Now that medical indemnity insurance is on life support, the next focus for the Federal Government is health insurance. Premiums are rising again by about 7% after the Government accepted the inevitable, and a warning from Standard & Poor’s that steady profits generated over the past three years will be difficult to sustain.

While S&P’s doesn’t foresee health insurers collapsing all over the place, it said in a statement that it’s clear that premiums will have to go up or costs and benefits will have to be cut. Some funds that were over-generous during the lifetime health push have been forced to implement higher increases than the average 7%. 

One industry player, Goldfield Medical Fund (not rated by S&P’s) is now under the watchful eye of APRA after its benefit costs outweighed its premiums.

Michael Vine, S&P’s Director of Financial Services Ratings, said the Australian health insurance sector had a particularly good year in 2001, but now faces a year of much lower profits. S&P’s will continue to closely monitor the dwindling capital which is expected to be compensated by steep hikes in premiums. How high is open to debate. The ALP’s health spokesman, Stephen Smith, was yesterday predicting increases up to 17% over the next three years.