2013 Premium Round – PHIAC’s Role

1. 2013 Premium Round – PHIAC’s Role Shaun GathCEO, Private Health Insurance Administration Council Presentation to Industry Melbourne, 26 October 2012 Sydney, 31 October 2012 Brisbane, 1 November 2012

2. Agenda • Legislation • Then and now • PHIAC’s approach to the task • Guiding principles

3. Private Health Insurance Act 2007 Section 66(10) 66‑10  Minister’s approval of premiums (1)  A private health insurer that proposes to change the premiums charged under a *complying health insurance product must apply to the Minister for approval of the change: (a)  in the *approved form; and (b)  at least 60 days before […] the change [takes] effect. (2)  […] (3)  The Minister must, by written instrument, approve the proposed changed amount or amounts, unless the Minister is satisfied that a change that would increase the amount or amounts would be contrary to the public interest. (4) […]

4. What we used to do…. Applications Minister for Health s.66(10) Advice Industry DoHA Sent to PHIAC Technical analysis and “minimum necessary” opinion (if sought) PHIAC – Insurer Discussions PHIAC

5. This year, it will look like this… • Technical advice and s.66(10) Advice Applications • Minister for Health Industry PHIAC DoHA liaison and observational role assisting Minister and PHIAC DoHA

6. Key differences • Applications will go directly to PHIAC • PHIAC will be the primary source of advice to the Minister about premium increases • (Dept. will retain visibility) • PHIAC will formulate its advice applying its own judgment as to the factors bearing upon public interest • The Minister remains the decision-maker

7. Timetable

8. How will PHIAC go about this? • For us this is a relatively simple exercise: we do what we are already set up to do. • Our statutory objectives are: To achieve an appropriate balance between: (a)  fostering an efficient and competitive health insurance industry; (b)  protecting the interests of consumers; (c)  ensuring the prudential safety of individual private health insurers (PHI Act, section 264-5) • This is the pricing task in a nutshell

9. Key themes to our approach • We want: • a light touch • the process to be transparent • to remove scope for confusion and surprises • to encourage your regular communication • We accept the principle that the market is the best place to set prices. • where there is evidence of clear and effective competition for products, PHIAC will be slow to disturb the pricing judgment of insurers • where the market is inefficient or failing, further inquiry may be required

10. What are the indicia of an efficient market for PHI services? • Strong evidence of accurate and complete information about products and prices being provided to consumers • Portability system working efficiently • New entrants at times of high profitability • Competition for new and current members • Substitutable products readily available • Suppliers don’t have disproportionate bargaining power

11. By these measures… In 2012, the Australian PHI market seems: • not to be perfect or optimally efficient • not to be dynamically competitive, despite high profitability, as evidenced by lack of substantive new entrants • to be experiencing both growth but relatively low movement between insurers • to be dealing with an information poor consumer sector Source: IPSOS, Health Care & Insurance 2011; ACCC, Report to the Australian Senate on anti-competitive and other practices by health funds and providers in relation to private health insurance.

12. In short • We will give fair weight to the pricing judgments presented to us and generally be disinclined to second guess • But… • We will thoroughly examine your forecasts in the insurance business and your capital projections – as we have always done. • We will, above all, be looking out for consumers

13. Thank you