Posted: 14 May 2020 5 min. read

Private Health Insurance – Risk and Opportunity

Ignatius Li, a health actuary and partner at Deloitte, considers some of the parameters of the COVID-19 pandemic on the health system, including future funding and delivery.

Australia’s national emergency response to the COVID-19 pandemic has required significant change and coordination of public and private hospital resources to meet the rapidly changing environment.

In anticipation of significant numbers of COVID-19 patients, non-emergency elective surgeries were banned in March, effectively putting a halt on the business of private hospitals so they could prepare for the impending pandemic.  The current success at ‘flattening the curve’ has allowed policymakers to relax this ban, and scheduled procedures have resumed.

Short term challenges for health insurers

Private health insurers’ (PHIs) hospital and medical claims reduced significantly during the ban. As the ban relaxes, PHIs are now expecting a ‘catch up’, reflecting patients’ undiminished need for hospital treatment.  In essence, the ban only altered the timing of claims.

Actuaries who are charged with the responsibility of managing reserves and capital for insurers need to evaluate the pattern and potential size of the ‘catch up’.  There are a lot of dynamics at play, including how quickly and the extent to which capacity in the private hospital system can ‘catch up’.  This is a function of facilities, the workforce, and equipment, including personal and protective equipment. 

As part of their financial viability payments from government, private hospitals are obliged to accept patients from the public system as directed by the State. As such, they are likely to keep some capacity in reserve. 

In these pandemic times however, a complication is whether patients will feel sufficiently confident to go to hospital during these early stages of the ban relaxing or whether they might postpone their procedures to later in the year.

Long term challenges for health insurers

With the economy under significant stress, private health insurers have also responded to the crisis by providing financial relief.  This includes foregoing the annual 1 April premium increase for at least six months.  Many insurers have also announced hardship packages.  Others are giving temporary premium rebates.  And importantly, they have rapidly deployed and expanded their offerings using telehealth.

The way PHIs respond and interact with their members during this period will leave a lasting impression and either enhance or deplete their social licence to operate. 

Scenarios to consider

When we eventually come out of this pandemic, there may well be different incidences of morbidity, patient attitudes and preferences that will need to be reflected in product designs and the way PHIs manage their customer and provider relationships.

Impacts on general physical and mental wellbeing during the current physical distancing measures, particularly if they continue in some form, will likely see the emergence and exacerbation of chronic health conditions.  On the other hand, there may be a greater consciousness about maintaining our wellbeing.  Both would ultimately drive demand for wellness, broader health and chronic disease management programs.

An expected desire to minimise exposure to hospitals may see more ‘low value’ care being avoided altogether, replaced by alternative treatment paths that do not require an admission to hospital or a reduced length of stay.  If this attitude becomes more prevalent, it would accelerate the adoption of virtual health services and rehabilitation in the home.  PHIs and private hospitals will need to strategise for this scenario and consider contracting and structuring reimbursement models accordingly.

Public attitudes about the role of the private hospital system may enhance and grow the arrangements for co-ordination of care with their public counterparts.  The role of PHIs in funding private treatment in a different co-ordinated public/private hospital system arrangement will require PHIs to rethink product design. 

Actuaries and the PHIs they work with will need to re-assess the risk profile and the implications that has for pricing, reserving and capital.

The COVID-19 pandemic will potentially alter the way health is funded and delivered in the future.  The length and depth of the pandemic is unknown. However, what we do know at the moment is that Australians’ expectations are being recalibrated every day and every week. 

Private health insurers will need to manage their claim risks in the short term, without missing the opportunity to reframe their relationship with members so that they can position themselves as effective partners in their members’ health in the long term.

More about the author

Ignatius Li

Ignatius Li

Partner, Consulting

Ignatius is a health actuary and partner at Deloitte. Over more than a decade and a half, he has helped a variety of clients from Australian health funds to both the Singapore and Australian governments to help drive changes to their respective health insurance systems. Ignatius is passionate about applying actuarial and consulting skills to making a difference to how health care is funded and provided, and ultimately how the system drives better health outcomes for its people. Ignatius is the current convenor for the health practice committee for the Institute of Actuaries of Australia.