The Albanese government is set to reform the annual health insurance premium increase process for approximately 15 million Australians, aiming to reflect the rising costs faced by private hospitals. This overhaul will also consider potential wage increases that could further elevate premiums next year.
Starting later this month, the Health Department will engage in consultations with health funds to address these changes, which will take effect from April 1, 2024. Health Minister Mark Butler has emphasized the need for more input from hospital operators. Historically, the premium adjustments have relied heavily on projections from private health funds, but the new approach will incorporate the financial pressures confronting private hospitals.
This initiative marks the most significant revision to the premium-setting process since it was established by the John Howard government in 1997. Industry experts, including former Health Department secretary Martin Bowles, have raised concerns regarding the current model, which does not adequately account for wage growth. Bowles stated, “The risk at the moment is wage cost growth. That is not being factored in because it is largely based on insurers’ modelling, which is based on member usage.”
Under the revised methodology, hospitals will be required to submit detailed financial data, including revenue and profit margins, on a quarterly basis. However, there are apprehensions about the willingness of all hospitals to disclose this information, as evidenced by previous instances where some hospitals did not provide data during government inquiries into the sector’s viability.
Matthew Koce, CEO of Members Health, expressed the importance of having reliable data, stating, “Fewer than 40 per cent of hospitals responded to the government’s last request for hospital data, and we don’t know how reliable the information was.”
The government’s task is complicated by the need to balance the funding requirements of insurers and hospitals against the backdrop of rising living costs for voters. The federal government currently allocates approximately $8 billion annually in rebates for private health insurance.
Earlier this year, Butler approved a premium increase that came into effect on April 1, which was about half of what some health funds had advocated for. This hike was the largest since 2019 and insurers are likely to seek further above-inflation increases in the upcoming cycle. Additionally, operators are concerned about an upcoming hearing in October that could result in private sector nurse wages increasing by up to 35 percent.
Insurers have faced mounting pressure to direct more of their profits to struggling private hospitals, many of which are grappling with operational challenges. Insurers have reported approximately $250 million in additional payments to hospitals outside of regular reimbursements, yet they insist that hospitals need to improve their efficiency to manage costs effectively.
The main lobby group for health funds, Private Healthcare Australia (PHA), noted that insurers paid hospitals 5.8 percent more in the financial year 2025, while demand for private hospital care has moderated due to factors beyond the insurers’ control. PHA chief executive Rachel David highlighted a sharp increase in specialist doctors’ fees over the last few years, which has hindered patients from pursuing referrals to private specialists.
In addition to the premium-setting process changes, discussions are ongoing regarding the potential introduction of a fixed-price funding model for the country’s private hospitals. Dubbed the National Efficient Price, this model would establish a baseline price for services, moving away from the current system where hundreds of insurers negotiate individually with hospitals.
However, there is a divide within the industry regarding this model, which could take three to five years to implement. Catholic Healthcare Australia, representing a major group of hospitals, has called for an independent body to determine annual premiums, advocating for greater transparency in how healthcare costs are assessed.
“Premium increases shouldn’t be stitched up behind closed doors on what insurers think healthcare costs might be,” stated Katharine Bassett, director of health policy at Catholic Health Australia. Similarly, the Australian Medical Association has also advocated for the establishment of an independent body to oversee premium assessments.
Jane Griffiths, chief executive of Day Hospitals Australia, emphasized the need for a clearer understanding of hospital costs when determining health insurance premiums. She pointed out the disparities in funding and procedure costs across hospitals that require urgent attention.
Brett Heffernan, chief executive of the Australian Private Hospitals Association, which includes major players like Ramsay Healthcare, conveyed that the industry is open to sharing more data with the government. However, he expressed reservations about moving forward with the National Efficient Price without a detailed understanding of its implications.
Heffernan remarked, “Taking health insurers at their word about their projections has always been a bit fraught. One of the issues we have is that the data APRA provides over-accounts or inflates the benefits going to private hospitals. It includes payments to doctors.”
As consultations begin, stakeholders across the health sector will be closely monitoring the government’s approach to balancing the financial realities of hospitals with the necessity of keeping health insurance premiums manageable for Australians.
