2019 has been a year like none other, with President Trump seemingly having more direct influence on international markets than any of his predecessors. It’s why we have continually seen market swings and the tiring words ‘Trade War’ repeatedly popping up in headlines on a daily basis.
Under Trump’s administration, the yardstick for a President’s success is seemingly the performance of the U.S Economy, of which our Australian market tends to follow due to trade partnerships and common interests.
Comparative to others, the Australian healthcare sector has proven to be largely immune to economic uncertainty and global events which is most evident in the aforementioned index performances. (see graph below)
On a fundamental level, Australian healthcare providers have been beneficiaries of the nations’ high uptake in private health insurance where providers like Healthia (ASX: HLA) have been able to capitalise on the extras cover within policies where the majority have a healthy threshold of spending available to podiatry and physio services.
The private health insurance landscape is set for some change over the coming years with issuers currently stuck in a “death spiral” where rising product expenses is leading to higher premiums and subsequently, higher policy cancellation rates which can only be countered by further premium hikes.
The current set of policies has not been updated in 20 years and came into effect in a very different landscape. Health Minister Greg Hunt has specifically flagged changes to hospital stays, mental health and orthopaedics (eg, hip replacements) as the key areas requiring change. This is expected to quell private health insurance premium rises which have regularly exceeded inflation. 2019 saw insurers agree to an average increase of 3.25% which was the lowest increase in 17 years. Since 2001, premiums have risen 30% which is exorbitantly higher than the 8% seen in wage growth. Should regulatory changes be applied, there are calls to cap the annual rises at 2% in order to end the death spiral and alleviate pressure from the public system.
If proposed changes come into effect, service providers stand to benefit from new policyholders whose extras coverage include podiatry and physio services as healthcare investors stand to benefit from the sector’s strong performance against the wider market.
*Owners of this website are shareholders of HLA, and receive fees for assisting with investor communications
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