Private Health Insurance Summit 2014

Impact of government rebate amendments

Presented by: Mitchell Watson, Research Manager, CANSTAR

First amendment to PHI rebatesJuly 2012 – Rebates are income tested and broken into four income levels:

– Incomes are indexed annually

– $1,500 for each additional child

– Higher rebates available for those aged 65 and over

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Level Single Income Family Income Rebate

Standard $84,000 or less $168,000 or less 30%

Tier 1 $84,001-$97,000 $168,001-$194,000 20%

Tier 2 $97,001-$130,000 $194,001-$260,000 10%

Tier 3 $130,001 or more $260,001 or more 0%

Second amendment to PHI rebates

April 2014 – Rebates are adjusted annually by a rebate adjustment factor i.e. the rebate will be adjusted based on the difference between Consumer Price Index and the industry weighted average premium increase

Consumer Price Index (CPI)

Industry weighted average increase in

premiums

Rate adjustment factor

Rebate

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Second amendment to PHI rebates

2.75%

6.20%

0.968 30% 29.04%

SinglesFamilies

≤$90,000≤$180,000

$90,001-105,000$180,001-210,000

$105,001-140,000$210,001-280,000

≥$140,001≥$280,001

Rebate

Standard Tier 1 Tier 2 Tier 3

< age 65 29.04% 19.36% 9.68% 0%

Age 65-69 33.88% 24.20% 14.52% 0%

Age 70+ 38.72% 29.04% 19.36% 0%

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Based on the current formula, the rebate will be around for some time

YearFinancial Year Rebate

2013/14 30.0% 20.0% 10.0%

1 2014/15 29.04% 19.36% 9.68%

2 2015/16 28.11% 18.74% 9.37%

3 2016/17 27.21% 18.14% 9.07%

4 2017/18 26.34% 17.56% 8.78%

5 2018/19 25.50% 17.00% 8.50%

6 2019/20 24.68% 16.45% 8.23%

7 2020/21 23.89% 15.93% 7.96%

8 2021/22 23.13% 15.42% 7.71%

9 2022/23 22.39% 14.92% 7.46%

10 2023/24 21.67% 14.45% 7.22%

Based on an inflation figure of 2.75% and annual increase amount of 6.20%.

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Second amendment to PHI rebates

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Premium increases in April 2014

Weighted industry average increase – 6.20%

Single CoupleSingle Parent

FamilyFamily

$91.85 $183.03 $156.02 $188.83

Average Annual private health insurance premium increase based on policy holders – Hospital cover

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How the new rebate structures have hit the hip pocket

Tier Base Premium Standard Tier 1 Tier 2Rebate - 29.04% 19.36% 9.68%Single $1,778.14 $1,261.77 $1,433.90 $1,606.02 Family $3,560.30 $2,526.39 $2,871.03 $3,215.66

Tier Standard Tier 1 Tier 2Rebate 29.04% 19.36% 9.68%Single $17.07 $11.38 $5.69 Family $34.18 $22.79 $11.39

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2014 – Average Hospital Premiums across the various rebate levels:

The additional amount consumers are now paying due to the recent changes on the rebate structures:

How the new rebate structures have hit the hip pocket cont’d

Tier Standard Tier 1 Tier 2 Tier 3Rebate 29.04% 19.36% 9.68% 0%Single $17.07 $189.19 $361.32 $ 533.44 Family $34.18 $378.82 $723.45 $ 1,068.09

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The two amendments to the private health insurance rebate have had the following overall impact on average private health insurance premiums:

Item Standard Tier 1 Tier 2 Tier 3Regular Big Mac Meal ($9.65) 3 39 74 110Coffee ($4) 8 94 180 267Movie Ticket ($15) 2 25 48 71Day Care ($80 per day) 0 4 9 13Weekly Food & Drink ($285) 0 1 2 3

The rebate impacts on families measured by common luxury and standard items:

Expected consumer decision behaviour

They receive the news 30 days before the increase hits…what do they do?

Decision Behaviour

Stay

Satisfied

Complacent

Switch

Downgrade Policy

Change Provider

Cancel

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So how are we observing funds responding?

Placing restraints on costs within their control:

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Restraints

Extras

Group Limits

Item Limits

HospitalExcess

Waivers

Constraints on preferred providers costs

So how are we observing funds responding? Cont’d

Product and Service Development:• Life Stage Policies – allowing consumers to self

identify which policy matches their life stage

• Simplifying policies – fewer restrictions and more clarity

• Greater networks• More benefit adds

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Maintaining engagement

Two main points of contact:

1. Time of renewal

2. When claiming

Initiatives by other insurers to increase engagement:

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Yes, Private Health Insurance is now less affordable, however…

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Thank you

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