Australia's private health funds could reap windfall from coronavirus – report

Private health insurance funds stand to reap a windfall of between $3.5bn and $5.5bn due to a dramatic fall in elective surgery and other medical procedures during the coronavirus crisis, according to new research from The Australia Institute think tank.

Health expert Roy Harvey said that if the funds failed to pass on the dramatic fall in costs to customers, more people will flee a private health insurance system that is already in a death spiral.

Harvey, who worked with Australia Institute research director Rod Campbell on the report, said that if premiums were cut in line with services the federal government would also save $1bn to $1.5bn a year in subsidies.

Related: 'Like preparing for war': Australia's hospitals brace for coronavirus peak

The Australia Institute paper, “Private eyes ..., hips, etc”, models the effect on the funds if benefits paid to members drop by between 30% and 50% during a six-month period.

Factors taken into account include health minister Greg Hunt’s decision last week to pay at least $1.3bn to private hospitals to take over beds potentially needed to accommodate Covid-19 victims, and sweeping bans on dental services introduced by dentists.

Harvey said that many funds have abandoned premium hikes that were planned for this month, but this was not enough.

“They’ve been saying we won’t put through the 4% increase that they’re allowed to do in April, but if they say, ‘Oh, we’ll give you a 40% discount’, people might stay.

“If they keep their rates unchanged, people will leave in droves.”

The coronavirus pandemic has hit a private health industry that experts say was already in a “death spiral” because young people, who get relatively little from the product, have quit paying premiums.

This has left the funds with a membership increasingly weighted towards older people, who typically require more expensive medical procedures.

The escalating financial instability of the industry led the regulator to warn in February that only three will be viable in two years unless urgent action is taken.

“It sounds as if you’re not talking about a viable system or a product people want to buy,” Harvey said.

“The thing is unsustainable, it’s undermining the public hospital principle of equity and allowing doctors to charge fees that take people out of the public hospitals.”

He said it was hard to estimate the impact of the pandemic on private health using publicly available figures, but the $3.5bn to $5.5bn range was a good starting point.

“I think any detailed study would come up with figures that are in the range,” he said.

“Other people can say, ‘Oh, I think it’s this or that’, but it’s really to get a discussion started.

“The Productivity Commission could sort this out in less than a week in terms of getting good estimates.”

He said the funds should be held accountable for their windfall and money saved by the government could be used to fund other things, such as domestic violence services, that are needed during the pandemic.

“The savings to the commonwealth alone could be one to one and a half billion [dollars] – one and a half billion used to be a lot of money once,” he said.

Campbell said the insurers looked set to trouser their windfall billions.

“Insurers claim to be supporting their members through the crisis by delaying premium increases, but they should be passing on these significant savings to households,” he said.

“If the commonwealth does not ensure savings are passed on to customers, it will be one of the most egregious subsidies ever given to an industry already infamous for receiving handouts.”