Member-owned health funds try to take back customers

 

As the April 1 deadline looms for health insurance customers to switch providers and avoid rising premiums, Brad Joyce wants to get a message out: health funds that are owned by their members might be small but they can compete on price and product design.

The chairman of the newly formed advocacy group, Members Own Health Funds, said the mutual and non-profit funds did not have a conflict between shareholders and members, and so can reinvest profits to reduce premiums. He hopes the message will help the 18 funds steal back members from the market giants recently listed Medibank Private and Bupa.

We’ve seen enquiry volumes grow once again, highlighting that affordability continues to be a real issue for policy holders. 

Matt Cuming, iSelect

“We’re focusing on member wellbeing, we are generally putting people before profit,” he said.

The group, which has a combined market share of about 20 per cent or 2.5 million members, was officially formed in February. Mr Joyce said its formation was a response to the way the $20 billion market has shifted from mostly non-profit operators to for profit operators. Medibank and Bupa account for 60 per cent of the market.

 

Mr Joyce, who is also the chief executive of the Teachers Health Fund, said part of the group’s objective was to ensure the sustainability of members-owned funds by promoting them as an alternative to consumers.

“Our objective is about raising awareness with Australian population,” he said. “You can draw parallels with the industry super network. We look long and hard at their success and there are absolute parallels with what we’re trying to do.”

Mr Joyce said Members Own wants to tap into customers two biggest concerns about health insurance: the cost and whether they have the most appropriate cover. He claims on a like for like basis, many members own health funds can offer lower-priced premiums because they do not run high-profile advertising campaigns and do not have expensive retail chains.

He said the funds have a management expense ratio – the cost of administering policies as a proportion of premium revenue – that is at least 1 percentage point lower than the industry average of about 9 per cent.

Rising costs

The cost of premiums is problematic for the industry. Health funds are battling rising costs of healthcare that are paid to providers such as hospitals, dentists and physiotherapists.

Funds paid out $17.3 billion in the 12 months ended December, 2014, 7.4 per cent higher than the previous year. In response, Health Minister Sussan Ley approved an average premium rise of 6.2 per cent, to come in on April 1. 

Annually at this time of year, private health insurance customers receive letters from their funds alerting them to the increase. For many the letters serve as a prompt to reconsider whether their policy is good value or not and potentially switch providers.

The head of corporate affairs at comparison website iSelect, Matt Cuming, said a “huge” number of policyholders had come into the market after Ms Ley’s February announcement. “In response to the 6.2 per cent increase announced this year, we’ve seen enquiry volumes grow once again, highlighting that affordability continues to be a real issue for policy holders,” he said in an email.

One way funds have tried to rein in the cost of premiums is to offer policies with exclusions. Although it may make sense from a consumer demand perspective for an older couple to exclude obstetrics, or young singles to exclude hip replacements, Mr Joyce said he feared the trend has gone too far.

“In the last five years there has been a doubling of the number of exclusionary and restrictions products in the marketplace. This now represents about half the products on offer.”

“That is fundamentally opposed to that principle of community rating and government policy objectives around taking pressure from public health system,” he said. “Well that’s not going to happen if you’ve got all these people out there buying products that aren’t going to respond to some high-cost procedures.”

Mr Joyce said the members-owned funds have less incentive to promote exclusionary products in an attempt to maximise profits.