2019-12-15 08:36:001970-01-01 00:00:00

Health Insurers Surge Over Coalition Win

In light of the Coalition’s win in the election, the ASX 200 share index had surged up 1.7% closing at 6476. The market’s gain was driven by industries in the financial sector and private health insurers. Labor’s proposals would have had an adverse effect on the investors if the election had favoured them. Over Labor’s threat of limiting premium increases to 2% a year for two years, Liberal’s win meant that Australia’s health insurers breathed a sigh of relief. The insurance sector enjoyed some of the day’s strongest gains, with a combined value of $1.3 billion added to the country’s two ASX listed private health insurers. NIB had the greatest gain of 15.79% to $6.82 with Medibank followed behind; jumping up 11.5% to $3.21.

Premium increase cap off the table

With the Coalition’s election victory, the party’s policies intend to provide more funding and greater accessibility to hospitals, medicines and Medicare. On the other hand, Labor planned to put a cap on premium increases as well as implementing some of the actions suggested by the Productivity Commission on the review of the private health system.

While premium increase was around 3.25% for this year, a removal of the premium cap may see the price spike up. The result may see a significant fall in the participation rate with young adults opting out of the system entirely and existing members downgrading their cover. In turn, this will decrease the insurers’ revenue and increase their costs. It is common for the health insurers to subsidise the cover required by older policyholders through healthy policyholders’ premium. The risk equalisation is a common technique used by insurers to help achieve their profit goals. However, with the possibility of increased premium, the ensuing participation rate drop may force the insurers to raise premiums. The cycle may continue until eventually the insurers will be left with no policyholders as premiums are too expensive. Therefore, it is important for health insurers to focus on the issue of affordability and not just on their profitability.

Effect on other industries

Several other sectors enjoyed over Coalition’s win. Banking sector’s share price collectively rose by 5.85% with four of the countries’ big banks gaining between 6% and 9%. As mentioned, health insurers also had superior performance. Private health insurers has been the primary revenue source for the private hospital operators Ramsay Health Care. Labor’s policy would have pressure Ramsay to lower prices by the health insurers to compensate for the lower premium increases. Over the Coalition’s win, Ramsay climbed up 8% to a 52-week high of $69.88. Retail sector and real estate sector also benefited from the election outcome.

Future of health insurers

Liberal’s policies promised funding for hospitals, medicines and Medicare. These plans would give stronger economy in the country. However, the increasing premium has always been the main driver for the falling participation rate. It is important for health insurers to deliver quality and value to ensure that health insurance is good value into the future.

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