NIB Holdings Ltd · ASX:NHF

NIB — Healthcare World Conference 2009

21 slides from NIB's conference presentation, Feb 18, 2009

1. Slide 1: Deconstructing Health Premiums

   Deconstructing H lth Premiums Health P i Mark Fitzgibbon 17-18 February 2009

2. Slide 2: Purpose

   Purpose  Key drivers of health insurance costs and premiums  Measures to mitigate cost escalation  A new funding paradigm

3. Slide 3: We’re not alone

   We’re not alone 2005 2030 2050 2080 2100 United States Switzerland France Germany Belgium Austria Portugal Greece Canada Australia Iceland Netherlands Demark Norway Sweden New Zealand Italy Luxembourg United Kingdom Spain Hungary Japan Turkey Finland Ireland Czech Republic Slovak Republic Mexico Pol

4. Slide 4: Spending grows because…

   Spending grows because…  Wealth and rising incomes  Ageing and longevity  Chronic disease  Cost of technology  Scarcity  Moral hazard

5. Slide 5: Here in Australia PHI represents a relatively small part of the funding of healthcare

   Here in Australia PHI represents a relatively small part of the funding of healthcare Injury Other non-government Compensation Insurers 4.9% 2.2% Individuals 17.0% Private Health Australian Govt Insurance Funds S State & Locall 7.3% 68.7% Source: AIHW health expenditure database

6. Slide 6: The whipping post of PHI

   The whipping post of PHI 10.0% 9 0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Government Health Insurance Individuals (out of Total Funds pocket) 2005-06 2006-07 Source: AIHW health expenditure database

7. Slide 7: Basic PHI cost equation

   Basic PHI cost equation cost of claims + cost of running business + costs t off capital it l = total cost

8. Slide 8: Cost of claims

   Cost of claims Utilisation (demand) x episode costs (supply) Running expenses g , infrastructure,, marketing, Wages, g, etc Capital costs Equity (opportunity cost) and debt

9. Slide 9: Claims cost factors

   Claims cost factors  Utilisation (demand) – age and health status – adverse selection – preference sensitive care – unwarranted variation – fraud  Episode cost (supply) – hospital efficiency and quality – treatment settingg – prices – fraud/up coding

10. Slide 10: Management cost factors

    Management cost factors  E Economies i off scale l  Level of automation  Extent of marketing  Quality of management and people

11. Slide 11: Capital cost factors

    Capital cost factors  Capital structure (debt v equity)  Excess capital  Interest rates

12. Slide 12: Getting costs down

    Getting costs down  Utilisation  Constantly refreshing risk pool  Price P i signals i l iin product d td design i  Disease prevention and case management  Episode costs  Paying for quality not quantity  Supplier price competition  Management g efficiency y  E-commerce  Ex-ante risk equalis

13. Slide 13: Risk equalisation - cost out of control

    Risk equalisation - cost out of control FY06 2.3 billion FY07 2.5 billion (9%) FY08 2.9 billion (16%) Source: PHIAC A

14. Slide 14: Undermining other efforts

    10 0% -10.0% -5.0% 0 0% 0.0% 5.0% 10.0% 15.0% 20.0% Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 nib Utilisation Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Undermining other efforts Mar-08 Jun-08 Sep-08 Sou

15. Slide 15: Undermining other efforts

    10 0% -10.0% -5.0% 0 0% 0.0% 5.0% 10.0% 15.0% 20.0% Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 nib Utilisation Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 nib Service Cost Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Undermining other efforts Mar-08

16. Slide 16: Undermining other efforts

    10 0% -10.0% -5.0% 0 0% 0.0% 5.0% 10.0% 15.0% 20.0% Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 nib DR Ex -RE Sep-04 Dec-04 Mar-05 Jun-05 nib Utilisation Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 nib Service Cost Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Undermining other e

17. Slide 17: Undermining other efforts

    10 0% -10.0% -5.0% 0 0% 0.0% 5.0% 10.0% 15.0% 20.0% Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 nib DR Ex -RE Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 nib DR In- RE Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 nib Utilisation Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 nib Service Cost Sep-07 Dec-07 Under

18. Slide 18: Key take out

    Key take out  Health spending can be expected to iincrease att GDP +2%2%  No “silver bullet” in improved PHI efficiency rather than cumulative effect of many actions  Shift from passive payers of quantity to g risk managers focused upon p q quality y

19. Slide 19: A new funding paradigm

    A new funding paradigm  Recognition that reliance on Government funding is unsustainable  Products and funding mechanisms that align with nature of spending and risk  Risk rating that rewards risk management  Government subsidies at individual consumer level based upon age and need  No private/

20. Slide 20: Something has to change

    Something has to change 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% % of GDP 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 G8 IGR2 fiscal gap — Total health spending nib Source: Australian Government (2007)

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