NSW 2013-14 Budget - $86m increase in health insurance levy

After lots of speculation in the media about a potential increase of $80m in the NSW health insurance levy, the OSR stated that “The amendment provides for the increase of the base rate under the Health Insurance Levies Act 1982 from $1.37 to $2 on a date to be proclaimed” - refer to this OSR weblink. 

Table 6.5 of chapter 6 of budget paper no.2 shows a $86m increase in health insurance levy. The table includes a foot note saying “The Government will meet with health funds to seek a reversal of their rate cuts for private patients in public hospitals as an alternative to increasing the Health Insurance levy.”

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Questions?

  • Does this mean that health insurers that did not cut their rates for private patients in public hospitals should proceed and cut their rates?
  • Will other states follow NSW?
  • Will actuaries factor this into their premium application projection given that it may be reversed?

Background:

“Insurers Medibank, NIB, BUPA and AHM will have until July 1 to negotiate before the levy comes into place, after all four unilaterally cut the amount they would pay for private rooms by one-third.” - article

Further reading:

National Partnership Agreement on Improving Public Hospital Services: Performance report for 2012 - results mixed

This COAG report found:

  • ACT only jurisdiction to meet all 9 targets for elective surgery
  • WA was the only jurisdiction to meet its target for emergency department performance
  • VIC did not perform well for elective surgery
  • QLD did not perform on elective surgery waiting times.

Resources:

NIB lowers forecasts

Interesting bits:

  • FY13 profit to be low end of $75m-$78m range.
  • high than forecasts dental claims
  • results impacted by “Unsatisfactory 1 April 2012 price increase (5.5%)”
  • results impacted by “One off 1H13 state levy payment ($2.3m)”
  • new capital standards not anticipated to have material impact on capital requirements
  • lapse rate increased
  • cost of acquisition increased over the last 3 years
  • new product range doing well, particularly over 55s
  • share price down slightly at 2.25

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Further reading:

PHI News

  • The NSW government is proposing to charge private health insurers “in retaliation for drastic cuts to the amount they will pay for private rooms in public hospitals” - article.
  • This article reports that a Medibank Private employee defrauded MPL by submitting over 100 false claims valued at about $8100.
  • This article reports approximately 200,000 PHI policies take pre-paid are at risk of downgrades or lapses at 30 June 2013.
  • This article reports that HCF members more likely to face a gap for ear, nose, oral and throat surgery.
  • This article reports on the senate submissions on the proposed changes to the rebate via the Base Premium Bill. PHA released a website discussing their submission with feedback from website visitors at the bottom of the page.
  • Lifehealthinsurancenews.com.au reports on proposed capital standards and the implementation date has been “pushed back”.
  • This is a link to a stock broker analysis on NIB shares.
  • This article reports that health insureds are being offered incentives to use their PHI in public hospitals.

PHIAC prudential capital standards pack - initial thoughts / questions

Here are some initial thoughts / questions without the QIS2 template or quantifying the impacts so far….. (the comments below mostly relate to the discussion paper)

Initial high level comments / questions:

  • Seems that PHIAC has a lower risk appetite than other regulators such as APRA and Solvency II (which requires a 99.5% POA). PHIAC has not made a convincing case on why is PHI different to other insurance businesses.
  • PHIAC argues that a 98% probability of adequacy (POA) is acceptable reflecting the “abilities to identify and correct adverse claims experience in a comparatively short period of time” in the “response to submissions” paper. We think that this confuses risk appetite against risk mitigation, whereas it is important to note that risk appetite (the level of POA) drives risk mitigation.
  • When will QIS2 be out? The timing for submissions by 31 July will be tight.
  • The commencement date for 31 March 2013 may be problematic given that the Board needs to endorse the capital management policy.

Other issues / thought bubbles so far:

  • It is not clear how PHIAC will police the capital management policy. P54 of the discussion paper discusses that “the insurer would also need to report compliance to PHIAC, as described above”. Are insurers required to send a copy of the capital management policy each 30 June?
  • P12 - It is not 4 tests as described, but actually 5 tests since the liquidity qualifying asset test is split into 2 separate tests.
  • P18 has a typo. The size margin is subject to a max of 25% in the draft legislation, but does not appear in the formula on p18.
  • Does the FCL include the unearned unclosed premium liability? There is no mention on page 19 or the example on page 21. We assume it does??
  • Re the FCL, the size margin on the unexpired risk reserve (URR) component of the FCL is likely to be understated as the URR is geared.
  • Typo on p21 for the example for FCL: the last line should be $25m+$7m+$3m-$30m (as opposed to the negative $3m).
  • Re the FCL, why is the DAC subject to a size margin?
  • Stress test for capital adequacy on P24 – what are the current results for the “recent insurer-specific benefit inflation (the methodology for the calculation of this amount will be published by PHIAC from time to time”
  • Capital adequacy maximum default loss amount - The example on p34 implies that this test only applies to financial instruments. The wording does not specify. Please confirm?
  • The classification / identification / valuation of assets for the liquidity test seems rather complicated.
  • Term deposits greater than 3 months and corporate bonds are out. 

Other wider questions:

  • While the level of capital requirement will decrease, will this result in a better outcome for stakeholders? Will premium rate increases be lower?
  • What happens if the industry has significant problems with the standards? What is the process / timing for implementation? Are insurers supposed to determine their premium application based on the proposed capital standard?
  • What should the FCR discuss in regards to these proposals (given that it still in draft and may evolve)?

Submissions to senate committees for PHI Amendment (Base Premium) Bill

The Committee has received 10 submissions from a range of interested parties including:

  1. National Seniors Australia (PDF 371KB) 
  2. Australian Physiotherapy Association (PDF 85KB) 
  3. hirmaa (PDF 1214KB) 
  4. Consumers Health Forum of Australia  (PDF 2331KB) 
  5. Australian Unity (PDF 138KB) 
  6. Medibank (PDF 216KB) 
  7. Australian Private Hospitals Assocation (PDF 198KB) 
  8. Optometrists Association Australia (PDF 124KB) 
  9. Bupa (PDF 155KB) 
  10. HBF Health Limited (PDF 266KB) 

Common themes include:

  • complexity;
  • costs of implementation;
  • increased cost for consumers and strain public health system;
  • uncertainty with weighted average factor; and

several submissions suggested alternatives.

Further info: