Sarina Fisher - The Centre for International Economics - Keeping PHI Competitive: What does it take and are we there yet?
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Sarina Fisher - The Centre for International Economics - Keeping PHI Competitive: What does it take and are we there yet?

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Sarina Fisher delivered the presentation at the 2014 Health Insurance Summit. ...

Sarina Fisher delivered the presentation at the 2014 Health Insurance Summit.

The 2014 Health Insurance Summit focused on how legislative changes affect the future of health insurance in funding, membership and services.

For more information about the event, please visit: http://bit.ly/HISummit14

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Sarina Fisher - The Centre for International Economics - Keeping PHI Competitive: What does it take and are we there yet? Presentation Transcript

  • 1. What does it take and are we there yet? Keeping PHI competitive Sarina Fisher Director, Health Economics and Policy www.TheCIE.com.au 28 July 2014
  • 2. Why worry? Health costs are rising faster than inflation and consuming a growing proportion of resources… … PHI needs to assist on multiple fronts: alleviating publicly funded health services, putting downward pressure on health costs, and driving innovation www.TheCIE.com.au2 Health expenditure as a per cent of GDP Health expenditure as a per cent of taxation revenue
  • 3. Why worry about competition?  Competition drives: ■ Efficiency, cost containment, and productivity – Labour productivity in Australia is poor – averaging 1.4% annually, close to levels of the 1980s and well below the average 1990s rate of 2.1% when competition reforms were widespread – Population ageing will drive up demand, increase average costs per person, and reduce the taxation revenue pool ■ Quality (outcomes per dollar spent) and innovation – Consumer satisfaction and informed consumer choice – Investing in wellness and wellbeing – Investing in value creating systems, processes and relationships ■ Industry sustainability, through higher consumer value and efficiency in supply  Need to ensure our investment in PHI is efficientwww.TheCIE.com.au3
  • 4. Is the PHI market competitive?  The official view, is … probably yes  Media Release: Senator the Hon Mathias Cormann Minister for Finance, 26 March 2014, “Government Proceeds with the Sale of Medibank Private” states: “Medibank Private is a commercial business operating in a well- functioning, well-regulated competitive private health insurance market with 34 competing funds….There is no market failure in the health insurance market.”  Yes there are healthy signs of competition, but there are market failures, and full, unbridled competition is not yet in place www.TheCIE.com.au4
  • 5. Is the PHI market competitive?  Test #1: Prices….  Total health expenditure growth is being driven more by volume rather than price effects with CPI growing faster than prices in the health sector.  Does slower price growth in the health sector mean the market is competitive?  Not in a market as ‘managed’ as PHI ■ Prices are not set by sellers (and performance not rewarded via profits) ■ Consumers do not always have the choice of any seller ■ Limits are placed on product design and differentiation www.TheCIE.com.au5
  • 6. Is the PHI market competitive?  Test #2: Market concentration…. Not too bad  Anti-trust cases look at market concentration as a measure of anti-competitive behaviour  Known as the Herfindahl-Hirschman Index (HHI), Australia’s PHI has a HHI of 19 (moderately concentrated), less concentrated than NSW and Qld CTP insurance (HHI’s of 20 and 33)  So despite the heavy concentration between the two largest insurers, and the largest five collectively, there is a long tail of small insurers that keep the market relatively more competitive www.TheCIE.com.au6
  • 7. Concentration AND spread: the ‘long tail’ of insurers is reinforced by risk equalisation www.TheCIE.com.au7 PHI Market Share Risk equalisation
  • 8. Is the PHI market competitive?  Test #3: Market characteristics….again, not too bad  ACCC merger factor criteria finds that Australia’s PHI market has a moderate level of competitiveness  Michael Porter’s Five Forces ■ Strong level of power held by suppliers ■ Weak threat of new entrants ■ Moderate influences from consumers ■ Moderate threat of substitute products ■ Model level of competitor rivalry www.TheCIE.com.au8
  • 9. Five forces analysis of PHI: Moderate overall Users: How strong is the position of customers ?  PHIs: Do they compete? Are they hold power?  The threat of substitutes: How easily can the product be substituted, especially by less expensive alternatives  The threat of entry : How easy or difficult it is for new entrants to start to compete  Relationships among all players : Is market power exercised along the supply chain?  www.TheCIE.com.au9 Threat of substitutes Private health insurers Relationships among players in PHI sector and supply chain Threat of new entrants Users of PHI products
  • 10. Room to move: keeping the focus on competition driven outcomes  Complexity of products can confuse consumers  Growth in intermediaries: positives and negatives for competition  Exclusionary products: positives and negatives for competition  Barriers to differentiation and lack of incentives for wellness and long term health financing goals  Limits to competition along the supply chain, including vertical integration www.TheCIE.com.au10
  • 11. Sarina Fisher Director, Health Economics and Policy +61 2 9250 0800 +61 418 245 560 sfisher@thecie.com.au www.TheCIE.com.au