Australians with private health insurance are being warned that premium increases are under fresh scrutiny, with the federal government signalling that insurers will need to show greater accountability before any rises are approved next year, the Australian Financial Review reported.
Health Minister Mark Butler told insurers on Friday that his decision-making will now take into account “consumer value and market integrity,” marking the first time such factors have been included in the approval process since it was introduced in 1997. The new approach comes as funds prepare their submissions for how much more than 15 million people could be asked to pay from April 1.
According to the AFR, Butler highlighted that private hospitals have been under significant strain, with profit margins falling from 5.1% in 2020-21 to 0.1% in 2023-24 as costs outpaced revenue. He said this financial pressure, coupled with a decline in investment, has placed the sector at risk.
“More strenuous efforts by insurers are needed to support the long-term viability of this essential part of our health system, including more equitable funding outcomes for the wide range of private healthcare providers,” Butler said.
The government is also watching closely as Healthscope, Australia’s second-largest private hospital operator, undergoes a sale process after entering receivership in May. Butler has signalled that the health of the hospital sector will weigh heavily in his assessment of premium applications, alongside the need to keep increases as low as possible for consumers.
In February this year, premiums rose by an average of 3.73%, the largest hike since 2019, but still less than what many funds had lobbied for. With almost half the population covered by private health insurance, premium changes remain a key cost-of-living issue.
The AFR also reported that the government will legislate to end the practice known as “phoenixing,” in which funds close products and replace them with almost identical versions at higher prices.
Butler said some insurers had increased products by up to 21%, far above the government-set ceiling of less than 4%. From April next year, all new insurance products will require ministerial approval under a public interest test, a step designed to bring them in line with existing products.
Industry body Private Healthcare Australia responded by cautioning that the challenges facing hospitals cannot be solved by raising premiums alone.
“Health insurance is about far more than hospitals. Most Australians take out cover to access community-based services such as dental, optical, physiotherapy and chronic-disease management programs, as well as hospital treatment when needed,” chief executive Rachel David said. She added that focusing narrowly on hospital “claims ratios” misrepresents the overall value of cover and does not account for assistance already provided to hospitals in recent years.
Insurers continue to press the government on broader cost drivers in the system, pointing to what they say are inflated prices for medical devices and high specialist fees. They also note that more patients are being treated through day procedures and shorter stays, reshaping hospital demand.
While some groups such as Ramsay Healthcare remain profitable, utilisation remains uneven, with the Grattan Institute reporting only 64% of private hospital beds are occupied.
