Private Health Insurance in a death spiral?
There has been much wringing of hands and gnashing of teeth at the impending “death of PHI”…however, much as Mark Twain apparently retorted on news of his own demise whilst simply away from the US, “reports of my death are greatly exaggerated”…or are they?
There are more than a few similarities here. Not that PHI businesses are great writers and adventurers, but that a number of them do appear to be absent. A number of people therefore feel as though perhaps those PHI businesses have already died, or are in “a death spiral”.
Even before the virus changed the world, the reports that life was getting harder for PHI businesses was undoubtedly true. The market environment for a number of older businesses is getting tougher than it has ever been. For many years PHI has been assisted by a generous succession of governments who do not want to over-burden the public system with a great number of elective surgeries. Governments then end up needing vast administrations to control public health. The cost of PHI premiums relative to other costs of living were relatively under control, and well subsidised for consumers who had grown up simply accepting PHI as “what you did”. Wages growth was also helping maintain a healthy insured population.
Move forward to today and the costs of PHI premiums have been spiralling at a rate that the government can no longer afford to subsidise so readily. Alongside that wage growth has stalled, whilst other more essential costs of living have also increased enormously in recent years. It would appear to be the perfect storm, even before one starts to look into the future with increases in “lifestyle” diseases, alongside expensive treatments for more and more conditions. Somehow we are all going to have to work out how they can be afforded – whether in a public or a private system.
A number of PHI businesses have simply continued to sail directly into this storm in the most unseaworthy vessels, often seemingly unaware of the signs warning them of the need to invest in a major refit.
The market has been populated for years by a number of smaller mutual health funds, promoting their mutual status (and local or industry links) as a great reason for why people should entrust their health insurance to them. One of the greatest challenges for these funds has been to develop internal capabilities in sales, marketing and IT. Their inability to do so, leaves them seriously exposed to the changes in today’s consumer desires and behaviours. This is especially true when a number of the industries that they once relied upon for members have been shrinking for the last few decades.
In the last few years even this landscape has changed with the entrance of larger for-profit players. In a totally unreasonable way, these “for-profit” funds have a nasty habit of re-investing a proportion of their profits into delivering better sales and marketing programmes to drive acquisition and retention. Sadly a number of the incumbents have seemingly not had a plan for spending money on anything other than simply managing and paying claims. Similarly, the growth of comparison sites and online brokers has begun to dominate how consumers interact with health funds, utilising smart digital marketing technologies and highly focussed sales teams to acquire customers’ loyalty from the smaller (and even some larger) health funds.
One can see that huge competitive advantage could be gained by these funds making similar improvements. Taking as an example, the IT systems that a number of PHI businesses run today, they are mostly aged and really should be “self-isolating” now. They were designed before the internet age to do what computers did back then – compute a bit of data quicker than a team of people with calculators could. They were never designed with modern marketing techniques in mind such as product development even, let alone web integration, customer communications and value delivery.
This is just the beginning of the problem, which of course then makes it ridiculously difficult to move these businesses into the modern age, let alone the digital one. There are fantastic CRM systems around that could help move some of these businesses forward, but try connecting them to the current operating systems and just see whether you are really going to get value for money out of your significant investment in a new CRM system, or whether it is worth the hours of work-arounds your teams have to endure to get data in and out of the CRM system.
All of this is still going on behind the scenes from a customer perspective. And the customer’s perspective is changing rapidly. They are questioning the value of PHI in the first place, and on top of that being forced to work through difficult systems to get things done. Once they realise that there is so little being done to introduce efficient systems behind the scenes, they will baulk even further at premium hikes…no matter how often PHI Funds point out the rapid increases in claims costs for a host of other genuine reasons. The cohort of people PHI desperately need to attract have never experienced a world without Medicare. Older generations recall that world of long waiting lists, or an inability to receive much treatment unless they were a government health care cardholder. So the older people are desperately clinging to PHI policies out of experience and a knowledge that they will need it soon, whereas the younger, healthier group are often unaware of the consequences of not having PHI, both for them personally, and the finely balanced Australian healthcare system as a whole.
10-15 years ago, consumers who were happy paying their premiums were satisfied if the claims were settled in a relatively straightforward manner. In today’s world there are general insurers who are paying out claims instantly from an app. There have been years of advertising from PHI’s that you are going to get a lot back, and that has then been followed by price increases alongside wage stagnation. Consumers are then driven to seek out this better value that everyone assures them should be available. This desire from customers to be able to seamlessly and efficiently interact with businesses online is now growing by the day in a (nearly) post-pandemic world. There are no longer any excuses for businesses to delay implementing real digital platforms for their customers.
So, what can be done? It seems the standard answer from a lot of PHI funds is to simply keep pointing to rising costs and ask for more government assistance, as though there was nothing anyone could do about it.
There are, however, simple strategies that could be implemented to connect more with what consumers are actually experiencing. Clearly the government is not rushing to address the ever-increasing claims bubble that is lifestyle related (diabetes, joint replacements etc etc), so what can PHI’s do to simply reduce the future claims impact? Most funds already have the data they need to deliver great results in these areas, and there are companies clamouring to work with them. To gain a competitive advantage from this data, there needs to be a mind shift that APRA has been pushing for a couple of years now…that PHI funds need to get in touch with consumers and actually start thinking about how to deliver value. They must stop expecting that a government will wave a magic wand again and get the participation rate increased through further subsidies.
Some funds are even starting to change operating systems, with varying degrees of success. There are a number of significant international technology players now circling Australia, as they have also seen the market opportunity presented by ageing and under-supported systems trying to deliver true customer value in the modern world. There has probably never been a better time to get someone in to start reviewing the digital infrastructure of your PHI fund and start to recommend the pathway to sustainable success. Everyone knows that the data for delivering great value is in these funds, they just need some help to unlock it and deliver it in a way that connects with modern consumers.
