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Health fund profit margins take a hit

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Private health funds have suffered a hit to their profit margin as a surge in payouts outstrip a jump in premium revenue.

Health insurers collectively made an after-tax profit of $1.057 billion in 2013-14, down from $1.11 billion the previous financial year in a result that make take some of the lustre off the forthcoming Medibank Private float.

Figures compiled by the Private Health Insurance Administration Council show health fund membership inched 0.2 per cent higher in the 12 months to June – 11 million (47.2 per cent of the population) held hospital cover, and 12.9 million (55 per cent) had cover for general treatment.

The lift in membership and a Government-approved premium increase drove health fund revenue up by 7.5 per cent to $19.4 billion, but these gains were eaten into by an even heftier 8.1 per cent jump in benefit payouts to $16.6 billion, meaning profits before tax fell 2.2 per cent.

According to the Council, health funds are becoming more efficient – expenses as a percentage of revenue fell 0.3 of a percentage point to 8.5 per cent – but this was not enough to offset the increase in other expenses.

Though Medibank Private may not share in this improvement. Grattan Institute health program director Professor Stephen Duckett told The Australian Financial Review the insurer – which is set to be sold off by the Government in December – had a management expense ratio of 9.2 per cent in 2012-13, one of the highest in the sector.

The rise in total payouts reflected “the increasing cost of health services and growing utilisation rates that has not been fully offset by higher premiums”, the Council said.

The average payout for hospital care rose from $1044 to $1114 per patient last financial year, with the lion’s share ($780) going on hospital accommodation and nursing, while $176 went on medical treatment and $156 on prostheses.

Overall, patients paid an average gap of $292.92 for their hospital stay in the June quarter 2014 – a 1.8 per cent drop from the same period the previous year.

Adrian Rollins