Recent data from the Australian Prudential Regulation Authority (APRA) shows individuals are downgrading or abandoning private health insurance due to escalating cost-of-living pressures.
While overall private health insurance coverage increased in 2024, revenue from premiums dropped $52 million in the first half of the year.
This decrease reflects a growing trend where Australians are shifting to more affordable policies or simply dropping health coverage—over 216,000 policyholders have downgraded their coverage during this period, according to Private Healthcare Australia (PHA).
PHA CEO Dr. Rachel David said the pressure on health insurers was exacerbated by increasing claims, which grew 9.6 percent in the 2023-24 financial year.
In contrast, premium revenue grew by only 7.5 percent, highlighting the widening gap between the cost of payouts against revenue.
While private health funds continue to provide value—returning an average of 88 cents per dollar to policyholders during the June 2024 quarter—the widening claims-to-revenue gap raises concerns about the long-term sustainability of private health insurance in Australia.
The potential impact of a proposed new health insurance tax in New South Wales (NSW) further compounds the issue.
The NSW government’s proposal could increase health insurance premiums by $114 per person, affecting around 4 million people in the state, according to the PHA.
Dr. David warned that this tax would make NSW the most expensive state in the country to hold private health insurance, potentially leading to even more policyholders downgrading or cancelling coverage—increasing reliance on Medicare and the public health system.
NSW remains the only Australian state that taxes private health insurance.
“Private health funds are already doing their part to provide value amid rising financial pressures, but further strain—like the NSW health insurance tax—could lead to more downgrades and reduce access to private healthcare for many Australians,” said Dr. David.
Meanwhile, the NSW government has alleged that private insurers are paying only half the daily bed rate for private patients in public hospitals, a shortfall that has cost the state’s health system nearly $150 million annually.
The Minns Labor government has pushed for reform, granting insurers six months to adjust their payment structures to ensure they contribute their fair share.
“Every dollar that private insurers are not paying is being picked up by taxpayers, and that comes at the expense of other investments NSW should be making,” Treasurer Daniel Mookhey stated.
The government is expected to introduce the new law this week.
