andrew goodsall

Download Andrew Goodsall

Post on 23-Jan-2015

116 views

Category:

Documents

3 download

Embed Size (px)

DESCRIPTION

 

TRANSCRIPT

  • 1. Health Insurance Summit Effects of Means Testing and Government Rebate Andrew Goodsall Analyst andrew.goodsall@ubs.com +61 2 9324 3574 UBS Healthcare Dan Hurren Analyst dan.hurren@ubs.com +61 2 9324 3575 This document has been prepared by UBS Securities Australia Ltd UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. July 2013 ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON SLIDE 18 www.ubs.com/investmentreearch

2. 1 Agenda Means test & rebate cap background Existing trends and projections on impact Impact for health fund underwriting margins Longer term consequences Has the industry peaked? 3. 2 Means test & rebate cap background Rudd letter How much time does that letter buy the industry? Source: Released by AHIA 4. 3 Means test & rebate cap here to stay How long?.about 6mths Reforms announced May 08 All Labor Prime Ministers support the changes Opposition unlikely to reverse in the near term Source: Parliament of Australia; Official Stock Photo 5. 4 Means test & rebate cap Reforms 4 major policy hits within 5 years: 2008 - Medicare Levy (MLS) threshold for PHI lifted 2009 - means testing for the 30% rebate applied; eventually introduced in 2012 2013 - Capping PHI rebate to fixed sum + CPI rather than 30% 2013 - Withdraw rebate on any lifetime penalty component Government appear determined to test the resilience of the PHI industry 6. 5 Means test & rebate cap background Government policy is crucial 20% 25% 30% 35% 40% 45% 50% FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Lifetime Health Cover introduced Intro of Medicare Levy Surcharge Higher rebates for older persons introduced April 05 Medicare Levy Surcharge altered 30% rebate introduced Means testing of PHI rebate PHI rebate capped Source: PHIAC, UBS 7. 6 Impactcrying wolf? Initial drop out estimates did not materialise from MLS change Tax trap penalty is deterrent to drop altogether 8. 7 Impactslow burn More likely outcome: Lower cost policies Policies with exclusions Higher Excess policies Demographic mix shift 9. 88 Existing trends and projections on impact Source: PHIAC, UBS 0.5m 1.0m 1.5m 2.0m 2.5m 3.0m 3.5m 4.0m 4.5m Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Policies with excess Policies withOUT excess 10. 99 Existing trends and projections on impact Source: PHIAC, UBS 0% 1% 2% 3% 4% 5% 6% 7% 8% Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Growth in new members 65 0 40 80 120 160 04 59 1014 1519 2024 2529 3034 3539 4044 4549 5054 5559 6064 6569 7074 7579 8084 8589 9094 95+ ('000) Net new PHI member by age cohort Mar 09 to Mar 13 Growth in new members by age cohort over time Older cohort fastest growth Continued skew to high utilisation growth; >65 year old cohort, growing +5.9%; or >2X the rate of under 65's Older cohort most expensive cohort 11. 1010 Lower priced policy & self selection? Source: PHIAC, UBS 0.5m 1.0m 1.5m 2.0m 2.5m 3.0m 3.5m 4.0m 4.5m Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Policies with excess Policies withOUT excess PHI benefits paid to PUBLIC hospitals Benefits paid to PRIVATE hospitals Correlation? 12. 1111 Projecting trend line forward Source: UBSe Projected Growth in Private Health Fund Membership 80 100 120 140 160 180 200 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Fund Growth Growth (Under 60) Growth (Over 60) 13. 12 Existing trends impact on industry health Underwriting performance: Profit margin fell 180bps to 7.6% in FY12 Industry net margin currently at 4.8%, down 44 bps on pcp. 14. 13 And now for moment of truth on rebate Source: Galaxy Poll, Company estimates, UBS Modelling, PHIAC Data >1m policies impacted (~20% of policies) c.2.3m individuals to be affected ~20% of those affected, prepaid avoided impact for 12 months Prepayments increased by $1.2b in Jun12 qtr >70% have relied upon apathy and ignored 53% of those affected are yet to make any changes to cover 15. 14 Existing trends and projections on impact Estimates : Impact will range from $339 to $1000 per person Modelling Suggests: For each 1% of those affected to downgrade = 0.15% hit to industry net margin If 33% of those affected downgrade, industry net margin = 0 Source: Galaxy Poll, Company estimates, UBS Modelling, PHIAC Data 16. 1515 Longer term consequences Initial impact was modest with slower membership growth (down from ~4% to ~1%) but soon rebounded to ~2.5% growth pa Growth appears steady at ~2.5% pa but: Membership numbers may not tell the whole story.. Impact deferred by pre paying until end FY13 PHI reform a focus for Australians completing their tax returns in 2013? and a 'retrospective' $1000 liability? 17. 16 Longer term consequences If there is a impact to underwriting margins Response will include increase to premiums Current trend is >5% pa Unsustainable in itself into the longer term, particularly for those on fixed incomes with just CPI adjustments Affordability death spiral We have been here before 18. 17 Addendum: Industry = $15.5b Industry Snapshot Premium revenue: $15,422 Investment revenue: $557 Net HRB and other revenue: $50 Benefits: $13,162 Total expenses: $1,411 Profit before tax: $1,457 Source: PHIAC 19. 18 Analyst certification & required disclosures Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. 20. 19 Required disclosures UBS Securities Australia Limited: Andrew Goodsall Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. 21. 20 Contact information UBS Securities Australia Ltd Andrew Goodsall Healthcare Analyst andrew.goodsall@ubs.com Tel: +61 2 9324 3674 Fax: +61 2 9324 3675 Level 16 Chifley Tower 2 Chifley Square Sydney NSW 2000 Australia www.ubs.com 22. 21 Global disclaimer This document has been prepared by UBS Securities Australia Ltd, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. This document is for distribution only as may be permitted by law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject UBS to any registration or licensing requirement within such jurisdiction. It is published solely for information purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. No representatio