Australians with private health insurance are increasingly downgrading their coverage, and many are delaying or skipping necessary medical care due to rising out-of-pocket expenses. Private hospitals are also experiencing financial difficulties.
Declining Coverage and Rising Costs
Over the past five years, the number of Australians holding the highest level of private health cover has decreased by 360,000, representing almost one-third. Consequently, 68 percent of hospital policies now include exclusions.
According to a report released by the Australian Medical Association (AMA) last month:
- Private health insurance premiums have increased by over 100 percent since 2008, a rate double that of general inflation.
- Average wages have risen approximately 60 percent during the same period.
- Indexation of government payments under the Medicare Benefits Scheme has increased by less than 20 percent.
AMA President Danielle McMullen stated that Australians are "paying more but are covered for less."
Attributed Causes of Unaffordability
Various stakeholders attribute the increasing unaffordability of private healthcare to different factors:
- Insurers: Cite general medical inflation (over 90 percent increase since 2008) and inefficiencies within the private hospital sector.
- Hospitals: Blame insurers and inflation, pointing to increased wages for nursing staff and rising costs for medical devices and patient provisions. They also mention specialist fee increases, with a Grattan Institute report indicating a 73 percent real-term increase since 2010.
- Independent health economists: Suggest overinvestment by some hospital operators who did not anticipate shifts in care delivery, resulting in shorter inpatient stays and more empty beds. They, along with others, also attribute issues to government for benefit increases below inflation.
AMA Findings and Recommendations
The AMA's report primarily assigned blame to private health insurers for profiteering. Data indicated that since 2019, benefits paid for in-hospital medical treatment rose just over 18 percent, while insurers' profits increased by nearly 50 percent.
The report highlighted a decline in the proportion of premiums returned as benefits to insured patients, falling from 88 percent pre-pandemic to just over 84 percent in 2024/25. This rate is lower than the 86 percent mandated in the United States. The AMA has called for a government mandate requiring insurers to return at least 90 percent of premiums.
The AMA also criticized insurers for "phoenixing," a practice of withdrawing existing policies and replacing them with similar, higher-priced ones. This tactic reportedly bypasses regulated premium-increase approval processes, allowing insurers to raise costs without ministerial oversight.
Additionally, the AMA urged the federal government to establish a new, single, independent private health system authority to streamline regulation.
Private Hospital Struggles
Private hospitals are experiencing significant financial strain:
- In 2017/18, private insurers and hospitals reported similar operating profits (approximately $1.8 billion and $1.6 billion, respectively).
- By 2023/24, private hospitals recorded a $34 million operating loss, while private health insurers reported over $2.2 billion in profit.
Danielle McMullen noted the critical role of private hospitals, which handle 41 percent of all admissions and about two-thirds of elective surgeries, stating that the public system would struggle if the private sector collapsed.
Over the past five years, 82 private hospitals have closed. While some new, smaller day surgeries have opened, leading to a net reduction of eight hospitals (to 633 by 2025), the sector's composition has shifted. Larger hospitals are also reducing services; Catholic Health Australia (CHA) reported 18 maternity unit closures since 2018, 13 of which occurred in the last three years.
Katharine Bassett, director of health policy with Catholic Health, observed that private hospitals often cannot generate profit from certain services like maternity, mental health, and regional care. Some cross-subsidize these losses with lucrative day procedures, potentially by extending patient stays.
Bassett pointed out that "everyone is paid a different price for the same services" and advocates for a "single price [that reflects] how much it costs to deliver that service."
Proposed Solutions and Opposition
Catholic Health Australia (CHA) has advocated for a National Efficient Price (NEP) for years, gaining support from the Australian Health Service Alliance (representing non-profit insurers).
A spokesperson for Health Minister Mark Butler clarified that such proposals are "not Government policy" but are among options "being considered" by the CEO Forum, which includes private health business leaders.
For-profit insurers have presented modeling that forecasts potential negative impacts from a NEP, including a projected 560,000 people dropping coverage and an annual cost increase of $800 million to $1.2 billion for hospital care.
Ben Harris, director of policy and research with Private Healthcare Australia, highlighted that private hospitals have excess beds with low occupancy rates (around 64 percent, per a Grattan report). He noted that of every $7 insurers pay out, about $5 goes to hospitals, $1 to medical devices, and $1 to doctors. Modern surgical practices, being less invasive, lead to shorter hospital stays (e.g., knee reconstruction from seven to five days), reducing hospital revenue.
Peter Breadon, health program director at the Grattan Institute, described the situation as a "perfect storm" of past overinvestment, shorter hospital stays, and post-pandemic inflation, suggesting a necessary "shake-out" of the private hospital sector.
Breadon supports applying an activity-based funding approach, similar to the public hospital system, to the private sector. He believes this would create transparency, ensure adequate funding, and drive efficiency.
Big insurers reportedly reject this idea, viewing it as a loss of bargaining power. While APHA supports a Private National Efficient Price, it emphasizes the need for an "efficient rate" rather than merely an average one to drive change and improve healthcare.