This FlagPost was first published on 10 June 2020. It was amended on 11 June 2020 to include additional information relating to the impact on claims resulting from the easing of restrictions on elective surgery.

The COVID-19 pandemic presents both opportunities and challenges to private health insurers, with short-term and long-term impacts and questions being raised about its role and relevance during this time.

A recent report from the Australia Institute argues that restrictions on non-urgent elective surgery, applying from early April 2020, will likely result in ‘windfall’ profits for health insurers over the next six months. Elective surgery restrictions announced in late March, initially prevented private (and public) hospitals from undertaking non-urgent Category 2 and 3 elective surgeries, in order to ‘preserve resources including protective equipment to help prepare public and private health services to prepare for their role in the COVID-19 outbreak’. Under an historic partnership agreement with the Commonwealth, private hospitals agreed to work alongside public hospitals to address the COVID-19 pandemic, including making their beds and workforce available to treat public patients. In return the Commonwealth agreed to guarantee the viability of the sector.

Although restrictions on elective surgery have recently eased, allowing hospitals to resume most Category 2 and some Category 3 surgeries, limits apply including initially only allowing one in four of these surgical procedures to proceed. According to one analyst’s estimate ‘the suspended elective procedures will equate to almost 42 per cent of private health insurance claims’. The Australia Institute report suggested that the six months of restrictions would lead to fewer of these claims being made, enabling insurers to make savings of between $3.5 to $5.5 billion (although Private Healthcare Australia has said that while they expect APRA’s next quarterly report, reflecting data from April and May, to show some reduction  in hospital claims, the lifting of the restrictions on elective surgery will reduce the scale of any savings). While this may improve the immediate financial situation of insurers, it has also led some to question whether private health insurance is worth the cost of premiums, given one of the key reasons for taking out private health insurance is to avoid lengthy waiting times.

In a separate measure, the ACCC recently allowed health funds, for an interim period, to co-ordinate on providing financial relief to policy holders during the COVID-19 pandemic, broaden insurance coverage to include COVID-19 treatment, and tele-health and medical treatment provided at home. This easing of anti-competitive restrictions on insurers was requested by the sector and is likely to broaden its appeal to consumers.

In recognition of their potential savings from the deferral of elective surgery, some health insurers have deferred premium increases for six months (at their discretion), or offered discounts to members who have been impacted by COVID-19 and are experiencing hardship. Other funds are considering returning profits to members, in the form of rebates, as suggested by NIB.

But while such initiatives will be welcomed, some argue they don’t go far enough, and that such offers shouldn’t be dependent on the discretion of individual insurers. Shaun Gath, a former head of the Private Health Insurance Administration Council which administered private health funds before APRA, has called on the Government to step in ‘to oversee the return of any profits to customers, to ensure it actually happens and is done equitably’. Consumer group CHOICE has also called for any excess profits to be returned to consumers.

Some in the industry argue that COVID-19 further highlights the value of holding private health insurance. The head of health fund GMHBA points out that ‘People in the community will still need hospital treatment for diseases and illnesses apart from COVID19, and private health insurance will still cover them for these treatments’. But others question its value at the current time. Consumer group CHOICE has noted that ‘the usual benefits of private health insurance like shorter waiting lists for elective surgery, choosing your own doctor and accommodation in a private room will be increasingly harder to come by’. Also, many popular so-called ‘extra’ or ancillary services including dental, physio, and chiro are currently inaccessible or limited due to social distancing restrictions.

Prior to COVID-19, private health insurers were facing difficult questions over their long term viability, with APRA signalling its concerns last year, ongoing calls from Labor and others such as the Consumers Health Forum for a Productivity Commission inquiry into the sector. Further, a 2017 Senate inquiry into the value and affordability of private health insurance made a number of recommendations including improving transparency and information to consumers.

Reforms to PHI rules in 2018 designed to make private health insurance simpler and more attractive, particularly to younger cohorts who were offered upfront discounts, appear to not have had the desired effect of boosting membership, with APRA reporting a continuing decline in private health insurance membership. Prior to COVID-19, in December 2019, just 44 per cent of the population was covered by private hospital insurance with those aged 30–34 experiencing the largest decrease in coverage. The March quarter statistics show membership declining further to 43.8% of the population, the lowest percentage since June 2007.

The benefits of purchasing private health insurance which include choice of doctor, avoidance of public hospital waiting lists for elective surgery, and the argument (albeit contested by some) that it takes pressure off the public system, are often promoted. However, during the COVID-19 crisis the value of private health insurance is being significantly challenged, as these claimed benefits have become limited or unavailable. As restrictions on elective surgeries and other social distancing measures ease, and private health activities resume to more normal levels, private health insurance may again become a more attractive option, particularly if insurers use any profits to expand member benefits or return it to members. However, recovery of the sector may be limited by economic conditions, with forecast higher unemployment likely to inhibit household expenditure on discretionary spending like private health insurance at least in the short term. Longer term, the role of private health insurance and the support it receives from the Australian Government is likely to continue to be debated.