Australian Lefty on Politics, Governance, Science and Info Management

Senate inquiry into another financier support package

Posted by Dave Bath on 2009-06-03

The Senate inquiry into Fairer Private Health Insurance Incentives Bill 2009 and two related bills is seeking public submissions to until 2009-06-16.

"Fairer"?  Marginally less unfair would be more accurate.

And the unwritten assumption, with thresholds for couples and families twice that of singles is totally inconsistent with benefits to the poorest members of our community – where couples get much less than twice the benefits of singles.

I’ll also take a quick look at the most recent annual reports of a health fund to show how much the unnecessary middle-men are taking.

First, a summary of the reductions in government largesse to the wealthy based on per annum income:

Singles Families Reduction
<75k <150k 0%
75k-90k 150k-180k 10%
90k-120k 180k-240k 20%
>120k >240k 100%

How many people on significant Centrelink benefits get this rebate?  Bugger all!  It’s upper class and corporate welfare plain and simple.

What is worse, there is no incentive for efficiency on the part of the middle-men.  The higher the premium (and profits assuming that benefits are similar), the higher the corporate and upper-class welfare.

Surely the largesse should be constrained to be a proportion only of the lowest premium in the industry – although I’d much rather this largesse be set at 0.

I went looking for the most recent annual report from one of the largest (about 18% of the market) middlemen.  Oddly, there was no 2007-2008 report on MBF’s annual report web page even though it’s almost the end of the 2008-2009 annual report.  I guess it takes a year to fine-tune the spin so that it looks attractive to investors while not looking like a blatant rorter of public funds.

So I’m forced to deal with the 2006-2007 report.  Let’s look at some of the figures:

  • Premium Revenue: 2106.3 million
  • Benefits Paid: 1872 million
  • Health insurance underwriting profit: $69.9 million

Does anybody remember the old mutual benefit health funds a.k.a. "friendly societies"?  Their model was to pay out more than they collected from subscribers, by wise investment of the funds under management.  If they couldn’t do this, they were either incompetent investors or incompetent actuaries – and so would collapse deservedly.

OK, so lets look a bit closer:

  • Rebate from government is a third of the premium, 70 million.  This is the same as the profit.
  • Difference between revenue and benefits is 234 million.
  • This means that it costs 234 – 70 = 164 million to pay rent, salaries, etc.
  • Multiply 164 by 100/18, and this means that the health insurance industry Australia-wide spent nearly a billion dollars running itself.
  • Approximate government expenditure = 70 * 100/18 = 400 million. (It’s probably closer to half a billion dollars these days)

With 2 billion in funds under management, and assuming even a modest 5% return for simple money-market activity (the cost of capital), that means MBF funds under management should have generated 100 million.  Real investment during boom times in stocks and shares should have been much higher, and should have been better than the increase in the ASX over the same period.

In other words, that health fund, in boom economic times, must have been a hopeless investor, much worse than the old non-profit friendly societies.  The government supplied the equivalent to 100% of it’s profits, so profit from investment of funds under management (less expenses) must have been approximately zero.

What about another one, NIB, now listed on the stock exchange?  From their half-yearly results to 2008-12-31:

  • Premium revenue: 410.6 million
  • Benefits paid: 201 (hospital) + 95.8 (ancillary) = 297 million
  • Double those figures for annualized amounts.
  • And this was during a financial crisis!
  • So that’s about 200 million out of funds government and people pay for health taken out – to support 422 employees (and a CEO with a rise from $800k to $2.3 mill).

And from NIB’s Annual Operations Report 2007:

  • Premium revenue: $666.0 million in contributions (normalized)
  • Payouts: $571.1 million in claims, reinsurances and state levies to policyholders during financial year 2007.
  • Negative value for policy holders (premium minus payouts): 666 – 571 = 95 million – and that represents even worse value for policy holders when state levies are taken out!

Personally, I’d much rather the government put another $400 million (or more realistically, half a billion) directly into health services, using the money to pay doctors and nurses rather than seemingly incompetent financiers.

It’s also worth noting that as your premium is more than your total payout, you would be better sticking your money in a savings accounts (or even under the mattress) and self-insure.  With the government as sole insurer, providing the same services and the ability to smooth the costs across everybody (let alone distribute the funds fairly) from consolidated revenue, and with the opportunity for greater efficiency through economies of scale, the economy as a whole would have more capital to do something productive.

Notes/See Also:

  • UPDATE:On a related issue, smart FOI-ing and wikileaking replayed over at shows that the Howard Government was trying to keep doctor numbers low (which of course, pushed prices, and the desire for health insurance, up). "What’s up doc?" (2009-06-03) by John Richardson
  • I tried to Google "annual report" inside the domain to find revenue and benefits, and also in (which owns MBF and HBA – or large chunks of them – and "covers" 3 million Australians).  No luck.  Let me know if you can find them.  How come these companies hide their recent annual reports so well?  It’s a fair bet that if those companies were proud of their figures, their locations would be blindingly obvious.
  • NIB, which is now listed on the ASX, also makes it difficult to get their 2007-08 report. From the Annual reports page, and clicking on the "click here for further nib financial information" you get a "404 error – page moved or deleted", while clicking on "download document" (which points to generates a "403 error", demanding a secure channel over https and requiring a login, but you can see a copy of the FY2008 NIB annual report using this and the 2009 half-yearly report here.
  • "Medical benefits – praiseworthy past, modern scamming" (2009-02-19) includes

    In other words, clients of the health insurance industry were putting their money (and those of others via government subsidies) into a bank that didn’t give the client money plus interest, but charged people for putting money into deposit accounts, all the while using those funds to loan to others (and collect interest on that)!

    Would the public allow the government to say the taxpayer will fund 30% of your deposits into a bank (i.e. add in 50% of what you deposit), providing that the banks charge you for the privilege of holding your money.


3 Responses to “Senate inquiry into another financier support package”

  1. Dave Bath said

    From Sci-Am 2009-06-03 : Health insurers want you to keep smoking, Harvard doctors say.

    Health and life insurance companies in the US and abroad have nearly $4.5 billion invested in tobacco stocks, according to Harvard doctors.

    “It’s the combined taxidermist and veterinarian approach: either way you get your dog back,” says David Himmelstein, an internist at the Harvard Medical School and co-author of a letter published in this week’s issue of the New England Journal of Medicine.

    And our medical funds, receiving monies from government, are becoming listed, and/or have international owners.

    I wonder if ANY of the funds from government could be said to support, directly or indirectly, big tobacco.

    Oh, and then there is over-prescribing (and consequent bad policy as well as harm to patients), so do any health “funds” own stocks in big pharma as well as big tobacco?

    (Hmmm, I’ll probably roll the comment into the body of the article).

  2. […] violence to infantsCraig on Our law permits religiously-motivated violence to infantsSenate inquiry into another financier support package « Balneus on Medical benefits, praiseworthy past, modern scammingDave Bath on Senate inquiry into […]

  3. […] "Senate inquiry into another financier support package" (2009-06-03) goes into the figures from just one fund, with 2 billion in premiums, meaning a 200 million windfall to the nation if we ditched them.  Multiply that by the number of other funds, and this of how many hospitals, doctors, nurses and ambulances could be in service. […]

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