9. A declining Australian doller vs. the U.S. dollar

Australia’s millennials have found another reason to resent cashed-up baby boomers: they’re subsidizing their health care.

Fed up with paying for insurance that mostly benefits older patients, young Australians are quitting private health cover in droves. For many of them, it’s a no-brainer: premiums have soared as much as 70% in the past eight years. The amount of insured people in their mid-to-late twenties alone has dropped 14% in the past three years.

(Related: Health Mandate Softens)

Millennials are switching to public health care — known as Medicare — as the system prepares for an onslaught of retirees: around a fifth of Australians will be aged over 65 by 2040. With health costs continuing to rise amid stagnant wages growth, that leaves not only insurers exposed to funding pressures, but the economy as well. As health’s burden on the budget grows, the government is hoping that its forecast return to surplus in 2020 won’t be a one-off.

“If you’ve got an increasing proportion of the population reliant on Medicare, in particular younger people, then that obviously puts pressure on the funding,” said Shane Oliver, chief economist at AMP Capital Investors Ltd. in Sydney. “That puts pressure on the budget deficit.”

Australia’s health insurance is structured so that members are pooled into a so-called risk equalization system that requires healthy young people to support the claims of older patients. Older persons tend to claim more frequently than younger, on average.

The industry’s changing dynamics can be seen in Australia’s listed health insurance firms. Medibank Pvt Ltd., the nation’s largest provider, said the outlook for the local industry remained flat when it posted a slightly lower profit in August. Its rival NIB Holdings Ltd. is seeking to diversify away from its flagship health insurance business.

“With affordability becoming an issue and more people switching to public health care, plus stricter premium increase approvals and rising competition from off-shore providers, the days of easy money aren’t coming back any time soon,” said Graham Witcomb, senior analyst at InvestSMART.

Health is shaping up as a key political battleground ahead of a general election that must be called by May. The main opposition Labor party — currently on track to win — has flagged capping health insurance premium rises at 2% if it takes office. That could place industry margins under even more pressure, Macquarie Bank Ltd. analysts said in a note this week.

The government, meanwhile, has flagged offering health insurance discounts of up to 10% for people aged under 30. Stephen Duckett, director of the health program at the Grattan Institute, is skeptical.

“My view is that this isn’t going to be enough to change the balance for the people under 30,” said Duckett, who thinks the government should consider a major review of health insurance. “I think we will continue to see them dropping out.”

— Read CMS: Everyone Will Help Stabilize Individual Health Issuerson ThinkAdvisor.

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