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ACCC cautions health funds over COVID-19 profit calculations  

Australia’s competition watchdog has warned private health insurers they must fulfil their commitment to return all profits due to COVID-19 to policyholders, raising concerns over conservative calculations put forward by some health funds.

The Australian Competition and Consumer Commission (ACCC) has released its annual report into the private health insurance (PHI) sector. In the 12 months to June 2021, it found government-imposed COVID-19 restrictions continued to limit policyholders’ access to non-urgent elective surgery and non-urgent ‘extras’ treatments, including most dental, optical and other health services.

The authority said the impact was particularly notable in Victoria, which experienced several local lockdowns during the reporting period, and was also evident to a lesser extent in NSW.

“The ACCC is aware that many insurers have been implementing their commitments to return profits from COVID-19 restrictions to policyholders, primarily through premium credits or direct payments to policyholders, and we support these efforts,” ACCC deputy chair Ms Delia Rickard said.

However, the ACCC has been worried about some statements from insurers when announcing relief for policyholders. It is concerned they are calculating their total profitability from COVID restrictions too conservatively, by only referencing the value of their ‘deferred claims liability’.

The primary objective of the deferred claims liability is to ensure insurers have sufficient funds to satisfy future claims for deferred procedures, such as elective surgery and extras treatments.

“The deferred claims liability is not a proxy for total profitability from COVID restrictions, and nor was this ever the intention when financial regulators directed insurers to create a deferred claims liability,” Rickard said.

The ACCC noted that insurers can exclude the value of claims that were missed due to COVID restrictions and are not expected to materialise later when calculating their deferred claims liability.

However, for the purpose of fulfilling their broader commitments in 2020 to not financially benefit from the pandemic, the ACCC expected insurers to include the value of these claims when calculating their policyholder relief.

“We expect insurers to return all benefits from procedures that were not performed and are not expected to be performed later. This may be particularly applicable to extras treatment and geographic areas that were subject to extended lockdowns,” Rickard said.

“We will continue to monitor the actions of insurers to return all profits made due to COVID‑19 to policy holders as they promised and report on it in our next annual report on the private health insurance industry.”

More Aussies insured 

The report also noted the proportion of Australians with health insurance has increased for the first time since 2015, which has been attributed to increased community focus on health due to COVID-19.

In June 2021, nearly 14 million Australians, or approximately 54.3% of the population, had some form of PHI, an increase of 1.4% since June 2020.

People holding hospital policies increased across most age groups, but the rate of increase was fastest among those aged 75 and older. The 2020-21 reporting period is the first year in which people in their mid to late 70s holding hospital cover outnumbered people in their mid to late 20s.

This year’s PHI average premium increase was the lowest since 2001 at 2.7%. Cumulative premium increases over the past five years to June 2021 continue to outpace wage growth, with average premium increases being more than double inflation (CPI) during the same period.

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