Data released by the Australian Prudential Regulation Authority on show that 46,969 fewer people aged between 20 and 34 had hospital cover in December, compared with a year earlier.
APRA said, while releasing the data, that the health insurance industry “continues to face risks associated with affordability and the associated value proposition of private health insurance products”.

In line with trends and of concern to experts, the largest decline in coverage was for young people aged between 25 and 29.

Its report also shows out-of-pocket expenses for hospital visits increased by 3.2% over the year, with people paying an average gap payment of A$300 ($200) in the last quarter.

Macquarie University health economics professor Henry Cutler said the data reinforced trends that showed young and healthy people’s departure from private health left insurers covering a larger proportion of older and expensive users.

“It means those with low costs are dropping out of private health insurance, and those with high costs are entering,” Professor Cutler said.”That’ll obviously have impacts on the total cost of private health insurance, and how private health insurers fund that cost.”

Views

Several stakeholders argued their views on the state of private health insurance fund membership revealed by the APRA data.

Consumer group CHOICE said that the data are further proof of the death spiral in private health insurance. CHOICE’s Dean Price said, “Young people are voting with their feet and telling health insurers what they’re offering is poor value.”

However, the chief executive of the private health insurance industry’s peak representative body, Private HealthCare Australia, argued health funds were paying out more benefits than ever before.

“A$21.6bn in benefits in the year 2019 is a record amount of money we’ve paid towards people’s health care,” Dr Rachel David said. “The value proposition for private healthcare is still very good.”

Responding to criticism that the prices of medical devices are too high, Medical Technology Association of Australia chief executive Ian Burgess said that the price of medical devices paid by health insurers had dropped by up to 38% in the past three years as a result of government reforms.

Professor Cutler said the cost of prostheses was not the main reason behind premium rises, calling for insurers to focus more on preventative health.

Australian Private Hospitals Association chief executive Michael Roff said the latest fall in membership showed the current regulatory approach was not working, calling for the entry age and penalty levels of lifetime health cover to be “be adjusted to ensure they are not acting as a deterrent”.

APRA executive board member Geoff Summerhayes warned this month that the private health insurance industry’s affordability crisis was “unsustainable” and that only three insurers would be viable by 2022 if current trends continued.

The APRA data show that despite annual premium increases, the sector showed continued deterioration in insurance performance with net margins declining to 3.9% in the year ended December 2019 from 5.2% in the previous year. Despite the deterioration in insurance performance, profitability improved due to an increase in net investment income, largely driven by stronger returns in equities.

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