Health insurance could help to pay for the cost of treatment for a private hospital patient, or for out-of-hospital health care services in facilities such as clinics. Insurance has always been an essential component of the overall health care system.
In Australia, there is a highly developed health care structure, and health care insurance provides all the coverage for medical expenses, depending on the plan chosen by the policyholder. Medical cost includes all the medical services like doctor’s visit, emergency room, drug prescription and medical procedures.
In Australia, Medicare provides access to medical as well as hospital services for all the citizens, as part of the public health system, with Medicare benefit standing at ~85% of the Schedule fee (determined for each medical service). Private health insurance services are also popular in the country and the amount of health insurance covered for private hospital treatment and out-of-hospital treatment varies according to the policy.
As there are increasing expenses in the health care industry, such as rising medical fees and growing prices of medical devices, health care insurance providers are facing immense financial pressure.
Are the recent APRA numbers troublesome?
Australia’s independent statutory authority, the Australian Prudential Regulation Authority (APRA), conducts a survey annually and quarterly, which helps in devising reports, based on the number of people, by age, gender and state of residence, with hospital insurance. On 18 February 2020, the authority released Quarterly Private Health Insurance Statistics for December 2019.
At 31 December 2019, approximately 11 million individuals, or ~44.0% of the population, were covered under hospital treatment membership. This was a decline of 0.2 percentage points as compared at the end of September 2019. The biggest drop in coverage for the duration of the quarter was 10,286 for 30 to 34-year-old individuals.
In the December 2019 quarter, there was a decline in coverage of 9,361 individuals who were insured along with a decline of 1,951 in family policies and 1,355 in single policies.
Taking an example, Medibank Private Limited (ASX:MPL), a pioneer insurer of Australia, updated in December 2019, that it had delivered its lowest average premium increase in 19 years. MPL received approval to rise health insurance premiums of Medibank and ahm by an average of 3.27% from 1 April 2020. This followed the announcement by Federal Minister for Health that private health insurance premiums would change across the industry, effective 1 April 2020.
According to industry experts, combined pressures of ageing population, capital effects on health care requirement, affordability and the community rating system, will keep industry margins under pressure going forward, even without the artificial cap on pricing growth. For health insurance players, the margin pressure is likely to be an ongoing factor.
And, now COVID-19 is putting immense pressure on health insurance sector players, in addition to almost every industry. With this backdrop, let us look at two ASX-listed health insurance players and acknowledge their performance amid COVID-19 outbreak- MPL and NHF.
Medibank Private Limited (ASX:MPL)
Australia-based, Medibank Private Limited is the second-largest health insurance service provider, operating through two brands (Medibank and ahm). MPL is focused on improving the lives of many Australians by providing the best combination of services along with advice.
On 26 March 2020, the Company revealed that it is proposing a member support package in excess of $50 million in value, for assisting its policyholders during this difficult time, comprising of assistance and support for all hospitalised members, coronavirus hardship support as well as aided mental health services.
Medibank updated the market with its investor presentation on ASX with its financial results and outlook. The group financial summary from its investor presentation is as follows.
- On the current trajectory, the Company continues to anticipate Medibank brand volumes to stabilise by the end of the financial year 2020 and is expecting to grow during the fiscal year 2021;
- In addition to this, the Company expects hospital and ancillary utilisation to stay around current levels for the rest of FY20 while anticipating nearly 3% underlying claims growth per policy unit for the fiscal year 2020;
- Medibank also expects management expenses to be almost $540 million for the financial year 2020.
The MPL stock settled at $ 2.620 on 26 March 2020, a decline of 4.029% from its previous close, with a market cap of nearly $ 7.52 billion. The stock had a 52 weeks high and low price of $ 3.654 and $ 2.450, respectively, with approximately $2.75 billion outstanding shares. The stock has delivered a negative year to date return of 14.15%.
nib Holdings Limited (ASX:NHF)
ASX-listed insurance service provider, nib Holdings Limited is an international health partner that is engaged in providing health and medical insurance to Australian and New Zealand citizens. The Company offers health and medical insurance to approximately 1.6 million people staying in ANZ, including ~190,000 international students and workers in Australia.
Moreover, the Company is the third-largest travel insurer in the Australian region and a distributor of travel insurance at a global level, with the business nib Travel providing zinancial security and assurance to travellers across the globe.
On 23 March 2020, nib Group updated a Letter to Shareholders, highlighting that the pandemic has resulted in profound uncertainty about the Company’s previously announced commercial outlook and FY20 market guidance, making it necessary to withdraw market guidance.
According to the Company –
- Hospital admissions are surging for coronavirus related illness, and at this time, the Company is witnessing some additional claims exposure;
- Depending to their cover, the Company is likely to receive claims related to treatment for lung and heart ailments; however, this is expected to be minor compared with what is anticipated to occur with the diminution of elective treatment;
- It is also anticipating an increase in claims for its travel business;
- Net membership growth in nib’s International Inbound Health Insurance is year to date ahead of budget and no large-scale cancellations received;
- nib Travel insurance (travel) sales are below budget YTD, with sales negatively impacted by new restrictions on foreign entry.
Additionally, the Company updated that it has initiated a cost reduction program, in order to lower operating expenses, targeted towards aiding affordability and price competitiveness while maintaining profit margins.
nib is well capitalised and secure, boasting surplus capital of $69.2 million, at the end of December 2019.
On 26 March 2020, the stock of NIB settled at $4.980, up by 1.633%, with a market cap of nearly $2.23 billion. The stock had a 52 weeks high price of $ 8.200 and a 52 weeks low price of $ 3.335. The stock has delivered a negative return of 32.98% in the last six months.
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