Are the health funds' bubbles bursting?

In a candid assessment, Private Health Insurance Administration Council (PHIAC) Chief Executive Shaun Gath was quoted in the Advertiser (30/3/2015) saying that extras cover was an irrational purchase, and 'probably doesn't make sense'. However, funds 'spend a lot of money advertising it'.

96% vs 52%

The relatively recent Medibank Private prospectus indicated at figure 2.8 on page 16 that whereas 96% of hospital fees were covered (by hospital cover) only 52% of extras were paid by health insurers; meaning that 48% of extras are paid for by patients out of their own pocket. This again begs the question as to why have ancillary health insurance at all, when the rebates are on average paltry, 22% of members' contributions are skimmed off the top and even the PHIAC CEO says it's an irrational purchase?

Looked at critically, the Australian health insurance industry faces hospital costs which rise a lot faster than inflation, as an ageing population draws heavily on medical skills to provide procedures which weren't available to previous generations. This rising cost leads to premium rises above the rate of inflation, which in turn is fuelling the activities of comparator businesses, which are churning policies to cheaper alternatives and earning themselves commissions in the process.

Desperate advertising

The funds advertising for ancillary members indicate that they are desperately trying to make up for the weakness in their hospital cover arrangements by attracting new ancillary members, who will sacrifice 22 cents in the dollar for the privilege of having 52% of their ancillary treatment paid for by the ancillary insurer. It all adds up to a very shaky business model.

Complaints about private health insurance rise

The Private Health Insurance Ombudsman's annual report shows a big increase in complaints about exclusions and restrictions in the 2014 financial year compared to the prior year. Overall the ombudsman received 3,427 complaints in 2013/14, a 16% increase.

Complaints about the oral advice funds provided to their members were up 40%, while high level complaints requiring intervention by the ombudsman were up 28%. BUPA attracted 1,040 complaints, 400 more than Medibank Private.

The danger for dentists and patients

There is a real danger that the health funds realising the weakness in their business models, as demonstrated by the comparators' churn rate, will become ever more tenacious in their tactics concerning dentists and dental patients.

It is time for the ADA to become much more active in bringing health insurers to account. While it is welcome, we can predict that the recent complaint to the ACCC by the ADA will be met with determined resistance and obfuscation by the health insurers. They may try and knock it out by arguing that it's not correctly framed under the relevant legislation; or use legal tactics which will delay and obfuscate the issue. The ADA will have to become resolute enough to press the issue continuously over a period of time.