New analysis by the Australian Medical Association (AMA) shows management expenses for private health insurance providers “skyrocketed” 32% during the past four years to June 2023 – an increase of $716 million.
While patients pay more for cover, the same AMA analysis shows that health insurers have recorded a 50.2% increase in profits over the same four years to June 2023.
By contrast, over the same period, the amount insurers paid out in medical services and hospital treatment benefits increased by 3.6% and 8.1%, respectively.
The latest quarterly statistics (ending 31 December 2023) show health funds paid $305.7 million for optical extras covering 3.8 million episodes, a 48% increase on the prior quarter as many patients activated their extras cover prior to expiration. Meanwhile, in ophthalmology the sector paid out for 112,495 episodes, a 3.7% increase on the prior quarter.
“When patients pay their insurance premiums, they expect that money is going mostly towards the costs of benefits for treatment and hospital stays, but what this graph shows is that management expenses and insurance profits are key drivers of premium increases,” AMA president Professor Stephen Robson said.
“Private health is a major part of Australia’s world-leading health system, and we understand the need for insurers to be profitable, but these numbers show something has gone very wrong and that significant reform is needed.
“That is why, for many years, the AMA has been calling on the Federal Government to mandate private health insurers return a minimum 90%, on average, of premium dollars paid each year back to the consumer in the form of rebates and benefits.”
The AMA is also calling for more investment in out-of-hospital care models, which an AMA report last year found would save the system millions of dollars.
In the AMA’s 2023 Private Health Insurance Report Card, it was revealed the proportion of hospital insurance policy premiums returned to patients in the form of benefits for hospital treatment fell to 81.6% in 2022–23 – down from 88.02% in 2018–19.
Between 2018–22, private health insurance hospital policy premiums increased by 19.8% while insurer rebates to patients to cover medical costs during hospital treatment increased by just 8.3%.
“Years of inadequate indexation of insurer rebates and Medicare is pushing more costs on to patients. The private health sector is in serious need of reform to ensure private health insurance is delivering value to patients,” Robson said.
“The AMA is serious about achieving reform in private health, which is why we took the initiative of holding a private health sector workshop last October, bringing together leaders from across the sector.
“We want to drive these discussions forward and restore private health to a point where it is genuinely affordable and offers real value for money for patients – because this trend of reducing the proportion of policy premiums paid back to patients in benefits while the companies spend more and more on ‘management expenses’ simply cannot continue.”
Private health sector perspective
In March 2024, peak body Private Healthcare Australia (PHA) confirmed health fund premiums would rise by an average 3.03% this year – “much lower than inflation”.
CEO Dr Rachel David said health funds do not want to increase premiums by a single dollar, given the cost of living crisis, and the need for Australians to continue to get rapid access to healthcare.
Inflation however, is driving up the cost of everything health funds pay for, she said. Over the past 12 months, health inflation rose 5.1%, with medical and hospital services (+6.5%) being the main contributor.
“Health funds are walking a tightrope between keeping premiums as low as possible to maximise access to private health, and providing adequate funding for hospitals and frontline health workers to deliver quality care. Our hospitals need to pay significantly more for staff recruitment, power and food and the funds need to be able to cover these costs. Health funds are also paying more for essential services like cyber security and IT services to support billing and claims,” she said.
According to PHA, health insurance continues to provide more value for consumers than any other type of insurance. For every premium dollar paid, 86 cents is returned to members. For general insurance, such as home and contents and car insurance, the return is 65 cents in the premium dollar.
The organisation called for the government-regulated cost of generic medical implants and surgical supplies to come back in line with global market prices.
“Australians pay 30-100% more than people in New Zealand, the United Kingdom, France, and South Africa for commonly used generic medical devices due to an outdated price setting arrangement with multinational medtech companies,” PHA stated.
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