The Australian Medical Association (AMA) has renewed its call for changes to how private health insurers contract with individual medical practitioners, arguing that current arrangements give large funds significant influence over clinical and financial outcomes in the private system. In a position statement released on Feb. 4 and a media statement on Feb. 6, the AMA said attempts to address what it describes as a “massive power differential” between private health insurers and doctors have been “put in the ‘too hard basket’ by successive governments.”
Federal AMA president Dr Danielle McMullen said the association has “been increasingly concerned about the lack of regulation of contracts between insurers and medical practitioners. This lack of regulation impacts patient choice and quality of care, the clinical autonomy of doctors in private practice, private hospital case mix, and other professionals involved in the patient’s care.” McMullen noted that the top five private health insurers collectively hold more than 80% of the Australian private health insurance market and said existing legislation does not restrict how that position is used in contracting with individual practitioners. “The reality is that there is nothing in the Private Health Insurance Act 2007 or the Competition and Consumer Act 2010 to prevent the top five health insurers, which collectively control more than 80% of the Australian private health insurance market, from abusing their market power in contracting with individual medical practitioners,” McMullen said.
The AMA statement focuses on “no-gap” and “known-gap” arrangements, which link the benefits paid to policyholders with whether a doctor has signed an insurer contract and accepted the fund’s fee levels. According to McMullen, these agreements are commonly presented with little scope for individual negotiation. She said that at present “no-gap” and “known-gap” contracts are effectively “take-it or leave-it” propositions. “If a doctor does not sign because the insurer’s remuneration is too low or charges just $1 more than the insurer is willing to pay, the insurer will then slash the medical benefits they would pay to patients and blame it on doctors’ fees. Yet for most insurers, medical benefits haven’t been indexed and the ‘known gap’ contract limit of $500 hasn’t changed for years, meaning that doctors are being asked to sign contracts that do not reflect the current costs of providing care,” McMullen said.
McMullen added: “This is deceptive and unfair and leads to higher out-of-pocket costs for patients. Like MBS rebates, the value of insurer rebates has fallen considerably in real terms over the years and well behind the increasing cost of providing care. Most insurers require doctors to keep the terms of contracts confidential to prevent government or other scrutiny and may require contracted doctors to only provide treatment at hospitals with which the insurer also has a contract or else they will reduce the benefits the insurer will pay the patient.” For insurers, the AMA’s concerns go to the design of provider agreements, approaches to indexation, and the use of confidentiality and network restrictions as part of contracting strategy.
In response to these issues, the AMA is proposing the establishment of an independent Private Health System Authority with responsibility for setting baseline terms in doctors’ contracts with private health insurers. The association has called for the authority to “develop a standard set of terms and conditions for private health insurers’ ‘no-gap’ and ‘known-gap’ contracts with doctors to ensure contracts are transparent and fair to all parties and appropriately indexed to the increasing cost of medical care.”
McMullen said: “We need an independent body to oversee regulation of private health insurance to ensure both a level playing field in private health and the sustainability of the system, which is hurtling towards an existential crisis. The private health system is incredibly important in Australia’s healthcare system. We need to act to ensure it remains sustainable and fair to everyone involved.” For health funds, a standardised framework could affect how “no-gap” and “known-gap” products are priced and positioned, how contractual terms are disclosed, and how benefits schedules interact with broader product and network design.
The AMA’s stance on contracting sits within a wider discussion on private hospital funding models and the role of private insurance in system capacity and costs. Research commissioned by comparison site Money.com.au indicates that 80% of Australians with private health insurance support some level of reform to private hospital funding arrangements. Of those surveyed, 53% said they would support any model that reduces out-of-pocket costs for patients, while 27% expressed support for the federal government’s draft activity-based funding (ABF) framework, which would pay private hospitals a standardised price based on the type and volume of care delivered. Twenty percent preferred to maintain the current mix of insurer contracts, patient charges, and Medicare benefits.
Under the government’s draft ABF proposal, private hospitals would move toward a model similar to that operating in the public sector. A key feature is the Private National Efficient Price (PNEP), intended to act as a national benchmark to guide pricing and inform negotiations between private hospital operators and private health insurers. The framework is still in consultation, with implementation proposed from July 1, 2026. For insurers, the PNEP raises questions about how a single benchmark price would sit alongside existing contracting structures, including variation in rates across regions, facilities, and hospital groups. For hospital operators, the benchmark may influence revenue planning, cost management, and capital decisions, particularly in higher-cost environments.
Private Healthcare Australia (PHA) – whose members include Medibank, Bupa, and NIB – has argued that the proposed model could increase overall hospital expenditure and reduce private health insurance participation. In modelling provided to the Department of Health, PHA estimates that a move to a benchmark or activity-based pricing regime could add between $800 million and $1.2 billion per year to hospital costs, with potential flow-on impacts for premiums and membership.
“At the middle of this range, around 560,000 people would likely drop their private health insurance, putting massive pressure on private hospital and health fund viability, while overwhelming the public health system. It is surprising the Australian government has not already done this modelling before allowing the proposition to proceed, as it is clearly impractical,” PHA director of policy and research Ben Harris wrote in a submission. In parallel, Health Minister Mark Butler has asked major funds to resubmit premium applications ahead of the April 1 rate round, with analysts expecting average rises above 4%.
Affordability concerns are also reflected in recent product movements. Industry data show that more than 246,000 policies were downgraded in the six months to June 30, as policyholders moved from higher-tier to lower-tier cover, reversing an earlier trend in which upgrades exceeded downgrades. Commentators have linked this shift to the normalisation of claims after COVID-19 disruptions, the expiry of temporary cash-back programs, and continued premium growth. Advisory firm DeltaPearl Partners has outlined potential implications for risk pools if downgrading persists. “Private health insurance is at risk of a death spiral where increased out-of-pocket costs lead healthier and younger individuals to downgrade or drop coverage, leading to increased risk pools and higher premiums, leading to further individuals downgrading or dropping out. As individuals shift to lower levels of coverage, the burden and costs shift to the public system, waiting lists lengthen, and private health sector viability is threatened,” DeltaPearl director Brad Rogers said, as reported by the Australian Financial Review.
Around 15 million Australians currently hold private health insurance, which funds about 70% of elective surgeries. Over the past 16 years, average premiums have roughly doubled, while the cost of health products and services has risen by about 20%, according to the AMA. Comparison services such as Canstar expect more members to move to lower tiers rather than cancel cover entirely, with projected premium increases for gold-tier products identified as a factor in future downgrades. The Medicare levy surcharge, averaging about $1,500 a year for many higher-income earners without private cover, continues to provide an incentive to retain at least basic hospital insurance.
Against this backdrop, the AMA’s proposal for an independent authority to standardise “no-gap” and “known-gap” contracts introduces a contracting and governance element into the wider funding debate. For insurers, any move toward common terms, greater transparency and mandated indexation would intersect with ABF reform, premium regulation, and consumer price sensitivity, shaping product design, provider networks, and contracting strategies over the coming years.
