Australians are increasingly downgrading their private health insurance coverage, leading to a significant strain on private hospitals and causing millions to delay or forgo necessary medical care due to rising out-of-pocket expenses. Over the past five years, the number of Australians with the highest level of private health cover has dropped by 360,000, representing nearly a third of those previously covered. Currently, 68% of hospital policies include exclusions, reflecting a troubling trend in the sector.
According to a report by the Australian Medical Association (AMA), private health insurance premiums have surged by over 100% since 2008, outpacing the general inflation rate. In contrast, average wages have risen by about 60%, and government payments under the Medicare Benefits Scheme have increased by less than 20% during the same period. AMA President Danielle McMullen noted, “Australians are paying more but are covered for less.”
The Blame Game: Insurers, Hospitals, and Government
Identifying the root cause of the private healthcare crisis reveals a complex web of blame. Insurers cite medical inflation, which has increased by over 90% since 2008, and inefficiencies within the private hospital sector. Hospitals, on the other hand, point fingers at insurers and inflation, attributing rising costs to increased wages for nursing staff and the price of medical devices and patient food. Additionally, fee-gouging by medical specialists has been highlighted, with a Grattan Institute report noting a 73% increase in specialist fees since 2010.
Health economists suggest that some hospital operators have overinvested, failing to anticipate changes in care delivery that result in shorter inpatient stays and more empty beds. Meanwhile, the government is criticized for not increasing benefits in line with inflation.
Insurers Under Fire
The AMA report largely blames private health insurers for profiteering. Data indicates that since 2019, benefits for in-hospital medical treatment have risen by just over 18%, while insurers’ profits have grown by nearly 50%. Before the pandemic, 88% of premiums were returned as benefits to insured patients, but this figure fell to just over 84% by 2024/25, below the 86% mandated in the United States. The AMA has called for a government mandate requiring insurers to return at least 90% of premiums as benefits.
“Insurers are engaging in ‘phoenixing’, withdrawing existing policies and replacing them with nearly identical, higher-priced versions, bypassing the regulated premium-increase approval process,” the report claims.
Impact on Private Hospitals
The financial health of private hospitals is also deteriorating. In 2017/18, private insurers and hospitals recorded profits of approximately $1.8 billion and $1.6 billion, respectively. However, by 2023/24, private hospitals faced a $34 million operating loss, while insurers’ profits exceeded $2.2 billion. This decline is concerning, given that private hospitals account for 41% of all admissions in Australia and two-thirds of elective surgeries.
According to the Australian Private Hospitals Association (APHA), 82 private hospitals have closed in the past five years, with new, smaller facilities offering limited services opening in their place. Catholic Health Australia (CHA) reported that 18 maternity units have closed since 2018, with 13 closures occurring in just the past three years.
Challenges and Solutions
Katharine Bassett, director of health policy with Catholic Health, highlights the difficulty private hospitals face in making money on certain services. Some hospitals cross-subsidize loss-making services like maternity and mental health with profitable day procedures. Bassett argues for a unified pricing model to eliminate inefficiencies in the system.
“Everyone’s in a rowboat that’s slowly sinking, and instead of dealing with the leak, we’re all busy hitting each other with the oars,” Bassett says.
CHA has long advocated for a National Efficient Price, a proposal gaining traction with support from the Australian Health Service Alliance. However, Health Minister Mark Butler’s office states that these proposals are not yet government policy but are among several options under consideration.
The Path Forward
Ben Harris, director of policy and research with Private Healthcare Australia, emphasizes the need to address the surplus of hospital beds and the shift towards less interventionist surgery. He cites a Grattan report showing occupancy rates at only 64%. The overinvestment in private hospitals and shorter hospital stays have created a “perfect storm,” according to Peter Breadon, health program director at the Grattan Institute.
Despite resistance from major insurers and hospital operators, Breadon advocates for activity-based funding, a model with proven success in the public hospital system. This approach could bring transparency and efficiency to the private sector.
“The big insurers reject the idea because they think it takes away their bargaining power,” Breadon notes.
While the APHA supports a Private National Efficient Price, it insists that the price must be set at an efficient rate to drive change and improve healthcare. The ongoing finger-pointing underscores the complexity of the issue, but the push for reform is gaining momentum.
