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Shares in private healthcare firms impacted by Budget Medicare proposals

Photo: Shares in private healthcare firms impacted by Budget Medicare proposals
The 2017 Budget saw Medicare take centre stage, as a new levy was introduced to cover the cost of disability insurance. To fund the cost of the National Disability Insurance Scheme (NDIS), a 0.5% increase in the levy paid for accessing Medicare is to be signed into law.

Although the increase won’t take full effect until July 2019, it has caused more than a little controversy. A multi-billion dollar shortfall in funding for NDIS had opened up, causing much panic for the nearly four million disabled people in Australia. Until July 2014, Medicare tax was just 1.5%, meaning that the levy someone pays for it rose by two-thirds in just five years.

As Medicare is big enough to warrant its own levy, many taxpayers will find it easy to work out how much they pay per year for accessing the service. Ordinary Australian citizens aren’t the only ones to worry about the impact of the increased Medicare levy.
Provider anxieties

Some people who have access to Medicare also have private health insurance. At the end of March 2017, 55.5% of Australian citizens had some form of private health cover. Among the biggest providers of said cover include Medibank and Bupa, both of whom have something at stake when the new Medicare levy comes in.

Since Treasurer Scott Morrison’s Budget was announced earlier this month, the share price of Medibank on the ASX has fallen by nearly 5% to $2.82 a share. It reached a peak of over $3 per share just a couple of days after the Budget, perhaps indicating that confidence in the country’s biggest private healthcare firm has reached more realistic levels.

Other health firms have been followed a similar pattern. Ramsay Healthcare have seen their post-Budget share price fall after reaching an initial peak. Their price on the ASX fell by just under 1% from its price of $71.04 on Tuesday 8th May.

Settling down?

Now that the healthcare sector has been able to digest changes to the cost of Medicare and NDIS, a return to stability is highly likely. There have, however, been a few changes to healthcare, with some private insurers likely to benefit once the new 2.5% levy is added to Australians’ tax bills.

Looking at the initial gains made by Ramsay and Medibank, optimism that Medicare will be fully funded will give investors reassurance. After much wrangling between them and the Government, anyone trading shares with City Index will be encouraged by their future prospects.

The changes have been greeted with less cheer by GPs and some patients. Arguments about how funding changes have affected some practices are set to continue, whilst there seems to be a gap between how long it takes public and private patients to be treated in hospitals.

Until all these issues are resolved, the overall picture for healthcare in Australia will be unclear. Expect plenty of changes to take place between now and July 2019, particularly as a federal election has to be called before then. The outcome of that only adds to any potential uncertainty.

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