But the health minister has warned that further reform is essential to safeguard Australia’s dual-track health system.
The federal government has intensified its focus on the financial sustainability and modernisation of Australia’s private hospital sector, warning private health insurers that further inaction on benefit payments to hospitals could trigger regulatory intervention.
However it has credited insurers for working to raise the benefits ratio – three months after he threatened the industry with a regulatory stick if they didn’t do something.
In a media conference earlier today, health minister Mark Butler underscored the pivotal role of private hospitals in the national health system, noting that approximately 70% of elective surgeries and one in four births are carried out in private settings.
He warned that the declining financial viability of the sector could severely strain already overstretched public hospitals.
This article originally ran on Rheumatology Republic’s sister site, Health Services Daily. RR readers can sign up for a discounted subscription.
“We know that a failing private hospital sector would mean Australians wouldn’t get the care that they need, particularly in areas like elective surgery. It will put more pressure on our public hospital system, which is already deeply stressed,” Mr Butler said.
“Importantly, Australians would not get the returns that they deserve for the hard-earned cash that they pay every single fortnight or month in private health insurance premiums.
“That’s why improving the viability of the private hospital sector has been a really strong focus of our government’s work over the last 12 to 18 months and will remain an important focus over the course of this term.”
Mr Butler has been vocal in his concerns about the decline in the benefits ratio – the proportion of insurance revenue paid by health insurers to hospitals for patient care. Prior to the covid pandemic, this figure stood at around 90% but has since structurally declined.
While a temporary drop was expected due to reduced hospital activity during lockdowns, the government is now pointing to a sustained underpayment issue, even as insurers report rising profits and management costs.
Mr Butler issued a warning to insurers a few months ago, demanding they restore benefit payouts to more appropriate levels or face regulatory consequences.
The pressure appears to be having some effect. According to the Department of Health, Ageing and Disability, the benefits ratio is now trending toward 87% for the current financial year, translating into an estimated $250–$350 million in additional funding for private hospitals.
Despite this positive movement, the minister warned that the trend was not evenly spread across the industry.
“There are some insurers that have increased their benefits payments quite substantially and others that haven’t quite as much. I also make the point that there is more to do,” Mr Butler said.
“The trend is going in the right direction again but there still is more to do to underpin the viability, the strength of this critical sector of our health system. But I have taken the view that three months on there is no cause right now for me to take regulatory action against private health insurers.
“We will continue to monitor this closely. I’ve made it very clear to private health insurers and their representatives that I expect that trend to continue. Today’s position is not sufficient but the trend over the past three months has been welcome.”
The government is considering integrating expectations around benefit ratios and hospital viability into the next round of premium approvals, set for late 2025.
Meanwhile, the DoHAD has convened a high-level forum of CEOs from major insurers, private hospital groups, and the Australian Medical Association to explore long-term reforms. This group, led by the department’s secretary Blair Comley, will meet again tomorrow to review benefit ratio data and advance proposals.
Key reform priorities include:
- Expanding Hospital in the Home models to reduce unnecessary overnight stays.
- Improving mental health service delivery in private psychiatric facilities.
- Enhancing access and affordability for private maternity care.
- Encouraging greater efficiency and innovation in hospital operations.
CEO of Private Healthcare Australia, Dr Rachel David, said health insurers were acting on Mr Butler’s concerns about the private hospital sector by cutting their own costs and lifting payments to hospitals for the care they deliver.
She said health insurers were delivering hundreds of millions of dollars in additional payments to private hospitals to help them through a challenging period of rising costs and a shift towards more technology driven out-of-hospital care.
This jump in payments to hospitals came after health insurers paid more than $5 billion back to health fund members due to lower claims during the pandemic.
“Health insurers need private hospitals to survive. We want our 12 million members investing in hospital cover to receive rapid access to high quality hospital treatment where and when they need it,” Dr David said.
“With this in mind, we are paying hospitals more to help them meet rising costs for care, including higher staff wages.
“The health insurance sector is listening and acting. We will continue to work with hospitals, doctors and the government on ways to improve our private health system and help modernise it so it can meet the needs of our population demanding more affordable, convenient and connected care.”
Dr David said health insurers were examining their own costs to maximise their own efficiency and striking more innovative contracts with hospital groups to deliver members more options for care.
“We have seen some great collaboration between private hospitals and health insurers recently to contract for more out of hospital services such as chemotherapy, rehabilitation, wound care and mental health treatment,” she said.
“This reduces costs for hospitals, insurers and patients while delivering better health outcomes. This is the way of the future.”
She said health insurers were also continuing to offer potential solutions to overcome specific challenges facing private maternity care. This includes a proposal for insurers to pay more towards private obstetrics if women were given more choice about who provided their care in the private system before a private hospital birth.
“We have a good supply of private hospital services across most parts of the country, so we are confident people with hospital cover will retain access to high quality services near their homes. We are continuing to work on ways to improve maternity care and mental health care so we can create a stronger sector,” Dr David said.
“We also know that the high cost to see some specialist doctors in the community is causing many Australians to forego care and not use private hospitals. This will continue to dampen demand for private hospitals and must be addressed as part of the bigger picture. We will continue to work with the government and doctors on this.”
Catholic Health Australia has welcomed a lift in the amount private health insurers are giving back to patients and hospitals.
“For several years health insurers have been banking substantial profits while returning less to patients and hospitals, threatening services and their viability,” said CHA director of Health Policy, Dr Katharine Bassett.
“Today’s news that insurers have lifted the percentage of premium revenue being paid out in patient benefits is a positive step, and one CHA has consistently advocated for. We’re pleased the minister’s intervention is delivering results.
“This improvement cannot be a one-off. More than 80 private hospital services have closed in the past five years, and therefore sustained support is essential to keep others from shutting their doors.”
CHA is calling for the annual premium round process to be undertaken by an independent body such as the Independent Health and Aged Care Pricing Authority (IHACPA), to ensure premium increases accurately reflect the cost of delivering care.
This would pave the way for a National Private Price — a new approach to private hospital funding that replaces opaque, bilateral negotiations with a transparent, efficient, and sustainable pricing model.
