Who should pay to keep Australia’s private healthcare affordable?
Gold-tier insurance policies fell to 28.5% of the market from 38.7% in 2020.
More patients are struggling to afford private care, but the competing proposals of Australia’s private hospitals and health insurers raise the question of who should bear the cost of keeping patients in the system.
“Members are downgrading policy coverage, shifting towards lower-tier products,” it said, citing affordability pressures, policies that exclude more treatments, and longer waiting periods.
Private hospitals posted a $34m (AU$22.3m) profit before tax in 2023-2024, down from $784m (AU$1.12b) in 2020 to 2021, whilst patients increasingly switched to cheaper insurance, according to a September report by Deloitte Access Economics.
The share of gold-tier policies fell from 38.7% to 28.5% of the market between June 2020 and September 2025. About 10% to 20% of patients referred to specialists in 2022-2023 also delayed or cancelled appointments because of cost.
Deloitte attributed part of the pressure on hospitals to insurers. The share of premium revenue paid to hospitals fell to 84.3% in 2024-2025 from about 88% before the COVID pandemic, equivalent to about $830m (AU$542m) a year less going to hospitals, it said.
Deloitte proposed requiring insurers to pay hospitals a minimum share of their premium revenue and introducing standardised prices based on the public hospital funding model.
Private Healthcare Australia (PHA), which represents health insurers, separately warned that a government proposal to reduce insurance rebates for people aged 65 and older could push more patients out of private care.
PHA said as many as 62,000 older Australians could drop their insurance in 2027, whilst another 200,000 could switch to cheaper policies.
“If someone loses their health cover and needs a hip or knee replacement, they will likely end up on a very long public hospital waiting list,” PHA said.
Private health insurance paid $11.8b (AU$7.7b) for 2.8 million hospital treatments involving Australians aged 65 and older in 2025, PHA said. Private hospitals also perform about 67% of planned surgery, including most orthopaedic procedures.
Questions to ponder:
- Should insurers be required to allocate a minimum share of premiums to hospitals
- How could additional hospital funding affect private health insurance premiums?
- What effect would lower rebates for older Australians have on private and public hospital demand?
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EXPERT OPINION
The ongoing debate between Australian private hospitals and health insurers raises an important question: what problem are we actually trying to solve? Mandating a premium payout floor to hospitals or reducing government rebates for retirees shifts costs across insurer, hospital, state and household balance sheets, but neither addresses why the underlying cost of care continues to outpace household incomes. For consumers, the consequence is a silent erosion of value, as premiums rise for lower-tier policies that exclude the elective procedures members are most likely to need, and out-of-pocket costs lead 10% to 20% of patients referred to specialists to delay or cancel care. When coverage fails at the point of need, policyholders are pushed onto public waiting lists, turning private insurance into a sunk cost rather than an access bridge.
True sustainability requires understanding the true cost of care, not just how it is funded. That starts with transparent, standardised pricing for each episode of care, measured across the full patient pathway and including what the consumer pays, so that insurers, hospitals and clinicians are working from the same evidence. It means redirecting funding from high-cost acute bed days toward bundled, outcome-driven episodes, prevention and hospital-in-the-home models, and holding every party accountable for the outcomes that matter to patients rather than the volume of activity. Until funding models reward clinical quality, transparency and long-term health outcomes over volume and occupancy, the consumer will continue to pay more for less.