharge (MLS) of 1% of taxable income is introduced for higher income earners who do not take out private health insurance. 31 October 2008. Increase in MLS income thresholds, subject to annual adjustment.

Members hip Trends

• MLS impact
• GFC impact
• Slowing/stablising

growth rate

Hospital persons growth (quarter on previous year quarter)

• 1.5%
• 1.0%
• 0.5%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% D e c

• 1

D e c

• 2

D e c

• 3

D e c

• 4

D e c

• 5

D e c

• 6

D e c

• 7

D e c

• 8

D e c

• 9

D e c

• 1

Members hip growth by funds

Hospital policies - Aust Jun-08 Jun-09 Jun-10 FY09 growth FY10 growth 2 year growth NHBA 2,055 3,036 3,881 47.7% 27.8% 88.9% RT 16,754 20,230 22,441 20.7% 10.9% 33.9% Latrobe 28,772 32,262 36,168 12.1% 12.1% 25.7% DHF 5,118 5,707 6,368 11.5% 11.6% 24.4% GMHBA 65,407 73,814 79,294 12.9% 7.4% 21.2% GUC 14,811 15,824 17,723 6.8% 12.0% 19.7% Police 12,231 13,561 14,530 10.9% 7.1% 18.8% CDH 2,107 2,360 2,476 12.0% 4.9% 17.5% MPL 1,314,331 1,340,856 1,359,949 2.0% 1.4% 3.5%

large open insurers

AHM 143,355 147,601 147,551 3.0% 0.0% 2.9% BUPAAH 461,944 469,372 474,936 1.6% 1.2% 2.8% BUPAAPL 719,946 735,802 754,061 2.2% 2.5% 4.7% MBF Alli 79,154 76,415 73,325

• 3.5%
• 4.0%
• 7.4%

HCF 414,507 428,016 446,803 3.3% 4.4% 7.8% MU 75,951 71,540 66,543

• 5.8%
• 7.0%
• 12.4%

HBF 304,887 316,599 321,970 3.8% 1.7% 5.6% H'guard 24,735 24,377 24,345

• 1.4%
• 0.1%
• 1.6%

NIB 332,360 348,918 368,768 5.0% 5.7% 11.0% Industry 4,585,293 4,702,669 4,822,120 2.6% 2.5% 5.2%

Market S hare

* Based on whole fund policies

Jun-10 Jun-09 MPL 28.4% 28.7% AHM 2.9% 3.0% BUPAAPL 15.7% 15.7% BUPAAH 9.7% 9.8% MBF Alli 1.7% 2.0% NIB 7.3% 7.0% MU 1.2% 1.5% AUHL 3.0% 3.2% GUC 0.3% 0.3% NHBA 0.1% 0.0% For profit 70.4% 71.3% Non-for-profit 29.6% 28.7%

Members hip Trends

Change in hospital persons covered by age

• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 0-24 25-39 40-59 60+ Total

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Members hip Trends 2

Hospital Coverage by Age Group

30% 35% 40% 45% 50% 55% 60% Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10

% of population

30% 35% 40% 45% 50% 55% 60%

25-34 35-44 45-54 55-64 65-84 85+ All

Impact of Ageing

Data Source: PHIAC Membership and Benefit trends are based on December quarter end data.

Hospital Insurance Risk Profile change

• 14%
• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Hospital Insurance Risk Profile change

Average age (hospital persons - Australia) 36.50 37.00 37.50 38.00 38.50 39.00 39.50 40.00 40.50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Price Increas es

Average Contribution Rate Increase 7.0% 6.8% 4.9% 1.8% 0.0% 6.9% 7.4% 7.6% 8.0% 5.7% 4.5% 5.0% 6.0% 5.8% 5.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Price Increas e – 2011 vs 2010

Rate increases 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 0.0% 0.1% 1.0% 10.0% 100.0% Market share (number of whole fund policies) (log scale) % increase (FCI)

Apr-10 Apr-11

Price Increas e vs Net Margin

Rate Increase vs Net Margin by fund

R2 = 0.6132 0% 3% 6% 9% 12% 15%

• 10%
• 5%

0% 5% 10% 15% 2009/10 Net Margin Apr 11 Rate Increase

Price Increas e vs S olvency Multiple

Rate Increase vs Solvency Multiple by fund

y = -0.0015x + 0.0646 R2 = 0.0532 0% 3% 6% 9% 12% 15% 2 4 6 8 10 12 14 16 June 2010 Solvency Multiple Apr 11 Rate Increase

FY10 S tate of the Indus try

FY10 FY09 FY08 FY07 Number of players 37* 37 38 38 Revenue $14.2b $13.1b $12.2b $11.8b Gross margin (%) 13.7% 13.2% 14.8% 15.2% MER 9.2% 10.0% 10.5% 9.6% Net margin (%) 4.5% 3.2% 4.3% 5.6% Net margin ($) $669m $413m $513m $616m Profit before tax $1.17b $405m $562m $1.29b Capital Adequacy Capital Risk Multiple 2.67 2.37 2.73 NA

* 35 at Oct 2010

• 10 open and for-profit, including 1 listed
• 13 restricted
• 14 open and not-for-profit

More recently....

Financial Performance ($b) 12 months to Dec 2010 12 months to Dec 2009 Revenue 14.78 13.63 Benefits (including levies) (12.72) (11.84) Gross margin 2.05 1.79 Expenses (1.35) (1.27) Investment income 0.50 0.54 HBF Profit 1.20 1.07 Tax and Extras (0.25) (0.15) Insurer Profit after tax 0.95 0.92 Gross margin 13.9% 13.1% MER 9.0% 9.2% Net margin 4.9% 3.9% Capital adequacy risk multiple 2.66 2.53

Financial performance

Private Health Insurance Industry Profitability

• 10%
• 5%

0% 5% 10% 15% 20% 25% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Financial year

% of contribution income

Gross Margin Ratio Net Margin Ratio (Gross margin ratio less MER) Profit Margin Ratio (Net Margin Ratio + investment and other income, before abnormal, extraordinary and tax)

Management expens es

Management expenses - FY10

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0.01% 0.10% 1.00% 10.00% 100.00% Market share (% of total whole fund policies) (log scale) MER (% of contributions)

R is k equalis ation

Year Gross deficit ($m) Hospital and medical benefits ($m) % of hospital and medical benefits SEU (m) Gross deficit per SEU Increase in gross deficit per SEU CY04 2,053 5,570 36.9% 6.24 329 CY05 2,173 5,869 37.0% 6.31 345 4.7% CY06 2,366 6,348 37.3% 6.43 368 6.8% CY07 2,737 7,110 38.5% 6.61 414 12.5% CY08 3,081 7,805 39.5% 6.87 449 8.3% CY09 3,430 8,600 39.9% 7.04 487 8.6% CY10 3,765 9,306 40.5% 7.21 522 7.2%

R is k equalis ation

• New arrangement commenced June 2007 quarter
• Pool continues to grow, with HCCP relatively immaterial

Gross deficit

400 500 600 700 800 900 1,000 1,100 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Quarter $m

• ld

new

Private Health Ins urance Act 2007

• 4 years since commencement
• Supporting rules have been amended.
• RETF review?
• New Capital Standard?

Merger & Acquis ition Activity

June 2008 MBF Group purchased by BUPA UK (owner of BUPA Aust) Oct 2008 NIB rejected takeover offer Oct 2008 Druids VIC merged into GMHBA Dec 2008 Manchester Unity acquired by HCF Jan 2009 AHM acquired by MPL Nov 2010 GMHBA rejected takeover offer

C os t pres s ures on health and health ins urance

Health insurance cost pressures Health cost pressures

• Benefits for medical services
• Growth in utilisation
• Expansion in no-gap benefits
• Growth in use of contracts
• Private hospital contracting
• Consumer education & expectation
• Table drift
• Health spending is 9.5% of GDP (AIHW

excl residential aged care)

• Technology advances
• Prostheses and other devices
• Pharmaceuticals
• Medical procedures and treatment

techniques

• Ageing population

Political influences - 1

• Government Support

–Rebate - 30% rebate for under 65s, 35% for 65-69, 40% for 70+, continues –Medicare levy surcharge - threshold changed from $50k/$100k to $70k/$140k for single/families subject to indexation – (now $77k/$154k) –Lifetime Health Cover

• PHIO

–State of Health Funds report (2010: 7th edition) released in March 2011

• Updates

– Revised privatehealth.gov.au website – First LHC “graduates” no longer to pay the loading from July 2010 – National Health Hospitals Reform Commission Report

• Medicare Select
• Denticare
• Medical Local
• Public hospital governance

– Means testing of MLS and rebate (rebate tiers) still proposed for 1 July 2011?

Political Influences - 2

PHI S takeholders

Customers/ policyholders/ members DoHA PHIAC PHIO ACCC Privacy Commissioner Regulators/ Government Providers Doctors,

• ther

providers Private Hospitals Institute of Actuaries of Australia

Rating agencies (eg S&P, Choice, Global Reviews)

Others Brokers (eg iSelect, moneytime, etc) Private Health Insurers

PHIAC Activities

• 3 New Commissioners including a new Chair.
• A number of Standard Operating Procedures (SOPs)
• Continued attention on Risk Management and Corporate

Governance

• Capital standards review?
• Employed its first FIAA – Hadyn Bernau (total 5 members
• f the Institute)
• New standards for governance and disclosure

PHIAC and PHI AAs

• PHIAC and PHI AAs met in 2010 to discuss the

PHI AA role.

• PHIAC is supportive of PS600 development
• PHIAC have also had discussions with individual

AAs regarding PHI FCRs

Governance S tandard

• Commenced from 1 Jan 2010
• Key changes:

–Board composition and independence –Every Board must have a Board Charter –Boards should be constantly examining their own performance –Every insurer must have a Board Audit Committee –Boards must ensure that PHIAC has access to senior management

IFR S Developments

• Boundary of contract issue – considered long-

tailed contract and requires projections

• Submissions made in Nov 2010

Health Practice Committee

• Professional standards PS600 - draft
• Reviewing Guidance Notes

– GN 650 Liabilities – GN 660 Projections – GN 670 FCR

• Updated Private Health Insurance Online CPD course
• PHI Newsletter (has achieved 223 editions)
• Held 6 meetings per year
• AA lunches
• 2011: Increased focus on wider health

Vale Tig Melville (1926-2010)

• Significant contribution to health

insurance

• Long term and strong support of health

actuaries

• Tig Melville Health Prize

Dis cus s ion / Ques tions