Transcript
Station: 3AW
Program: Mornings
Date: 18/5/2017
Time: 8:48 AM
Compere: Neil Mitchell
Program: Mornings
Date: 18/5/2017
Time: 8:48 AM
Compere: Neil Mitchell
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia
| NEIL MITCHELL: | The health insurance funds. Medical profession says their profits – or several in the medical profession representing the profession, say the profits are obscene, they’re going to oversee shareholders, they’re having a ridiculous effect on the health industry. We’ve certainly got an 18.2 per cent increase in net profit for the funds on the year to April – 18.2 per cent increase. We give them nearly 23 billion in premiums and they’ve just put up prices. They’ve just put this argument about putting up prices.
On the line- Private Healthcare Australia’s the peak body representing the insurers. Chief executive, Dr Rachel David, good morning. |
| RACHEL DAVID: | Good morning, Neil. |
| NEIL MITCHELL: | Why is this not obscene? |
| RACHEL DAVID: | Look, I think I’ve made three points here and we really understand that people are concerned with household incomes remaining flat and cost going up. But firstly I’d say … |
| NEIL MITCHELL: | And profits. Profits going up too. |
| RACHEL DAVID: | Well that’s right, but just bear in mind that health funds are businesses and to run a business safely whether it’s a not-for-profit like half our members or for-profit like a couple of our members, you need to be able to either retain some earnings or make a profit so that you’ve got something to go on [indistinct] for a rainy day. |
| NEIL MITCHELL: | [Talks over] Okay, but is 18 per cent a reasonable profit when you’re forcing up prices? |
| RACHEL DAVID: | Well look I think in terms of what’s reasonable there are a lot of eyes on us is the point that I’d make. |
| NEIL MITCHELL: | A lot of what sorry? |
| RACHEL DAVID: | A lot of eyes on it. We have five regulators including the Federal Government itself. There’s no secrets about what health funds spend the money on and it’s very very heavily regulated including how we set prices. |
| NEIL MITCHELL: | Okay, but how is 18 per cent a reasonable profit when you’re forcing up prices? |
| RACHEL DAVID: | Well look the reason that prices are going up is because health costs overall are increasing at rates greater than inflation and that’s a problem for public health. |
| NEIL MITCHELL: | But they may be but so is your profit. I mean prices are going up, premiums are going up, profits are going up. Profits are going up – 18 per cent is a huge profit loop. |
| RACHEL DAVID: | Look there are a couple of things there. The first thing is that for every dollar that people spend in premiums we’re paying back to the member, to the consumer 86 cents in terms of benefits. And to be able to continue to do that we need to be able to run our businesses successfully and safely. There are a number of regulators that look into our books every year to make sure that we’re doing that, that we’ve got sufficient reserves to be able to continue to pay out members and that we’ve invested members’ funds appropriately to be able to continue to pay out for those benefits as health costs rise. |
| NEIL MITCHELL: | Well, these figures- I’ve got them in front of me from the Prudential Authority. You took in- premiums, we paid you 22.8 billion. You paid what, 19.7? |
| RACHEL DAVID: | That’s right. |
| NEIL MITCHELL: | So there’s about a $3 billion gap there between what you’ve paid out and what we’ve paid in. |
| RACHEL DAVID: | Look in terms of what happens some of that goes towards running the funds. Some of that goes towards investments for both long term investments and short term to manage members’ funds. But the majority of the amount of money that gets paid in a premium, 86 cents in the dollar is paid out as benefits. |
| NEIL MITCHELL: | [Interrupts] According to the figures, 28 per cent cumulative increase since 2012, over five years, 28 per cent. Is that fair? And you’ll still get massive profits. |
| RACHEL DAVID: | Over that time health costs have gone up on average by 6.5 per cent per year. And last year- the last two years our premium increases have been below that rate [indistinct] inflation. |
| NEIL MITCHELL: | Well can you tell us that next year – can you assure us next year you won’t be looking for a price rise, will we get some price relief? |
| RACHEL DAVID: | Look one of the issues that we have here is that we’re only allowed to adjust our pricing once a year and that’s… |
| NEIL MITCHELL: | Well thank heavens for that. |
| RACHEL DAVID: | Look it does mean that if we do have a good year we actually can’t adjust it down. And there’s a lack of… |
| NEIL MITCHELL: | [Interrupts] So you’d love to cut your prices now would you? |
| RACHEL DAVID: | Well what it does is by having every fund put up their premiums on one day of the year it does make it a little difficult for any competition to occur between funds in terms of pricing, so that’s one issue. |
| NEIL MITCHELL: | Yeah. |
| RACHEL DAVID: | Secondly, there is a year gap between when we do have results or when we do have a particular set of market circumstances and then when we can actually adjust premiums. |
| NEIL MITCHELL: | So is there a possibility- is there a probability that you won’t need a price rise next year given you’ve just had an 18 per cent profit increase? |
| RACHEL DAVID: | It’s very difficult to guarantee anything that far out. However, we are looking at every single way possible of keeping premiums down. Having high premium rises is bad for the funds because members leave and members are the lifeline of the funds. So anything that funds can do to keep premiums down is a good thing. |
| NEIL MITCHELL: | Well it hasn’t been too bad in the past year if you’ve lost people because- I keep coming back to it an 18 per cent profit increase is massive. |
| RACHEL DAVID: | Well look if you look at the actual amount of [indistinct], so net profit after tax was $1.4 billion and we’re paying out $20 billion a year in premiums. If we were to spend it on benefits it would be gone in two months. That is what is required to keep the businesses running successfully, have investors in the businesses and make a return on investment so we can continue to operate safely and retain funds to pay out benefits to members. As we said 86 cents in the dollar. The next best form of insurance is general insurance which is only 67 cents in the dollar. |
| NEIL MITCHELL: | Okay. Thank you very much for your time. I appreciate it. From Private Healthcare Australia, chief executive, Dr Rachel David. You assess it. Is it fair? And will you stay with private health insurance? |
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