Corporate Deals Rouse Legal Eagles
The Age
Sunday October 1, 1995
Health funds are offering enormous discounts in their battle for the corporate market. For the individual consumer, this could mean higher premiums. Lisa Pickersgill reports.
WANT to cut your private health insurance premiums by 32 per cent? Get a job at Westpac Bank. Cashing in on the desperate scramble by health funds to secure a share of the corporate market, following the outlaw of employer sponsored funds earlier this year, the bank recently signed this cut-price deal with HCF health fund.
If you can't join the bank or another organisation that has been aggressively targeted by health funds, you have probably received a letter from your fund indicating the price is rising.
Does this make sense? Are you, as a longer-term member of a health fund, effectively paying for these corporate discounts?
Russell Schneider, chief executive officer of the Australian Health Insurance Association (AHIA), who disapproves of some of the corporate-health fund deals, says not necessarily.
Group discounts are available because of administrative savings. Just as an individual can receive anywhere up to 4 per cent off their premium if the fund directly debits it from a bank account, a group can magnify its purchasing power.
``In some cases, corporate discounts are simply smart packaging, " he says.
``But in other cases, where deals are offered to a specific firm and the premiums are less than those offered to the person off the street, it is contrary to the spirit and intent of the law," he says.
Michael Rehak, of Melbourne based PA Health Fund, says they have been invited to submit various corporate tenders for health insurance, but have been unable to match some of the huge discounts offered by competing funds.
Medibank Private and NIB also have cut-price deals with several big companies. Wollongong-based Australian Health Management is allegedly pricing its funds according to the risks of each corporate client. Malcolm Murray, general manager of Medibank Private, says the price differential reflects administrative savings only. ``We have intentionally tried to be aggressive because there is a window of opportunity with the closing of employer funds," he says.
Health insurance is a highly regulated industry. The National Health Act demands that a health fund must charge exactly the same premiums to every individual, regardless of the individual's risk profile and age. This is known as the community rating principle.
Given this, Mr Schneider says if the corporate discount is not available to the general public, it is probably testing its legality.
``Funds are chasing corporate market share and are relying on the hope that no,one is going to find out about it. I don't think it is a good practice," Schneider said.
The Health Insurance Commission is certainly aware of these employer-health fund deals. The commission told Money Extra that cross-subsidisation is certainly not allowed, but they have not yet proved that risk-rated quotes are being offered.
Also where an employer offers to top up the benefits of a registered health fund, ministerial approval is needed.
Anecdotal evidence suggests that corporate discounts are often determined after assessing the company's claims experience.
Given that 42 per cent of privately insured individuals are over 65 years old, companies are often preferable business for a health fund because they have a greater number of younger people and tend to lodge fewer claims.
Ian McAuley, independent economic and finance consultant, in Canberra, says corporate discounts look appealing in the short term, but in the longer term will cripple any firm that contributes to employee health services.
The legality of such schemes is largely determined by whether the Federal Health Department has given them an exemption from the law. For example, one staff medical scheme between Medibank Private and CRA is established but is still awaiting ministerial approval.
CRA has offered its staff a safety net, where the company promises to pay an extra amount on top of the health fund benefit. It is a good deal, considering CRA employees only have to pay $250 (singles) and $500 (families) to enter Medibank Private's Blue Ribbon hospital cover and all waiting periods and pre-existing conditions are ignored.
Every other Victorian member must pay $747.95 (singles) and $1495.90 (families) to enter the same fund. The non-CRA premium includes the 4 per cent discount for direct debit.
Mr McAuley says it is impossible to maintain community rating with a multitude of funds, because there are so many ways around it.
Health funds that openly target younger people, such as HCF's Fit and Well, do have cheaper premiums than other funds.
But a higher-risk person is not prohibited from purchasing them. Therefore, although it cheekily gets around the community rating principle, it is not against the law.
One industry observer says that, although the health insurance industry was able to successfully lobby for legislation to outlaw employer health benefit schemes (because they were not community rated), some funds have since been two-faced in supporting the community rating principle.
Registered funds were generally annoyed at the now outlawed 300-odd employer funds because they did not have to contribute to the industry's reinsurance pool.
To counterbalance the spread of risk within funds (which cannot charge any more to compensate for their higher risk), those with a higher amount of low-risk members must contribute more to the reinsurance pool than those with a greater proportion of high-risk members.
In 1993, Esso Australia, a company which conducted a supplemental health and dental care plan for employees, lost a High Court appeal lodged by the Australian Health Insurance Association (AHIA).
As the Esso fund was not regulated under the National Health Act, this, and similar funds, enticed the lower-risk members of the community and yet did not have to contribute to the reinsurance pool.
But since the employer-sponsored funds have been made illegal, health funds have scrambled to pick up corporate business because it typically delivers a higher proportion of lower- risk members to their fund and counterbalances their risk.
So what is this going to mean to you, as an individual paying health insurance premiums?
There are contrary arguments from industry participants.
One view is that with some funds barely breaking even on these corporate deals, open contribution rates charged to individuals will have to rise more steeply because of these practices.
Another view is that by allowing companies to become involved in health insurance again, a balanced demographic mix is introduced into the private health insurance industry, With a broader risk profile of members, the cost to the individual is likely to decrease.
© 1995 The Age