The 2019 PHI reforms
This article provides a brief summary of the Health Insurance market response to reforms rolled out on 1 April 2019. We are seeing many insurers still in transition, and a large number of market movements taking place; as such the information included should be treated as a guide to the broader industry response. We would welcome any feedback and discussion.
Finity products used
This document makes use of two of Finity's proprietary products:
Finity's web-scraping tool and the publicly available insurance product data on private.health.gov.au
(Currently used by nine insurers)
Finity Value Maps
These present a map of the price versus our estimation of customer perceived value for every product in the market.
(Currently used by three insurers)
Clinical categories & product classification
Insurers transition to PHIS
Insurers have a one year grace period to switch over to complying product standards and coverage levels. This includes migration of existing product information statements (SIS) to the newly developed information statements (PHIS). The table below summarises the current transition state of insurers across the industry.
The four insurers yet to migrate any products onto PHIS are:
- Bupa HI Pty Ltd
- Railway and Transport Health Fund Limited
- Transport Health Pty Ltd
Distribution of products by tier
The chart below presents the proprietary Finity Value Model, which assigns a customer perceived value score to products based on the products inclusions and exclusions. This shows the current Hospital product market for all products in NSW, coloured by their product classification type. The plus shapes indicate plus versions of the product classification. Products below the ‘market line’ are relatively better value-for-money. We produce these value maps for individual insurers, displaying where their products sit relative to the market. Insurers use this information for new product design and pricing, yearly premium changes, portfolio management decisions, developing pricing strategies and for sales purposes.
The Basic and Bronze markets are very similar. The Silver market shows the largest spread in coverage levels and prices. The variation in value offered in the Gold market is due to excess levels, ambulance coverage and travel and accommodation benefits offered.
The table below shows that every insurer that has transitioned to date offers a Gold tier product. More than half offer plus versions of the classifications, and about a quarter offer the base Basic, Bronze or Silver products.
The distribution of retail (open, non-corporate) products across the clinical categories provided by each insurer in NSW offered to singles is summarised below:
The larger insurers continue to offer the widest range of coverage options in the market. Most products are rated as “plus”, with relatively few products providing only the benefits required to achieve a Bronze or Silver classification.
The tables below show the number of products available in $750 excess, and the number of insurers currently offering the $750 Excess products. Roughly two thirds of all insurers currently offer $750 excess.
Affordability impact of $750 excess products
The following shows the average premium by excess level in the NSW single market. The table shows that $750 Excess products are roughly 6% cheaper than the $500 excess versions. This is a smaller gap than other excess levels, for example, a $500 excess policy is typically 8% to 11% cheaper than a $250 excess policy.
The table below shows the premium increases for existing NSW customers on $500 excess products, and the price change had they switched to a $750 excess option for the same product. It shows that:
- Most customers would have been able to reduce their premiums, if they had switched to the $750 excess product.
- There is no evidence of unusual changes to the $500 excess rates to fit the $750 excess option into the product range.
The table below shows the number of products available with a Youth Discount and the number of insurers offering the discount. Again we focus on the NSW single market.
The following insurers are offering Youth Discounts, according to privatehealth.gov.au:
Bupa is also offering the discounts, but this is not noted on the privatehealth.gov.au website.
The youth discount market
Using the Finity Value Model, the current Hospital product market for products offering youth discounts only is shown below. The prices for the products that offer youth discounts are shown pre-discount. There is some evidence that these products have been ‘priced up’ a little, to be able to offset the impact of the discounts. The chart also shows that youth discounts have been applied throughout the entire market – this may surprise some in the industry who predicted that youth discounts wouldn’t be applied to Gold products.
Was PHI reform successful?
We now know how products have changed, but it's too early to say whether these changes will be successful for individual insurers or the industry more generally. We look forward to the next industry statistics from the regulator, and any level of growth will be a positive.
The April 1 changes were the most significant PHI reforms for many years, and required significant investment by funds. Most would be able to suggest further reforms to improve the long term sustainability of PHI. However, our initial view of these changes is positive, as they will assist product comparison and provide more affordable options, especially for younger members.
The following links provide further reading on the above references:
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