July 26, 2021

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HCF finalising merger with health insurer caught in ‘death spiral’

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One of Australia’s oldest health funds has fallen victim to the long-term death spiral of declining affordability, with the Railway & Transport Health Fund (RT Health) about to be absorbed into HCF, the third largest private health insurer in Australia.

RT Health, which covers transport and energy industry employees, will be a small addition for HCF with market share of just 0.5 per cent. Neither side have discussed a price but RT Health had net assets of more than $50 million as of June 30 last year.

“The process is still ongoing to finalise the merger,” said a spokesperson for HCF. RT Health did not respond to requests for comment.

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HCF lost out on a friendly merger in 2018 with HBF but is now in the process of merging with RT Health. Credit:Tamara Voninski

The 130 year old RT Health – a closed health fund which means it does not accept members outside of its covered industries – began looking for a partner last year as declining membership and rising capital expenditure needs led to questions about its long-term sustainability.

“RT Health, although stable in the short term, is facing a number of factors that will put at risk its ability to be a sustainable private health insurance fund provider into the longer term,” RT Health’s chairman Alan Bardwell said in a video explaining the need for the merger on its web site.

“Those factors include narrowing margins, high operating expenses, a level of capital that is lower than funds of similar size and an inability to invest in growth and in future products and services,” he said.

Its most recent financial accounts for the year ending June 30, 2020 RT said policyholder numbers declined 6.5 per cent for the year but did not specify the number of customers it lost. The health insurer said high levels of competition in the industry means significant investment was needed to provide contemporary service offerings.

Despite RT’s circumstances, John Huijsen, the head of Australia Prudential Regulation Authority’s (APRA) insurance division insisted forced mergers are not needed at this stage to prevent a private health insurer (PHI) collapsing. “We are not at, or close to, the point where a PHI may need to be wound up or forced into a merger,” he told the Health Insurance Summit last week.

Still, last year APRA warned that only three insurers would have a sustainable business model by 2022 if the industry’s current trajectory continued. Mr Huijsen said this long-term threat remains for the industry and that APRA will continue to engage PHI operators to reduce the risk of disorderly failure.

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