Life Wellbeing The Stats Guy: Suddenly, private health insurance strikes Millennials as a neat idea

The Stats Guy: Suddenly, private health insurance strikes Millennials as a neat idea

Simon Kuestenmacher
How healthy is Australia's private healthcare system? Demographer Simon Kuestenmacher takes a look at the numbers. Image: TND
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The healthcare sector in Australia employs by far the most people (1.8 million).

About 10 per cent of GDP (around $200 billion) is spent on health.

No sector is projected to grow faster over the next five years (+250,000 jobs).

Well, you get the point. Healthcare is a big deal.

Growth of the industry is linked to overall population growth, the ageing of the population, and the general wealth of the population.

The health sector is divided into public and private.

Over the past few years, even before the pandemic, players in the private healthcare sector grew increasingly nervous about the number of Australians willing to purchase a private health insurance.

The history of  private health insurance  in Australia

Let’s take a quick history lesson regarding private health insurance data.

After the Medicare Levy Surcharge was introduced in 1997 the number of privately insured people dramatically shot up, as high-income earners wanted to avoid financial penalties.

Membership numbers stagnated for a few years until a few policy levers (higher rebates for older people, increased Medicare Levy Surcharge, means testing) were pushed and membership numbers continued to climb.

The increase in membership was mostly driven by population growth while the share of the population that was insured privately stalled at 46 per cent or so.

In 2015 the share of the population that was privately insured started to decline. All the while, the net benefits paid per member doubled from around $750 in 2000 to around $1500.

That made all businesses linked to the private health sector (doctors, pharmaceutical companies, equipment providers, private hospitals etc.) pretty nervous.

Nobody expected a declining client base in a fast-growing and rich country.

Private health sector must cut costs or increase members

To ensure future profitability the private health sector could either cut costs or increase its member base. Cutting costs of course risks losing members. Why would Australians pay for a service that is only marginally better than the free Medicare system?

Young people deciding against private health insurance is the biggest concern for the sector. The young are generally healthy and claim very little back. Winning them over is the main goal. But it’s also an uphill battle.

Now let’s look at this through a simple demographic lens and examine pre-pandemic data from June 2019.

Young people face private health insurance dilemma

In their early 20s, people move out of the parental home and usually must organise their own healthcare arrangements.

Only 23 per cent of the population aged between 25 and 29 pays for private insurance.

Makes sense. You are in your first job, your income is relatively low, your appetite for life is huge, your health is better than it will ever be.

Why bother forking out thousands for insurance you don’t use?

It just happened that over the past decade or so the Millennials (born 1982-1999), by far the largest generation in Australia, were in their 20s. In the coming years, the big Millennial population glacier slowly slides into the 30s and 40s.

Once people start thinking about forming their own little families, they call up mum and dad to ask which private health fund they should join.

A private room after childbirth? Sounds nice, let’s sign up. By their late-40s about half of the population is privately insured. This suggests private health funds might see a doubling of their Millennial membership.

The recent low membership figures can be interpreted as a predictable demographic event.

In the medium term, we should see membership numbers rise as Millennials reach their 30s and 40s and as Australia continues to age.

On top of pure demographics, other drivers affect membership numbers.

High house prices, for example. Health insurance is one of the biggest expenses besides rent for young families. Young families keen to enter the housing market might choose to only rely on Medicare.

It’s obviously a problem if young people leave the private health insurers while older people enter.

Low-cost members out, high-cost members in. The funds now must raise their premiums to stay profitable.

How the pandemic changed private health

Higher premiums make private healthcare less attractive to young people. That’s exactly what we saw in pre-pandemic Australia.

So, what happened with membership figures since the start of the pandemic?

By March 2020 membership dropped to a long-time low of 11.23 million. Despite slow population growth, by March 2021 an additional 170,000 people joined private health funds.

A record number of 11.40 million Australians are now privately insured. Millennials (see the boom in the 35-39 cohort and their kids aged 5+), Gen Xers (early-40s to mid-50s and their teenage kids) and an ageing population (70+) with money to spend ensured that their families have private health cover.

We can assume that this is a phenomenon among higher-income earners only.

Will membership numbers continue to grow?

On the one hand, this is great news for a sector that suffered due to temporary restrictions on elective surgeries and other medical procedures.

On the other hand, this is yet another example of the widening socio-economic gap in Australia.

Our workforce resembles the letter U. Lots of low-income earners, a shrinking number of middle-income earners, lots of high-income earners.

High-income earners, continue to be at lower risk of contracting COVID as their jobs can be done remotely; their job and income security is miles ahead of their low-income counterparts; they are more likely to get vaccinated, which protects them from COVID, and to top it all off they are able to pay a premium to receive better healthcare.

Our two-tiered medical system almost perfectly reflects general population growth, the ageing of the population, and the general distribution of wealth across the population.

Therefore I feel confident in predicting that membership numbers will continue to grow in the coming years.

Demographer Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. Follow Simon on Twitter or LinkedIn for daily data insights.

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