The S&P/ASX 200 Index (ASX: XJO) health insurance shares such as Medibank Private Ltd (ASX: MPL) are underperforming the index today for one key reason. At the moment, the Medibank share price is down 0.7%, while the ASX 200 is down 0.2%.
Unlike many other industries, how much money the private health insurance sector can make is somewhat controlled by the Federal Government.
The Australian Government ultimately approves the premium increases that the private health insurance businesses want to enact.
The next premium hikes could be elevated, with news breaking today of how much more Aussies may be paying.
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Large premium increases requested
According to reporting by the Australian Financial Review, private health insurers are going to ask the Labor Government to increase premiums by twice as much as last time.
AFR sources with detailed knowledge of the discussions estimate that private health insurers will increase premiums by 5% to 6% in April, the largest increase since 2016.
Large insurers have given early estimates of costs, including forecasts of payments to private hospitals and medical treatment.
The NIB Holdings Limited (ASX: NHF) share price is currently down 0.9%, as one of the other major players in the space. The NIB CEO Mark Fitzgibbon said:
I expect (in the) longer run claims inflation will run at 4% to 6% and right now. That is keeping with what we have seen for 24 years when claims have generally grown at 5.5% per annum.
There has always been heavy scrutiny on premium increases as there always has been. Ultimately, we have to cover claims inflation like any insurer because if you don't eventually you go out of business.
Last time, Health Minister Mark Butler granted a premium increase that was about half of what private health funds, such as ASX 200 health insurance shares, had wanted.
The AFR reported that insurance businesses think premium increases should return to pre-COVID levels, considering the cost of treatment and the number of surgeries is rising again.
The newspaper noted that analysts and healthcare experts said it was "unlikely the government would approve an increase above 3%".
Terry Barnes, a health policy consultant and former adviser to the Howard government, said:
The government will be very nervous about anything more than 2% to 3%. The government of the days wants premiums to increase at the lowest possible rate and this year of all years will be running the ruler very closely over applications.
Medibank share price snapshot
Since the start of 2024, Medibank shares have risen 3.2%, compared to a rise of 8.8% for the ASX 200.
