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Finding financial certainty in an uncertain world

Posted by Neal Durling on 18 March 2016
Finding financial certainty in an uncertain world

 

Many of the private medical professionals we advise have commented that now, perhaps, is the best of times to be earning - that they can't rely on the same revenue forever as incomes in their speciality could drop over the next five years.

I can't say for sure if their predictions will be correct. But, as a financial planner, I'm interested in why they are thinking this. I believe their concerns do reflect changes taking place across the Australian health services sector. In this post I'd like to address some of these developments.

CHANGES TO AUSTRALIAN HEALTH SERVICES

1. The Federal Government's Medicare Benefits Schedule (MBS) Review.

The review, which is led by a taskforce of independent clinicians, is considering how the more than 5,700 items on the MBS can be aligned with contemporary clinical evidence and practice and improve health outcomes for patients. Already, the MBS Review announcement in April 2015 has caused a downturn in diagnostic related procedures, and the associated talk is changing patient behaviour. Among other providers, diagnostic imaging group Capitol Health has reported a 52% drop in underlying net profit for the six months ending December 2015.

2. Australians are downgrading or cancelling their private health insurance cover at the same time as healthcare expenditure and claims have continued to outgrow GDP over 10 years.

With approximately 500,000 Australians downgrading or cancelling their private health insurance cover in 2015, it is likely this will directly impact on private practice revenues. This is no doubt due to premiums rising well above inflation for years at about 6.5 per cent a year. At the same time Australian healthcare expenditure and claims have outgrown GDP over 10 years.

3. With health system costs increasing, health insurers are increasingly looking for ways to reduce claims and manage profits by boosting competition and managing the costs associated with claims.

As well as increasing premiums, health insurers are lobbying for "increasing competition" and greater "information sharing", "standardising simple products and terminology" and "reducing information asymmetries" between consumers and providers. Recently privatised Medibank believes that boosting competition and standardising simple products and terminology would save up to $200 million and $330 million respectively.

NIB has also suggested that Health Minister Susan Ley improve "information sharing for consumers and insurers". It has launched Whitecoat, "the TripAdvisor for healthcare", to reduce information asymmetries between healthcare consumers and providers (including GPs, dentists and other types of medical professionals).

4. The rise of corporate health service providers.

Over the last few years, I've noticed the trend of a number of fairly large businesses or corporates increasing their market share and buying out private medical practices and, as a result, making the market more competitive. In these situations, doctors may be attracted by the prospect of partnership and security, or they may feel the threat of competition affecting their decision to join. However, arguably there is less opportunity for doctors to increase their earning potential when they form part of a corporate service offering.

SO, AS A MEDICAL PROFESSIONAL, HOW DO YOU GAIN FINANCIAL CERTAINTY IN AN UNCERTAIN WORLD?

The three key things I advise all my financial planning clients to do are:

i) Develop a sound protection strategy for the things you can't control. For example, put in place suitable insurance covers, income protection, estate planning and binding death benefit nominations. You never know what might be around the corner, but it is possible to prepare yourself financially for unexpected outcomes.

ii) Make consistently sound financial decisions by spending less than you earn. Invest wisely and become a bit wealthier each year. Be cautious about over committing based on potential future earnings, which cannot always be guaranteed. Or at the very least, wait until you have a plan B such as other investments. Take advice and grow your wealth steadily with a prudent, methodical and logical approach over the long term.

iii) Make the most of your opportunities when you have them. Recognise when times are good in order to invest for when life is not so good. Know that at some point in all of our lives, some kind of issue will likely arise to impact our finances. Make sure you prepare so that you are able to deal with it and recover as quickly as possible.

Like many things in life, this approach to organising your finances sounds simple but it's not always easy. If you're uncertain about how to make the most of your money over the long term, our specialist medical financial planning team is here to offer expert advice.

Author: Neal Durling
Tags: Wealth Creation Financial planning Planning

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