Shares in Australia’s only listed private health insurer, NIB Holdings Ltd, dropped sharply yesterday ahead of changes to the Medicare levy surcharge threshold in tonight’s federal budget.
The federal government on Sunday confirmed it would double the surcharge threshold for singles from $50,000 to $100,000, while the threshold for couples would rise from $100,000 to $150,000.
That decision was attacked by some in the private health sector, including the Australian Medical Association and private insurers, who claim more people will opt for the public health system, thereby further overloading it. The federal government says there will be more money for public health in the budget.
NIB shares dropped 16.5c, or nearly 18%, yesterday to a day’s low of 73.5c before they recovered slowly to be off 14.5c, or 16% at 75.5c.
Yesterday afternoon NIB reacted to the news by releasing a confident update on earnings.
"Following the release of changes to the Medicare Levy Surcharge which is expected to be announced in this week’s Federal Budget, nib holdings limited (nib) reconfirms the guidance for FY08 it has previously given with its interim results announced on 27 February 2008, "The statement to the ASX started.
"nib believes the Federal Government’s changes to the Medicare Levy Surcharge runs contrary to Government policy to increase private health insurance (PHI) participation and relieve pressure on the public system.
"nib’s Managing Director, Mr Mark Fitzgibbon said that he acknowledges the Medicare Levy Surcharge has been a factor in increased PHI participation in recent years, however growth principally reflects rising disposable incomes, a crisis of confidence in the public system and supportive Government policy such as the Federal Government’s 30% Rebate and Lifetime Health Cover.
“nib has been able to further leverage these factors with product innovation and aggressive marketing to significantly grow its customer base, brand profile and market share,” Mr Fitzgibbon said in the statement. “However, in acknowledging the changes to the Medicare Levy Surcharge, nib reconfirms the FY08 guidance given to the market when we announced our half year results in February 2008.
“We expect net organic growth for FY08 will remain in excess of 35,000 policies and our normalised net underwriting margin will be near 3.0% for the full year,” Mr Fitzgibbon added."
nib said it expects the changes to the Medicare Levy Surcharge to have an impact on future new sales and lapse rates and it is presently analysing possible implications. "nib expects to form a clearer view shortly but remains very positive about the industry’s outlook and growth prospects and will notify the market accordingly," the statement added.
And shares in private hospitals operators Ramsay Health Care Ltd and Healthscope Ltd also fell sharply yesterday.
Ramsay was down $1.06c, or 8.4% to $11.49, Healthscope fell 34c, or 5.7%, to $4.89. Primary Health Care fell 10c to $5.90, Sigma Pharmaceutical fell 3c to $1.23 and Sonic Healthcare fell 23c to $14.32. Australian Pharmaceutical fell 3.5c to $1.215
Speaking to reporters yesterday Federal Treasurer Wayne Swan said the lift in the Medicare levy surcharge threshold would free two million people from a tax trap.
"We have removed that tax trap. I think it is a fair thing to do and it is a very fair decision."
He confirmed there would be extra funding for public hospitals.
