Private healthcare insurance: a defensive stock no more?

Two recent notes from Macquarie document changes in behaviour by Australian health consumers. That has implications for private health insurance (PHI) companies like Medibank Private (ASX: MPL) and NIB (ASX: NIB). 

In this wire, I walk you through the key findings and Macquarie's sentiment for these two stocks. 

More GP visits leads to other referrals

As we all know, the starting point for health services is your GP. A good one is worth their weight in gold. Following the COVID lockdowns, it appears we are starting to see more of our GPs and they are referring us on for pathology tests and diagnostic imaging. That can lead us into surgery and for private patients this leads to PHI claims, as Macquarie notes:

Medicare data tracks procedures paid out of the MBS (by the national government) in both private and public hospitals, but for private patients only. Utilising this monthly data and combined with the procedure mix of Private Health Insurers, we have constructed a proxy for PHI Hospital Claims growth.

Drawing upon Medicare data, Macquarie shows the trends. The chart on the left shows the volume of visits per month, while the chart on the right shows the year-to-date growth in volume of visits/workday.

Private hospital admissions 

Macquarie have also identified an increase in private hospital admissions, drawing upon a variety of resources. Using Medicare data, they document the growth in admissions.

From this they draw conclusions about PHI claims:

"Our proprietary index (replicating the Hospital claims mix of health insurers by procedure type and state) shows claims are finally starting to return, and compare with the trend pre-COVID-19 of +4.7%." 

Effects on PHI margins 

Macquarie also note that the net margins as a measure of profitability over the period from FY2019 to FY2023 (actual), before drawing on the above evidence to calculate their expectations for FY24

The team forecast industry net margins to expand by around 40 basis points this half (vs. 2H23) before falling in 2H24, although they note the different ways in which 'give-backs' are calculated makes it difficult to compare across funds. Analysts also note that changes to accounting standards in FY24 on calculation of deferred claims liability (DCL) will also impact upon the ability to draw inter-fund comparisons.  

A defensive stock no more?

As Macquarie notes:

"Despite PHI being a relative safe haven in a tougher economic environment, we now have multiple data points indicating claims catchup. [With] the DCL definitions changing with the new accounting standards from 1 July '23, any catch-up will now be funding from equity."

While they maintain a long position in both Medibank Private and NIB, they remain NEUTRAL on their outlook.