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NIB Holdings (ASX: NHF) has reported hospital claims inflation of 17 per cent for the first half of the 2015 financial year, which we believe demonstrates the inferior position of the smaller funds in the health care chain.

Without considerable scale the smaller health funds are unable to exert meaningful bargaining power with the major hospitals, Ramsay Health Care and Healthscope, who are motivated to care for as many patients as they can. We consider that Medibank Private and Bupa are the only health funds with sufficient scale to drive behavioural change.

The first time that health funds typically become aware of a patient’s surgery is when they are billed by the hospital. Until the health funds can identify the high claim patients and redirect them appropriately, the only way to mitigate claims inflation is through premium rate increases. Yet in 2014, NIB was approved to increase premiums by 7.99 per cent. This was the highest premium inflation in the industry for the year, but still well below the growth in claims.

We consider that the government is unlikely to continue awarding premium increases of this magnitude. As such, we think there is little that NIB can do in the near term but continue to sign on the bottom line.

Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery, find out more.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.


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  1. Gaveen Jayarajan

    No doubt BUPA and MPL are better positioned than NHF, but I think in the long run the ageing population will be a headwind for private health insurers, and a tailwind for private hospital operators like RHC and HSO. Although both exist because of each other, I don’t think both will benefit to the same degree as the population ages. Insurers need people to stay healthy and be in hospital less and hospitals want people to come into hospitals more. People are getting older and living longer, but often with more morbidity for longer periods. This is a big snowball that insurers are trying to stop, and it is no easy task. Technological advances won’t make it all better, as new technologies can produce new medical procedures that require hospitalisation to be performed. Reading MPL’s prospectus and now their first results announcement it is interesting to see how the language has changed and now the talk is more about the challenging industry dynamics with affordability, policy downgrading, policy churn and claims escalation one being front and centre. Reading RHC’s announcement may give you a different perspective on where the balance of power so to speak will eventually lie. Just my 2c on this topic, interested in other views against this.

  2. Steve Greenwood

    I know NIB were only given 7.99% for that year BUT our premium with NIB went up 22% with no change to cover. The letter was dated 1 April 2014 (an april fools joke??).
    Not laughing, we switched to Bupa.
    To be fair, NIB had paid out a lot of money on our cover with hospital/ cancer treatment so I guess they were “pricing for risk” with that renewal.

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