APRA’s review of Financial Sustainability Challenges In Private Health Insurance
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In the context of rising health costs (with growth rates of 5-6% per annum), APRA has reviewed 15 Private Health Insurers (PHI) on their resilience to Sustainability Challenges and found room for improvement.
The letter Financial Sustainability Challenges In Private Health Insurance , published 3 June 2019, notes that APRA’s assessment found ‘many PHIs lacked credible strategies to mitigate the risks’ of managing affordability and government policy change. The challenges raised by the regulator echo many themes from the Actuaries Institute Green Paper How to make private health insurance healthier .
The heightened risk is due to many changing factors including:
In addition to these shifts, we are also facing an ageing population.
“The proportion of the privately insured population over the age of 65 is now nearly double the rate ten years ago.”
APRA structured the review to look at four areas which are set out in the table below:
| | Affordability risk | Government policy change risk |
| Awareness of the sustainability risks | PHIs are aware that affordability and government policy changes are key risks. | |
| Depth of assessment | Given the potential scope of government policy changes and the significant impact they may have on the sector, assessments undertaken have been fairly narrow. | Affordability risks have primarily only been considered in qualitative terms and only one PHI had prepared an adverse affordability scenario. |
| Strategy to manage the risks | Better strategies were to ‘reduce, rather than absorb the impact of affordability risk’. These strategies focus on providing ‘more cost-effective measures for delivery of medical services’ and ‘services of value to all policy holders, especially to those who are younger and healthier and may not require hospital treatment.’ | Some of the better strategies include ‘developing specific insurance offerings that provide value to policy holders while meeting the objectives of government’ and ‘using their expertise and data to conduct scenario analysis’ that ‘could also be used to inform policy solutions that can be proposed to Government’. |
| Actions taken | There is some evidence that cost savings and additional value has materialised from actions taken. In general, the best performing entities ‘demonstrated an iterative approach to implementation by assessing effectiveness and reviewing strategy accordingly’. |
The letter and its attachment provide guidance for improving responses to these emerging risks.
Many PHIs, according to the letter, are operating under an assumption ‘that Government would provide solutions.’
This review may be indicating a shift in APRA’s focus from short-term financial outlook to longer-term financial stability. This shift will require PHIs to have viable strategies for dealing with emerging risks. There are many opportunities for actuaries in this environment, which may include:
