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 Hospital Treatment Coverage (insured persons as % of population) 90.00% Commonwealth medical benefits at 30% flat rate Introduction of Life Time Health Cover from 1 July 2000 restricted to those with at least basic medical 80.00% cover from September 1981 70.00% Introduction of Medicare from Higher rebates for older 1 February 1984 persons from 1 April 2005 60.00% 50.00% 40.00% 31 October 2008. Increase in 30.00% MLS income thresholds, subject to annual adjustment. 1 July 1997. A Medicare Levy Medibank began on 1 July 1975. A Surcharge (MLS) of 1% of 20.00% program of universal, non taxable income is introduced for contributory, health insurance it replaced a higher income earners who do system of government subsidised voluntary Introduction of 30% Rebate 10.00% not take out private health health insurance. insurance. from 1 January 1999 0.00% Source: PHIAC Membership trends

Members hip Trends • MLS impact • GFC impact Hospital persons growth (quarter on previous year quarter) • Slowing/stablising 4.0% 3.5% growth rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 1 - - - - - - - - - - c c c c c c c c c c e e e e e e e e e e D D D D D D D D D D

Members hip growth by funds Hospital policies - Aust FY09 FY10 growth growth Jun-08 Jun-09 Jun-10 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% 461,944 469,372 474,936 1.6% 1.2% 2.8% BUPAAH 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 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% * Based on whole fund policies

Members hip Trends Change in hospital persons covered by age 10.0% 2001 8.0% 2002 6.0% 2003 2004 4.0% 2005 2.0% 2006 2007 0.0% 2008 -2.0% 2009 2010 -4.0% -6.0% 0-24 25-39 40-59 60+ Total

Members hip Trends 2 Hospital Coverage by Age Group 60% 60% 25-34 55% 55% % of population 35-44 50% 50% 45-54 55-64 45% 45% 65-84 85+ 40% 40% All 35% 35% 30% 30% Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10

Impact of Ageing Hospital Insurance Risk Profile change 4% 2% Hospital Insurance Risk Profile change 0% -2% -4% Average age (hospital persons - Australia) -6% 40.50 -8% 40.00 -10% 39.50 -12% 39.00 -14% 38.50 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 38.00 37.50 37.00 36.50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Data Source: PHIAC Membership and Benefit trends are based on December quarter end data.

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

Price Increas e – 2011 vs 2010 Rate increases 18.0% 16.0% 14.0% % increase (FCI) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 0.0% 0.1% 1.0% 10.0% 100.0% Apr-10 Apr-11 Market share (number of whole fund policies) (log scale)

Price Increas e vs Net Margin Rate Increase vs Net Margin by fund 15% 12% Apr 11 Rate Increase 9% 6% 3% R 2 = 0.6132 0% -10% -5% 0% 5% 10% 15% 2009/10 Net Margin

Price Increas e vs S olvency Multiple Rate Increase vs Solvency Multiple by fund 15% 12% Apr 11 Rate Increase 9% 6% 3% y = -0.0015x + 0.0646 R 2 = 0.0532 0% 0 2 4 6 8 10 12 14 16 June 2010 Solvency Multiple

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 $1.17b $405m $562m $1.29b Profit before tax 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 12 months to Dec 2009 Dec 2010 Revenue 14.78 13.63 Benefits (including levies) (12.72) (11.84) Gross margin 1.79 2.05 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 25% % of contribution income 20% 15% 10% 5% 0% -5% -10% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gross Margin Ratio Financial year 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 18% 16% MER (% of contributions) 14% 12% 10% 8% 6% 4% 2% 0% 0.01% 0.10% 1.00% 10.00% 100.00% Market share (% of total whole fund policies) (log scale)

R is k equalis ation Hospital and % of hospital Gross Increase in Gross deficit Year medical and medical SEU (m) deficit per gross deficit ($m) benefits ($m) benefits SEU 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 1,100 1,000 900 800 $m 700 600 500 400 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 old new Quarter

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 •Health spending is 9.5% of GDP (AIHW excl residential aged care) •Growth in utilisation •Technology advances •Expansion in no-gap benefits •Prostheses and other devices •Growth in use of contracts •Pharmaceuticals •Private hospital contracting •Medical procedures and treatment •Consumer education & expectation techniques •Table drift •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: 7 th edition) released in March 2011

Political Influences - 2 • 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?