Australia’s approach to mental health care funding is under review as the Actuaries Institute releases new findings on the effectiveness and sustainability of the current financial safety net.
The report, titled “Mental Health Financial Safety Net: Unifying Australia’s Fragmented Systems,” identifies a network of 22 different funding sources, including government programs, insurance products, and compensation schemes, that collectively support Australians seeking mental health care.
According to the report, these mechanisms – ranging from Medicare and the Pharmaceutical Benefits Scheme to workers’ compensation and private health insurance – are intended to protect individuals from financial hardship during periods of mental ill-health.
However, the institute warns that the system’s complexity and lack of integration are creating barriers to timely and equitable care.
“Australia’s mental health safety net is being challenged significantly, and its long-term viability is at risk,” said Cindy Lau, the report’s lead author.
Lau noted that the system’s structure results in cost shifting between sectors and leaves gaps in access and affordability.
“Rising demand is exposing structural weaknesses across the system – from inconsistent access and affordability to duplication, regulatory misalignment, and unmet need. The financial safety net is uneven, with a growing risk that people experiencing mental ill-health will fall through it,” she said.
The Actuaries Institute estimates that the combined financial safety net delivers at least $18.5 billion annually to support mental health care, with insurance products accounting for nearly $4 billion of this amount.
Life insurance and income protection contribute $2.2 billion, while workers’ compensation and private health insurance provide $0.9 billion and $0.65 billion, respectively.
Despite these funding sources, Australians paid $1.4 billion out of pocket for mental health services in the year ending June 2025.
The report highlights that these expenses are incurred for services provided by psychologists, allied health professionals, general practitioners, and psychiatrists.
The institute notes that, beyond financial barriers, Australians face additional obstacles such as geographic location and cultural factors, which can further limit access to care.
To address these challenges, the Actuaries Institute proposes eight recommendations, including:
Lau said the recommendations focus on rebalancing funding responsibilities and expanding the safety net to ensure long-term viability.
“Without reform, the strain on people and systems will almost certainly worsen,” she said.
Elayne Grace, CEO of the Actuaries Institute, added: “The fragmented coordination of mental health funding and service delivery is failing too many Australians. Addressing this challenge requires collective action.”
The report’s release coincides with significant shifts in the insurance sector, as mental health conditions have become the leading cause of total and permanent disability (TPD) claims in Australia.
Data from the Council of Australian Life Insurers (CALI) indicates that mental health now represents nearly one-third of all TPD claims, with life insurers paying out over $2.2 billion in mental health-related claims in 2024 – almost double the figure from five years earlier.
Income protection claims for mental health also remain substantial, totalling $887 million in 2024.
The increase is particularly pronounced among younger policyholders, with TPD claims for mental health among Australians in their 30s rising more than sevenfold over the past decade.
The Insurance Council of Australia (ICA), in a submission to the Productivity Commission, highlighted the growing prevalence of mental health conditions.
Nearly half of Australians aged 16 to 85 have experienced a mental disorder, according to recent government data.
The ICA’s submission also pointed to the financial implications for insurers and policyholders. Mental health claims now make up a larger share of life insurance payouts, increasing from 25% in 2019 to 44% in 2024. Workers’ compensation schemes in Victoria and New South Wales have reported notable growth in psychological injury claims, both in volume and cost.
The broader economic impact is significant. Estimates cited by the ICA place the annual cost of mental health issues to the Australian economy at over $200 billion, including lost productivity and increased insurance claims.
In Victoria, the cost of poor mental health is estimated at $14.2 billion per year, much of it related to workplace absenteeism and injury.
As mental health claims continue to rise, the insurance industry and policymakers are being called upon to collaborate on reforms that will strengthen the financial safety net and ensure sustainable support for Australians experiencing mental ill-health.
