Australia’s Private Healthcare System Under Strain: A Deep Dive into Profits, Losses, and Access

A review of recent data and reports reveals significant financial and operational changes within Australia's private healthcare system, marked by rising insurer profits, declining hospital reimbursements, increasing patient out-of-pocket costs, and numerous hospital closures. Various stakeholders have presented differing analyses of the causes and proposed solutions.

Financial Performance and Subsidies

Insurer Profits and Premiums

According to the Australian Prudential Regulation Authority (APRA), major health insurers reported pre-tax profits of $2.11 billion in the 2023/24 financial year.

The Australian Medical Association (AMA) reported that 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.

The AMA also stated that since 2019, benefits paid for in-hospital medical treatment rose just over 18 percent, while insurers' profits increased by nearly 50 percent.

Government Subsidies

Government subsidies to private health insurance have risen from $6.5 billion in 2022/23, to $6.9 billion in 2023/24, and $7.9 billion in the current financial year. This represents a 23% increase from the 2012-13 baseline.

Hospital Funding Share

The share of premium dollars reaching hospitals fell from 90% (pre-COVID) to about 84% in 2022/23. Latest data from December 2025 shows a recovery to 86.3%, still below the pre-pandemic benchmark of 90%.

A Finity report commissioned by the Health Department in 2023 found that cutting rebates for individuals over 65 would save $482 million in rebate costs but shift $547 million to the public system, resulting in a net fiscal loss.

Coverage and Patient Impact

Policy Changes

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 of that category. Currently, 68 percent of hospital policies include exclusions.

AMA President Danielle McMullen stated that Australians are "paying more but are covered for less."

Rising out-of-pocket expenses have led some Australians to downgrade their coverage or delay necessary medical care.

Waiting Lists

Public elective surgery waiting lists have grown by 41.6%.

Hospital Sector

Closures and Financial Strain

Over the past five years, 82 private hospitals have closed. While some new, smaller day surgeries have opened, the net reduction is eight hospitals, leaving 633 as of 2025.

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.

Operating Profits and Losses

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.

Bed Occupancy

Private hospitals have excess beds with low occupancy rates, reported at around 64 percent according to a Grattan Institute report.

Sector Composition

The hospital sector's composition has shifted, with some larger facilities closing services or reducing capacity. Katharine Bassett, director of health policy with Catholic Health, observed that private hospitals often cannot generate profit from services like maternity, mental health, and regional care. Some cross-subsidize these losses with lucrative day procedures, potentially by extending patient stays.

Attributed Causes

Stakeholders attribute the current situation to different factors:

• Insurers: Cite general medical inflation 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 cite 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 also attribute issues to government benefit increases below inflation.
• AMA: Assigns primary blame to private health insurers for profiteering.

Proposed Reforms and Opposition

Loss Ratio Mandate

The AMA has called for a government mandate requiring insurers to return at least 90 percent of premiums as benefits, down 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.

National Efficient Price (NEP)

Catholic Health Australia (CHA) has advocated for a National Efficient Price (NEP) for the private sector, similar to the public hospital system. The Australian Health Service Alliance (representing non-profit insurers) supports this proposal.

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 presented modeling that forecasts potential negative impacts from an NEP, including a projected 560,000 people dropping coverage and an annual cost increase of $800 million to $1.2 billion for hospital care.

Peter Breadon, health program director at the Grattan Institute, supports applying an activity-based funding approach to the private sector, stating it would create transparency, ensure adequate funding, and drive efficiency. He described the current 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.

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.

Regulatory Changes

The AMA urged the federal government to establish a new, single, independent private health system authority to streamline regulation. The AMA also criticized insurers for "phoenixing," a practice of withdrawing existing policies and replacing them with similar, higher-priced ones, which reportedly bypasses regulated premium-increase approval processes.

Alternative Funding Models

One article questioned whether $7.9 billion in annual subsidies deliver value given record profits, falling hospital shares, and hospital closures, suggesting alternative allocation such as individual health savings accounts or strengthening public capacity, citing Singapore as an example.