Returning COVID-19 claims savings back to health fund members
Health

Returning COVID-19 claims savings back to health fund members

Private health insurers paid less in claims during the COVID-19 pandemic due to the suspension of elective surgeries and lower utilisation of extras such as dental and optical.

Some claims that didn’t occur during the pandemic are unlikely to be ‘made up’ in the future. For example, a member may have missed a dental appointment due to lockdowns and only visited the dentist once instead of twice a year. Other claims that didn’t occur may be delayed. For instance, a member scheduled for a knee replacement surgery is unable to proceed with the scheduled surgery date because elective surgeries were temporarily suspended. Once private hospitals resume business as normal, a new surgery date is set and the member can proceed at a later date.

In anticipation of pent-up demand of services, private health insurers collectively set aside billions of dollars to pay for future claims which were deferred because of the pandemic. However, it is now clear that much of the expected deferred claims are not occurring.  

The private health insurance industry has made a commitment not to profit from the pandemic, and consequently, private health insurers have continued a range of initiatives to return COVID-19-related claims savings back to members. These initiatives include:

  • Cashback and premium relief where cash payments are made to members (cashback) or premium payments are temporarily reduced (premium relief).
  • Premium rate increase deferral, where premium rate increases which typically occur on 1 April each year, are deferred or cancelled; and
  • Other initiatives including rollover of extras limits, increasing mental health benefits and financial hardship packages.

 

This article will provide an overview of each of these initiatives to date.

Cashback and premium relief

Several funds have announced a cashback through cash payments to members or premium relief where premium payments are temporarily reduced. The graph below sets out a timeline of cashback and premium relief announcements by private health insurers.

Australia’s two largest private health insurers, Bupa and Medibank, have announced the largest cash back amounts to date. The below graph shows the total cashback and premium relief announced to date by the fund.

After standardising for membership, Transport Health and RBHS appear to have paid the most cashback per member. The chart below sets out the total cashback and premium relief amount per member.

The dollars returned to individual members vary as different allocation methods are used by different insurers. Some have adopted a simpler approach based on the cover at a point in time, while others have opted for a more sophisticated, approach such as an exposure-based method.

There are added complications around members who have left the insurer, suspended cover, or changed cover but were active during the pandemic-impacted periods, which some insurers have also allowed for.

As with any allocation exercise, there are advantages and flaws around fairness and the balance between simplicity and complexity for each method.

Premium rate increase deferral

Private health insurers’ premium rate increases typically occur on 1 April each year. Since the onset of COVID-19, many funds have deferred premium rate increases from 1 April to a later date to pass pandemic-related savings to members.

The chart below illustrates premium rate deferrals for a selection of health funds.

For the 1 April 2020 rate year, HBF and QLD Teachers Union Health were the only two funds who cancelled the 2020 rate increase, while all other funds deferred the rate increase to 1 October 2020.

The deferral of rate increases was less uniform in 2021, 2022 and 2023, with some funds choosing to proceed with a 1 April rate rise while others deferred the rate increase.

The deferral of premium rate increases for a few months each year collectively costs health funds hundreds of millions of dollars. Data shows that Bupa’s rate increase deferrals in 2020, 2022, and 2023 have an associated cost of $456m. 

Other initiatives to return COVID-19 claims savings to members

There are several other means beyond cash backs, premium relief, and premium rate increase deferrals by which health funds are returning COVID-19 claims savings back to members. These include rollover of extras limits as members are unable to or only have limited capacity to use extras services during the pandemic, additional mental health support, expanded coverage for COVID-19-related treatment and financial hardship packages.

The infographic below illustrates the total COVID-19 relief packages provided by the four largest health funds.

In summary

Throughout the pandemic, private health insurers have closely monitored claims experience and continually assessed the appropriate level of funds to hold to pay for the potential future ‘catch up’ of claims while determining how best to return pandemic-related claims savings to members.

As the experience continues to emerge in future, there may be more initiatives to return COVID-19-related claims savings back to members if the ‘catch up’ of claims does not occur or is lower than originally expected.

References

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivatives CC BY-NC-ND Version 4.0.

CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.

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