AU's private hospitals lose $23.8m as insurers bank $1.89b, report says

Private health insurers captured 65% of combined sector profits in 2024.

Australia's private hospital sector posted an operating loss of $23.8m (AUD34m) in 2023 to 2024, even as the private health insurers that fund it recorded a combined $1.89b (AUD2.7b) in profit before tax.

In a report, Deloitte said the divergence has been building since the pandemic. Private health insurers (PHIs) captured 65% of combined sector profits in 2023 to 2024, up from 50% in 2017 to 2018.

Hospital benefit payout ratios — the share of premium revenue insurers actually pay to hospitals — fell from roughly 88% pre-pandemic to 84.3% in 2024 to 2025.

Applied to 2024 to 2025 hospital treatment premium revenue of $16.1b (AUD23b), that gap works out to approximately $581m (AUD830m) a year not reaching hospital operators.

Moreover, premium revenue has outpaced claims paid throughout the period. Between 2020 and 2021 and 2024 to 2025, total premium revenue grew at an average of 4.9% annually against 4.6% growth in benefits paid, according to the report.

Meanwhile, hospital-side cost growth ran at a compound annual rate of 4.1% between 2018-19 and 2021-22, against revenue growth of just 2.9%.

Average earnings before interest, taxes, depreciation, and amortisation margins across private hospitals sat at 5% in 2023-24, which Deloitte states is below the level required for sector viability and reinvestment.

The Department of Health, Disability and Ageing's 2024 Financial Health Check found 33% of reporting private hospitals posted negative returns in 2023 to 2024, up from 12% in 2017-18.

The four largest insurers — Bupa, Medibank, HCF and NIB — hold roughly 80% of PHI revenue market share, giving them substantial leverage in contract negotiations.

Smaller and single-operator hospitals, which make up about 40% of the roughly 420 private hospitals in the market by hospital count, face the weakest bargaining positions, the report notes.

Capital spending has followed profit downward as total capital expenditure across the sector fell from $840m (AUD1.2b) to $560m (AUD800m) over the period tracked.

Deloitte links this directly to stalled digital infrastructure investment, at a time when the Productivity Commission estimates improved digital integration across healthcare could unlock more than $3.5b (AUD5b) annually in system-wide efficiency gains.

Deloitte's proposed remedy includes a mandated minimum hospital benefit payout ratio, modelled on the Medical Loss Ratio requirement under the US Affordable Care Act.

It also includes a redesign of the second-tier default benefits policy currently set at 85% of each PHI's average contracted rate.

($1=AUD1.40)