ABC Radio Adelaide program interview with Dr Rachel David on deferred claims liability and premium increases

Station: ABC Radio Adelaide
Program: Mornings
Date: 15/3/2021
Time: 9:08 AM
Compere: David Bevan
Interviewee: Dr Rachel David, CEO, Private Healthcare Australia


DAVID BEVAN: Did you read a piece in The Tiser this morning? The headline is Health Funds Pocket Windfall, and the lead is health funds have saved $1.8 billion, that’s billion with a B, because of lower demand for health care during COVID-19 pandemic. But only one is returning the savings as a cash handout to members. None of the nation’s four biggest health funds – that’s Medibank, Bupa, HCF and NIB – will explain when or how they will return the money. Now, what’s your experience? What’s happening with your private health insurance, if you’re lucky enough to be able to afford it? Again, you know the numbers. Give us a call. We’d love to hear your thoughts.

People who can explain to us different perspectives, Dr Rachel David, she’s CEO of the Private Healthcare Australia. So that’s the umbrella group which represents private health care, and Dr Omar Khorshid, who’s president of the Australian Medical Association. But let’s begin with Private Health Care Australia. Good morning, Rachel David.

RACHEL DAVID: Morning David.
DAVID BEVAN: Can you explain to us, have the private health funds made big savings in the last year?
RACHEL DAVID: Well look, the money has been put aside as a regulatory requirement by our prudential regulator because of how unstable claims have been as a result of the pandemic. So the funds were required to put aside a certain amount of money in case surgeries that had not been cancelled but put off, the claims had bounced back higher than were expected. Now, we have seen that happen in some states, particularly where the lockdown periods were extended, like Victoria. In other states like Western Australia, claims have been more stable. So it does differ markedly between capital cities.

We’re also expecting that some of the people with chronic conditions and mental health conditions that may have not sought medical attention during the pandemic, may indeed have a medical episode and be required to be admitted to hospital this year. That’s quite difficult to calculate. But what I will stress is this is something that has been earmarked to pay members’ claims. In one way or another, it will be returned to members, but it’s a two to three-year process as the instability caused by COVID-19 continues to work its way through the system.

DAVID BEVAN: But you receive premiums during, say, a calendar year, which should make the contribution to cover your payouts plus whatever you earn from investing the money. So, within the last calendar year, you’ve made a windfall. Now what you’re asking us to accept is that because things can bounce around, you could be hit with a big bill this year, you’ve got to hold on to it.
RACHEL DAVID: Well, that’s correct. And it’s not something the funds have cooked up by themselves. This is something that has been subject to really careful consideration by APRA, our prudential regulator. And it’s due to the fact that we’ve seen in some areas, like some types of surgery, rebound to 120 per cent of normal after the lockdown, and for some other things like mental health, we’ve seen a huge amount of presentations to EDs and to hotlines and other services, but we’re just not sure yet whether that’s going to translate into more admissions over the next year. Now, this funding is for members. It will be returned to members, but that’s not something that you can just decide on a month to month basis. It needs to be done over a period of time so you don’t get instability in premiums at the end of the period.
DAVID BEVAN: Will premiums be going up?
RACHEL DAVID: There are quite a few things that we need to consider before we make that decision again with our regulator and with the Federal Government. It’s not a decision that funds make on their own. And things like the soaring price of surgical devices is one of the issues that we need to consider for next year, as well as the overall cost of health care. But these funds are earmarked for members, and it will come into consideration as we discuss premiums for the next few years.
DAVID BEVAN: But at the very least, you could say: well, look, because we got a windfall in the last calendar year, we won’t be putting up premiums this year. So if there is an increase in demand, you know, if it is 120 per cent in some sectors, that’s okay. We made a lot of money last year and we haven’t given it back to you, but at the very least, we won’t be putting up premiums. People might buy that, Rachel David.
RACHEL DAVID: Well, look, that is an issue that will need to be considered on a fund by fund basis. And there is quite a bit of difference about what claims have looked like depending on where the fund is located and how the pandemic has affected each state. So it’s how the average premium increase across all the funds, if there is one, is worked out. That is a painstaking process that is undertaken by our prudential regulator, the Federal Government, with data from the funds themselves…
DAVID BEVAN: [Talks over] Right.
RACHEL DAVID: …So it’s not a decision that individual funds are just going to pull out of a hat. This is a very detailed and well scrutinised process to ensure that members get as much value as possible.
DAVID BEVAN: CEO of the Private Healthcare Australia. One person says: well, look, if it’s due to an APRA direction – that is a prudential regulator – the direction that you hold onto these funds, this windfall, how come one fund appears to be exempt and is giving back a rebate? Can you explain that, Dr Rachel David?
RACHEL DAVID: The fund that is giving back the rebate is located in Western Australia, which has had quite a different experience with the pandemic due to some hard border closures than the other funds. It’s also been almost the sole insurer in WA for a number of years. It’s been very well-managed and was in a very strong position going into the pandemic. It’s not the same situation for other funds. And I believe that HBF did consult extensively before making that decision. It’s just not clear yet how some of the other funds will handle the payback or the drawing down of that money. It will differ between funds and the timing will differ, but we’re not ruling out at this stage that other funds won’t go down the same path over time.
DAVID BEVAN: But bottom line, this is a business transaction. It’s private health. And what you’re asking our listeners to accept is that one company, which managed its affairs really well in WA and had the benefit of the hard border closures, but I mean, it’s been a pretty safe place right around the country apart from a blip in Victoria, significant blip. It cost several hundred lives. But you know what I’m saying. It’s a business transaction. People gave your fund’s money and they expected something in return. They didn’t get it. And your members made a lot of money, and they want to know, well, why can’t I have a slice of that bag? And you’re saying, well, the one that can hand the money back, they managed their affairs really well. Well, that’s starting to sound a bit lame, isn’t it?
RACHEL DAVID: Not at all. I think the pandemic experience has been markedly different in different states that have restricted access to surgery throughout the lockdowns in different ways. We need to be very careful here that we don’t put a fund in a position where, you know, they do actually run it down too fast and then they’re faced with having to put premiums up the next year. So, what this is about is about smoothing over the premiums over a period of time; it’s not about the health funds keeping money in some kind of secret pool of profit. The process has been very transparent. And each individual fund will need to explain how it’s paying down those funds and it’s quite possible that some may still choose to pay that money back to members of indeed, put it through as a lower or a zero premium increase.
DAVID BEVAN: In a moment, we’ll go to Dr Omar Khorshid who’s President of the Australian Medical Association. But Stacy(*) has called from Port Adelaide.

Hello Stacy.

CALLER STACY: Hello. How are you?
DAVID BEVAN: Good. What are you thinking?
CALLER STACY: Well, it’s actually quite timely that you’ve put this on your program because on Thursday I received an email from my health insurance provider to say that they’re going to be really generous and just burn my annual premium increase for three months this year. So I thought, you ripper. Opened it up – I’m currently $199 a fortnight as a sole parent on private health cover. On 1 April, they’re going to put that up to $200.45 a fortnight, but then, after the three months’ reprieve or whatever they said they were going to give me, on 1 July, it’s going to go up again to $211.47 a fortnight. So two increases this year.
DAVID BEVAN: Will you keep it.
CALLER STACY: At this rate, it’s not looking likely; $211 a fortnight for a sole parent is a bit rich really.
DAVID BEVAN: And do you buy the argument, well, we had a windfall last year but it could be a bit dicey in the next 12 months, so we’ll just hold onto the money?
CALLER STACY: Oh, everything’s a bit dicey isn’t it? But why should I then allow you to hold onto my money? Why can’t you just give it back to me and then say, well, you need a bit more this year, let’s pay a bit extra out of your own pocket?
DAVID BEVAN: Yeah. If you want to see dicey, try being a single mum with kids.
CALLER STACY: Exactly. Exactly right.
DAVID BEVAN: Stacy, thanks for your call from Port Adelaide.

Dr Omar Khorshid, President of the Australian Medical Association. Good morning to you, Sir.

OMAR KHORSHID: Morning, David.
DAVID BEVAN: Well, what do you think? Are they doing the right thing?
OMAR KHORSHID: Well, one fund’s doing the right thing, that’s for sure. And it does really beg the question as to what’s so different about the other funds. It was pleasing to hear that, I think a pretty much ironclad guarantee from Rachel David there that this money won’t be going into profits for these big four insurers which are all effectively for profit insurers here in Australia. And, no, I think the question still needs to be asked around if you’re a policyholder in the year when you didn’t get value, you might get your value back gradually over the subsequent, two, three, four years. That doesn’t sound great to me and I think there is an opportunity for funds to really demonstrate their value and the fact that they’re not going to make windfall profits and to give back in the year in which it was received, or the next year because it’s already passed, this money, to the policyholders who didn’t get value in that particular calendar year.
DAVID BEVAN: Got a text here from a listener saying private health is becoming a rip off. My premium has increased by 11 per cent this year. Dr Omar Khorshid, what sort of across the board increases should people expect? I don’t know if you can- it’s a question(*) without notice, but can you give us some idea what’s mainstream, what’s outrageous, what’s actually a pretty good deal?
OMAR KHORSHID: Well, one thing that everyone needs to be aware of is that the increases are actually regulated. So the funds can’t just decide they want to put up their premiums by 20 per cent and you’ve got to wear it. It is actually regulated by the government. And the funds need to demonstrate why they need to put up their fees.

What the AMA does is we look at and compare the various funds and we publish a report card each year and it does show that there is a difference in these funds. There’s a difference in the amount of value that you get for the premium that you pay. And we would definitely recommend that all Australians think carefully when they’re choosing an insurer. We still believe that insurance is great value for money. It does protect you against unexpected health costs, and it gives you the opportunity when you do need health care to choose, whether, you know, how and when and where you receive that health care rather than being reliant on our public hospital system.

DAVID BEVAN: Mark says, I’ll take lumpy price rises. Don’t worry about smoothing the rises. Just give me my money back. Another listener says received notice from my Bupa Health; it’s going up from $194.10 per month to $206.17. So that’s another $12 a month. That’s a lot of money. And this is for a single member as from the 1st of April, another listener says Medibank sent an email on the 3rd of March. Premiums are going up on the 1st of April; we will be paying an additional $8.96 a fortnight. So that’s, what, $18 a month?

Okay. So, look, Dr Rachel David, CEO of the Private Healthcare Australia, which represents the private health funds, basically what you’re asking listeners to do is accept that this is good governance and be patient because they might get a benefit… in terms of- they might get a benefit in terms of a reduced premium at some time.

RACHEL DAVID: One way or another, the members will get the benefit, either because their unexpected claims are being paid or because the premiums, in the next premium rounds of premiums, increases lower than expected. Or as in the case of HBF, some funds may be in a position to go down the path of the cash rebate. No one likes to see premiums go up. The reason premiums do go up is because health funds need to pay for more health care and it’s a very strictly regulated process. So anything that the funds can do to keep costs down and to return value to their members, that’s within their power, they will do.
DAVID BEVAN: Okay. And a listener asks – has the government ever disagreed with increase requested by the funds? Is the government able to set in- step in and say, sorry, you can’t increase your premiums or look, it’s a private company, you can do what you like?
RACHEL DAVID: No, they do that every year actually. The premium round process is an iterative process, which means that there is quite a lot of discussion and with the health funds and their actuaries throughout the process, which is going to take several months.
DAVID BEVAN: But does the government, because we know the government negotiates with you and takes some credit if there’s- if the increases aren’t that great. But, if push comes to shove, can the government actually veto increases and say, no, you will charge this much?
RACHEL DAVID: Yes, they can. That’s within their rights.
DAVID BEVAN: They can? Okay. That’s within their rights. Okay. Well, Dr Rachel David, CEO of Private Healthcare Australia, thank you for your time. And before that, Dr Omar Khorshid, President of the Australian Medical Association.

So somebody made a lot of money. Only one of the funds is handing it back. The rest are saying we need to hold onto it. But watch us; you’ll get value for money, that’s what they’re saying.

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