Thinking of Investing in an Australian Private Health Fund? Think It Through

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At the moment, the Australian share market only has one health fund listed, which might look like it’s in a privileged position. However, broker signals are mixed when it comes to this listing – as well as to investing into the private health insurance market per se. On the one hand, the market is expected to grow on the long-term, but brokers can’t seem to be able to reach a consensus in this respect. One Japanese investment house, however, advocates prudence in this respect and calls for stockholders to reduce their stock. In earnest, this particular broker tends to operate on the more cautious side of the market, with its forecasts for the health fund falling below the average of the other brokers’ consensus. Yet the Japanese brokers explain that, while long and very long term prospects for the Australian health insurance market are positive, it will take a long time to get there and it certainly won’t be easy. As such, the reason for which brokers can’t seem to agree whether to buy, sell, or hold, does not lie in the actual value of a listing, but in timing one’s purchase or decision to sell.

According to the above-mentioned source, the private health insurance market in Australia is going to develop at a rate of 8 per cent over the coming years. The country’s population is aging, its economy is on a solid upward trend, and private health care seems poised to win out in the face of the public system. However, recent policy changes aren’t doing much to encourage broker confidence about this segment. Last year’s introduction of the means testing for the rebate, as well as the announced indexation of rebate funding are going to make an already complex system all the more complicated. As the government has announced it is going to cut funding, brokers and industry experts alike expect to see some fallout from consumers.

At the moment, high income earners in Australia make up a quarter of the total number of health fund members, but means testing affected them the most. Meanwhile, lower earners are also bound to take a hit from the coming subsidy slash. And, at the end of the day, private health insurance premium cost comparison is only going to become more heated, within the context of an increasingly competitive market. More consumers are going to take a closer look at the costs and their decision making is going to be more relevant for the major players on the private health insurance market.

Similar issues have been raised by the recent market listing of an assisted reproduction service provider, the first of its kind to become an IPO, the biggest one on the market, as well as the largest private equity listing. Yet, in spite of a seemingly privileged position, stock prices for this listing remain high, with estimated share earnings at $.33 for 2013 and $.39.5 for next year. At the same time, the company’s revenues have consistently ranked at a little over 10 per cent for the past three years. Their rate of growth by 2014 is expected to amplify by 10.5 per cent. Add to this the fact that the company, which has raised $339 million in the float, is still in debt by $149 million and needs to pay out its former corporate owner a big part of what’s left.

What does all this have to do with private health insurance? Simple enough. In vitro fertilization is currently covered by the public health insurance system by up to 59 per cent, with private coverage accounting for 10 to 13 per cent. Given the recent policy changes in the private health insurance policies, assisted reproduction cycles in Australia fell by 10 per cent. So, if you think you’ve got a golden egg on your hands—you’d be well advised to think again.

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