The forthcoming round of premium increase applications is likely to be among the most complex insurers have ever made.
This is mainly due to the wide-ranging private health insurance reforms package announced in October 2017 that aims to make private health cover more affordable and less complex for Australians. However, in order to permit a smooth transition, insurers need to plan ahead.
Here's what you need to know:
1. The 2018/19 premium round application process
While the 2018/19 premium round application process has some elements that mark it out from previous years, the core stages will be familiar.
Health funds should apply directly to the Department of Health if they wish to increase the premiums on their products. We'll examine some of the crucial deadlines for this year's process a little later, but it's important to note that these initial applications must be filed by the November 23, 2018, even though the increases themselves won't come until effect until April 1 2019.
Initial insurer applications for premium increases need to be made by the November 23 2018.
The Department of Health then consults with the Australian Prudential Regulation Authority (APRA) to determine whether the insurers' proposals are well-thought through and show care for customers. This decision-making takes into account a range of financial information provided by insurers. The types of information needed to support their application are detailed under point three.
Some insurers may be asked to revise and resubmit their applications, and the overall outcomes of the Department of Health and APRA deliberations will be relayed to health funds in early 2019. This will give health funds time to prepare communications to their clients announcing the pricing alterations.
2. Key deadlines for 2018/19 Premium Round applications
Here is a breakdown of the most important deadlines that insurers need to stick to if their application is to be successful:
- Initial applications – Must be received by the Department of Health by November 23 2018.
- Revised submissions – If they're asked to make alterations to their application, this should be re-submitted by late December 2018.
- Outcome notifications – The Department of Health will notify insurers as to whether their applications have been successful by late January/early February 2019.
- Premium changes take effect – Products with new premium prices will be available for consumers to purchase on April 1 2019.
3. How private health insurers apply for premium increases
It's vital insurers are aware that this year's application form has some alterations due to the impact of the health insurance reforms, and only submissions compliant with government guidelines will be accepted. To comply, the application must be supported by a range of financial information, and a written report.
Insurers must be aware that this year's application form is affected by the private health reforms.
In addition, insurers must supply information to help the Department of Health and APRA reach their decision. This includes:
- How the premium increases will impact their Capital Management Program.
- The degree of consistency between the application and their pricing policies with regard to gross and net margins.
- How the private health insurance reforms (and the associated introduction of new products and product naming) will impact the product mapping
- Information on the key risks to the business over the next 12 months, and how it's proposed to manage these risks.
- Actuarial examinations of the risks and forecasts being made for the application.
- An analysis of the potential risks of the private health insurance reforms to the business.
4. What makes this year's premium round applications different?
The private health insurance reforms
As we've alluded to, the reforms to private health insurance are one of the main reasons for the changes to the premium round process this year. Among these reforms, there are certain changes of which insurers need to be particularly mindful:
- Aged-based discounts
This reform aims to encourage younger Australians to take out private health insurance policies by offering premium deductions of as much as 10 per cent for those aged between 18 and 25. It's likely that insurers will want to create a range of new products, or make modifications to products that already exist, in order to cater for this younger market.
This is where supplying information to the Department of Health regarding product mapping and naming is important.
- The removal of cover for certain natural therapies
By taking away cover for services such as kinesiology, homeopathy and Pilates in General Treatment (extras) policies, the government aimed to reduce public spending (through applications for rebates paid on premiums) on treatment where there was deemed insufficient evidence for effectiveness.
Insurers have a number of options in reacting to this change including replacing the removed therapies with alternatives, or increasing the benefits in different areas of the policies. While there's uncertainty as to exactly which option will prove most popular, both would affect the costings for premium increases.
- The reforms to prostheses benefits and increased excesses on hospital products
A principle aim of the reforms was to reduce the cost of private health insurance for consumers, and the changes to prostheses benefits and hospital product excesses is integral to this.
The first of these changes is already in effect, and the second will take force on the same date as the updated premium prices, April 1 2019. As these changes are designed to put downward pressure on premiums, they too should be taken into consideration by insurers when applying to update their prices.
Future political shifts
The current Labor opposition has proposed that future premium increases will be restricted to 2 per cent. It may, therefore, be advisable for insurers to be conservative when applying for premium increases this time around.
With private health insurance in Australia undergoing a period of change, it's unsurprising that this round of premium increase applications is more complex than usual. If you have more questions on the process, or the reforms to private health insurance, get in touch with the team at HICA today.