Regulator issues warning to health insurers over ‘death spiral’


“Things like capital … are going to become critical,” he said.

He said that while there were “some good examples” of health insurers adapting their business models, too many were failing to do so.

The financial regulator launched a review almost a year ago into how much capital insurers should have to ensure they can reliably pay out members’ claims.

Health Minister Greg Hunt is looking for ways to help reduce insurer costs to keep a lid on premium increases, having rejected 20 funds’ request for an average 3.5 per cent increase next year.

Mr Hunt has demanded an average rise of no more than 3 per cent from April next year.

Insurers say rising health costs, including private hospital treatment and medical devices, are eating into profit margins.

Mr Hunt has ordered an investigation into sales tactics insurers say are driving up the overall cost of surgical products such as glues and sponges, but the medical device industry argues it has already slashed the prices of thousands of items under a deal with the government.

Medical Technology Association of Australia chief executive Ian Burgess called for APRA’s remit to be widened “to prioritise ensuring annual premium increases do not have a negative impact on membership numbers”.

“The number-one priority for APRA should be intervening to stop Medibank, Bupa and NIB continuing to price their customers out of the market, because once they’re gone, current tax penalties mean it will be an uphill battle to get them back,” he said.

“Rather than accepting the death spiral as a fait accompli, it would be better for APRA to force the big guys to draw on some of this capital to stop people leaving while government reform is under way.”

A spokeswoman for Private Healthcare Australia dismissed the comments, saying multinational device manufacturers “have no role in the regulation of private health insurance in Australia”.

NIB said in a statement the insurer “remains confident of navigating any regulatory capital changes” and had “a number of levers available”.

Mr Burgess said the three largest health funds could afford to sacrifice some of the $900 million they had recorded in profits over the past two premium years, questioning whether they needed to hold more cash in the bank.

Private Healthcare Australia chief executive Rachel David said many smaller health funds were struggling to make a sustainable profit, with some in “negative territory”.

Dr David said the changes being considered by APRA would not affect premiums and that most insurers already met the higher level of capital adequacy.

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