Value of private health insurance 'eroding' as doctors urge reform

The value of private health insurance is "eroding" as private hospitals face mounting financial pressure, according to a new report from the peak doctors' body, which calls for urgent reform to protect patients.

The Australian Medical Association's (AMA) annual Private Health Insurance Report Card described a system under pressure and "increasingly failing to deliver value for money" to the roughly 15 million Australians with private health insurance.

The report found premiums had risen sharply, outpacing inflation and wage growth.

But AMA president Danielle McMullen said almost 70 per cent of policies now contained exclusions — the specific treatments or conditions an insurer will not cover.

"We've seen that private health insurance premiums are going up and up, which will be no surprise to Australians and sadly, our coverage is being narrowed."

The AMA report showed a total increase of 640,000 policies in June 2025 compared to March 2020, but demand for gold-tier policies had fallen dramatically, as people opted for cheaper policies that excluded a lot of services such as no-wait maternity or psychiatric care.

The report also found gold-tier policies were susceptible to "phoenixing" — when insurers close an existing policy and replace it with a nearly identical one at a higher price.

"We're seeing Australians … turn to those lower tier products, which means they're probably not covered for the health issues they may in fact face," Dr McMullen said.

Private Healthcare Australia, which represents insurers, disputed the report's findings and said they did not align with data from the financial services regulator, the Australian Prudential Regulation Authority (APRA).

"Health insurers are paying out more for patient care than ever before. Payments for hospital care increased 5.7 per cent to a record high of more than $19.4 billion in the 12 months to September 2025," CEO Rachel David said.

Despite specialists charging more for hospital care than ever before, Dr David said the average premium rise had been below the rate of health inflation for the last four years.

Same procedure, different benefits

The report also uncovered major variations in the amount insurers would pay for the same procedure.

For example, the AMA found an almost 30 per cent variation in the benefits paid between two insurers for an uncomplicated childbirth.

The amount an insurer will cover can also vary depending on where you live, with data showing someone in New South Wales would get a higher benefit than someone in South Australia for cataract surgery this year.

Overall, the AMA said an inadequate portion of premiums were being returned to consumers in the form of health care, with more money ending up in insurers' hands.

Private health insurers returned about 84 per cent of premiums to patients in 2024-25 despite large profit margins, the report found. That figure is slightly lower than the estimates of 85.5 per cent the government has previously used.

The AMA has called on the government to make it compulsory for insurers to return at least 90 per cent of premiums to consumers in the form of treatment benefits.

The group also wants an independent authority established to oversee the health insurance sector.

Dr David said a 90 per cent claims ratio would send some health funds broke.

She also said there was no need for an independent authority as the private health system was already regulated by APRA.

"We are one of the most heavily regulated sectors in Australia," she said.

Underfunding has 'weakened' public system

The private sector is responsible for more than two in every three planned surgeries, and two out of every five hospital admissions.

However, the AMA argued underfunding had "weakened" the public system for decades, with private healthcare never "intended to be the only option".

Dr McMullen said the government needed to substantially boost funding to ensure the system remained fit for purpose.

"Our public system is so neglected, underfunded, strained, and people know that the waiting lists are unacceptably long in public, and that's forcing them to choose private care that they may not be able to afford," she said.

"That's not the situation we want Australia to be in. We want our private system to be about choice … it is there to support our public system, not replace it."

The report has landed in the middle of an increasingly turbulent relationship with private hospitals and insurers.

Many private hospitals say they are on the brink of financial collapse as insurers are not passing on enough money to cover the rising costs of health care.

Insurers argue they have been paying out record amounts and must keep premiums affordable for customers.

The contacts between private hospitals and insurers — which determine the prices insurers will pay per treatment — have also become a sore point.

Hospitals were disadvantaged in these negotiations, the AMA report said, as the five largest health insurers — Medibank, Bupa, HCF, nib and HBF — used their market dominance to overpower hospitals and get a more favourable agreement.

Health Minister Mark Butler has already signalled to private health insurers he expects them to take "more strenuous efforts" to keep premiums as low as possible ahead of next year's rise.

"Millions of Australian families hand over their hard-earned cash every month for their private health insurance premiums. Private health insurers must ensure their members are getting value for their money," a federal government spokesperson said.

"Insurers and hospitals need to work together and take responsibility for driving change in this sector."

Dr McMullen said urgent action was required.

"Getting the private sector right is really critical to our public sector," she said.