Insurers Diagnosed
Illawarra Mercury
Wednesday June 28, 2000
Private health insurers would suffer substantial cost pressures as a result of the Federal Government's Lifetime Health Cover scheme, ratings agency Standard & Poor's has warned.
In a report on the state of the private health insurance industry, the agency said there was a risk that the level of claims could blow out as waiting periods for an influx of new members expired.
The report also cited the introduction of no-gap insurance policies and pressure from health-care providers for higher fees in an environment of rising demand, as likely cost pressures for insurers.
S&P managing director of insurance, Ian Thompson, said 1999 was a watershed for the industry, with a rush of new members turning around the market shrinkage which was evident since the introduction of Medicare.
The Australian Health Insurance Report 2000, S&P's second major study of the industry, found it recorded a $126million profit in 1999, following three years of losses totalling $216million.
``The underlying trend of stronger earnings dynamics is expected to continue throughout 2000, supported by adequate pricing and increasing fund membership, and should result in a strong position in fiscal 2000," Mr Thompson said.
But he said the favourable conditions could be just a ``dead cat bounce".
He said: ``2000 may potentially be the last year of profit for the industry, with pressure on claims levels and payments under health provider agreements likely to emerge in 2001."
The report said the introduction of medical gap coverage could cost the industry up to $90million.
Health funds are required to offer gap coverage by June 30 or risk losing the entitlement to claim the 30 per cent government premium rebate on behalf of members.
The medical gap is the difference between what a doctor charges and what Medicare and health funds cover. S&P estimates the total cost of gap payments in 1998/99 was $213million, compared to the industry's profit of $126million.
``Accordingly, this has the potential to be a significant issue if this cover is widely taken up and claims costs are not managed carefully," the report said.
Mr Thompson said the industry was likely to see consolidation of up to one-third of industry participants within five years as smaller and less efficient operations either merged or were swallowed by larger players.
S&P also warned that the introduction of life-time ratings for premiums would potentially lock new members out of the system.
From July 1, people over 30 will be penalised by higher premiums when they join a health fund.
``Accordingly, the outlook for membership growth after July 1 is lacklustre."
© 2000 Illawarra Mercury