PHI. We got you Covid!
Health. We used to take it for granted. Now, amid a global pandemic, the urgency to achieve ‘good health’ appears to be ever present. Head to any park and look your neighbours in the eye.
It’s making us think harder about how protected and prepared we are. At the same time, many Australians are experiencing a drop in income and increased uncertainty about their futures. They are spending less.
So where have we come from and where are we going to?
Before the world was stopped in its tracks, private health insurance uptake was on a steady decline. In August last year, 45.1% of Australians had private health insurance: the lowest level in over a decade.
Last year, Roy Morgan research found that just over half (55.4%) of private health insurance fund members currently agree that ‘it is essential to have private health insurance’. This continues a declining trend seen each year since December 2014 when it was at a much higher level of 65.0%. It’s a tipping point that has placed health insurance in the ‘discretionary spend’ basket for almost half of all policy holders.
44% feel it is ‘difficult to understand what you are covered for’ (an increase of 7.5% over five years). The federal government’s ‘gold silver bronze’ reforms have now been a year in market with only an emerging understanding of the extent to which they have made decision-making clearer for members. The consumer insights studies we are working with point to member desire for personalisation. The issue is not complexity; rather, customer journey and experience – choosing exactly what you are covered for.
Acquiring new customers is becoming more challenging, as Gen Z and Millennials see much less (30%) necessity for PHI than the committed Boomers.
80% of people with private health insurance rated it as their biggest cost of living concern before this global health and economic crisis. CHOICE consumer report, April 2020
PHI and Covid-19. An industry doubletake.
As stated earlier, Australians are scrutinising their spending, recurring costs, and liabilities. Many have more time to do so, as they are stood down or work reduced hours. The imminent threat of Covid-19 has thrust health access to the top of the public agenda, playing out in the media in an avalanche of anxiety.
PHI is intrinsically linked to private hospitals. These were set to be commandeered by the government for coronavirus treatment. Fortunately, that has not been needed but did see the cancellation of elective surgeries imposed in March amid fears coronavirus would overwhelm hospitals.
The arrival of millions of face masks has allowed surgeries to resume; however, given the tenets of social distancing, we are all now well trained to avoid exposure. Australians who saw hospital visits as risking infection before Covid-19, may now see hospitals as virus factories: only for the brave or desperate. Those that need surgery soon may return in numbers larger than private hospitals can serve.
Last year, before the COVID-19 crisis, the average wait time for non-emergency admissions in public hospitals was 109 days, compared with just 24 days for private hospitals – meaning patients without private hospital cover waited 4.5 times longer. That’s a major selling point, avoiding the prospect of prolonged pain or escalation of a condition. But it might change quickly if pent up demand sees waiting lists grow and public hospitals continue to prioritise Covid-19 responses (or limit non-essential treatments).
On the up (commercial) side, The Australia Institute calculates that insurance funds could have their benefit payout reduced by 30–50%. For major funds that’s a huge level of cost avoidance that can be deployed to attain competitive advantage by redefining customer value in a shaken world.
“Private health insurance funds could have their benefit payout reduced by 30–50% in the coming months. From an ethical standpoint these savings should be returned to private health insurance policy holders, which would also assist with economic recovery post crisis. Funds would still have very much the same reserves at the end of the crisis as they do now.” – Australia Institute, ‘Health insurance benefits during the Covid crisis’
Guardians of value
Recent consumer reports show that Australian consumers are looking to trusted brands to provide them with safety and security during these difficult times. Insurers should be seen as the ultimate ally in a world where health and stability are threatened.
As a growing proportion of policy holders downgrade or opt-out of their cover completely, providers should be defining what value looks like in our new reality. So, what have been the responses of insurers so far?
Many providers delayed premium increases, due to come into effect on 1 April, for at least six months. And proactive providers are offering customers financial hardship schemes.
Mental health benefits have been extended. This provides member confidence and real benefits but also enables health services to prepare for and meet an expected need for services.
These are both tangible responses to immediate needs. Premium delays demonstrate the industry listens and responds. Mental health benefits underline how insurers can support the health system when it needs it most.
Right now, the focus should be on multiple scenarios that include second and third waves of viral infections, private healthcare bottlenecks and a surging public perception that government, not private industry, looks after citizen health.
In addition, digital health – telehealth, mobile applications and wearable devices – have suddenly experienced rapid testing at scale, and significantly greater acceptance. Not every use will persist, particularly if government funded. But, if value has been created, it’s a commercial opportunity as well as a health benefit.
