Major Australian private health insurers NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL) today announced premium increases of more than double the rate of inflation, sending their respective share prices higher. From the 1st April 2018, Medibank will raise premiums across its Medibank and ahm insurance products by an average of 3.88%, while nib premiums will increase by an average of 3.93%. The price hikes are more than double the Reserve Bank of Australia’s inflation reading of 1.8%, which is sure to anger some customers. While scorning the for-profit private health insurers is still some way behind…
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Major Australian private health insurers NIB Holdings Limited (ASX: NHF) and Medibank Private Ltd (ASX: MPL) today announced premium increases of more than double the rate of inflation, sending their respective share prices higher.
From the 1st April 2018, Medibank will raise premiums across its Medibank and ahm insurance products by an average of 3.88%, while nib premiums will increase by an average of 3.93%. The price hikes are more than double the Reserve Bank of Australia’s inflation reading of 1.8%, which is sure to anger some customers.
While scorning the for-profit private health insurers is still some way behind Australia’s love of bank-bashing, it might fast be catching up. The reality though, is that national health care costs are rising each year and nib and Medibank exist to make profits for shareholders.
Australia has a growing and aging population with a rising rate of chronic disease. When combined with the fact that people are also living for longer, this equates to higher health care costs that eventually, the taxpayer will have to cover.
nib CEO Mr. Mark Fitzgibbon summed up the current situation, saying “in the big picture, we’re simply running out of sufficient taxpayers to fund a growing retired population and as we did with superannuation, people are going to have to take greater responsibility for their lifetime healthcare costs.”
So bad luck if you’re a current taxpayer (which includes myself), but when you’re older and retired, younger generations will undoubtedly get stiffed with paying more for something you had cheaper or for free as well. I think it’s always been that way and probably always will. End rant.
Returning to the specific problem of rising health care costs, the situation is made more complex by the competing demands from several groups; private health insurers, private hospital operators, health professionals, government and customers/patients.
Each group is going to need to compromise somewhat for the system to continue to benefit all stakeholders, though I’m not sure we’ve seen the listed health insurers do their bit just yet.
In 2017 we saw Australian private hospital operator Healthscope Ltd (ASX: HSO) raise the issue of higher operating costs and the company’s share price has fallen 15% over the past year. While management of larger rival Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) may not publicly agree with this assessment, Ramsay’s share price also significantly under-performed the broader market in 2017.
Patients are obviously taking a hit too, with rising premiums compounded by slow wage growth. There comes a point when private health care costs will become too much to bear, and many will choose to only use the public system, which in turn increases the cost burden for those continuing with private health cover and the situation snowballs.
The government has raised the Medicare levy to help cover the cost of public health and has incentivised taxpayers to take up private health care to reduce strain on the public system. Again, there is only so much that taxpayers can take, otherwise the government will quickly find themselves in opposition.
On the other hand, nib’s FY2017 net profit after tax rose 30.9% while Medibank’s increased 7.6% for the same period. Over the past year, nib’s share price is up almost 50% and Medibank’s 25%. While shareholders will no doubt be pleased, unless insurance margins reduce I believe customers will eventually say enough is enough and only use the public system or switch to an insurer that profits members rather than shareholders.
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Motley Fool contributor Ian Crane has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.