Summary of the Fourth Meeting of the Risk Equalisation Working Group 11 December 2017

This page contains the meeting summary for the fourth meeting of the Risk Equalisation Working Group 11 December 2017

Page last updated: 15 January 2018

Summary of Meeting 4 of the Risk Equalisation Working Group 11 December 2017 (PDF 145 KB)

Attendees

Working Group MemberOrganisation
Greg SmithChair
Dr Gino PecoraroAustralian Medical Association
Karl NiemannAustralian Prudential Regulation Authority
Tory GervasiBupa
David Torrancedbn Actuaries
Mario FortunatoHCF
Bruce BeatsonLatrobe Health Services
Michael Bassingthwaighte AMPeoplecare Health Insurance
Bronwyn HardyTeachers Health
Proxies
Dimity Gartzionisnib (for Jamie Reid)
Kristy DomitrovicPrivate Healthcare Australia
Secretariat
Charles Maskell-KnightStuart Rodger, Deloitte Actuaries and Consultants
Susan AzmiIgnatius Li, Deloitte Actuaries and Consultants
Vanessa Sheehan

Apologies

  • Jamie Reid, Finity Actuaries
  • Dr Rachel David, Private Healthcare Australia

Welcome, apologies, proxies and declarations of conflicts of interests

  • The Chair opened the meeting, and noted two apologies. The Chair welcomed Ms Dimity Gartzionis to the meeting.
  • Members did not declare any new conflicts of interests.

Meeting objectives

The Chair advised that the objectives for the meeting were to finalise the Working Group’s position on issues related to the High Costs Claims Pool and to consider the Working Group’s draft report to the Private Health Ministerial Advisory Committee (PHMAC).

Update on modelling to calibrate risk equalisation age-based factors

The Secretariat provided an update on modelling to calibrate the risk equalisation age-based factors to achieve a drawing rate net of risk equalisation that is completely flat across age cohorts. The Secretariat advised that this exercise was progressing and that the analysis would be provided directly to the PHMAC early in 2018.

High Cost Claims Pool

The Working Group considered a range of issues related to the High Costs Claims Pool. Members also considered a range of data analyses and information related to high cost claims presented by members and the Secretariat.

Members noted that the high costs claims threshold was set at $50,000 when the High Cost Claims Pool was introduced in 2007, and that it had not been increased since that time.

Members considered the purpose of the High Costs Claims Pool. Members generally agreed that the Aged Based Pool provides support for community rating and that the High Cost Claims Pool provides prudential protection for insurers from any residual high cost claims risk. Members also generally agreed that high costs claims are primarily a prudential risk for very small insurers.

Members considered 2015-16 Hospital Casemix Protocol (HCP) data for individual separations with private health insurance benefits over $50,000 both before and net of allowable allocations to the Aged Based Pool. Members noted that the HCP data did not allow consideration of cumulative claims for an individual where the total over the last 12 months is over $50,000. Members generally agreed that the data indicated the Aged Based Pool was adjusting well for aged based risk for individual high cost separations.

Members also considered how increasing the high cost claims threshold may impact on insurers’ capital requirements because less risk would be shared across the industry. Members generally agreed that even for small insurers some increase in the high cost claims threshold would be unlikely to have a material prudential impact on insurers.

The Working Group also considered whether the High Cost Claims pool should be abolished altogether, but generally agreed that some insurers may then need to purchase commercial reinsurance, which would likely be more expensive than continuing the current system with a raised threshold.

Members generally agreed that the threshold should be increased.

Consideration of the draft Working Group Report to the Private Health Ministerial Advisory Committee

The Working Group considered a draft report to PHMAC. Members worked though the report and agreed a number of amendments to the draft.

Members also noted that the Secretariat would update the report to reflect the Working Group’s position on the High Cost Claims Pool before it is provided to PHMAC.

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