Seniors Love Private Health Cover – But Can They Afford It?
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Private health insurance has long been a security blanket for older Australians – a way to ensure timely treatment and choice of doctor beyond what Medicare offers. But in recent years, that blanket has started to fray, as an affordability crisis grips Australia’s private health system.
Rising premiums and out-of-pocket “gap” fees are squeezing seniors’ budgets, leaving many to wonder how much longer they can hold onto the cover they value so dearly. It’s a paradox playing out in households across the country: retirees love their private health cover, yet increasingly hate the price tag.
The numbers tell a stark story. In 2025, health funds raised premiums by an average of 3.73% – the biggest annual hike since 2018. This follows increases of 3.03% in 2024 and 2.9% in 2023.
While a 3–4% rise might sound modest, for seniors on fixed incomes like the Age Pension, every dollar counts. As one 76-year-old health fund member, Diane Bunworth, put it: “Our current monthly premium is $462 – that’s a big dent in our age pension”. For Diane and her husband, who have been dutifully paying premiums for decades, the cost has crept to the brink of unaffordability.
Dropping to a lower level of cover could save money but would mean losing coverage for procedures often needed at our stage of life, she says. It’s a dilemma faced by many older Australians: stick with expensive top cover, or downgrade and risk hefty bills for things like hip replacements or cataract surgery.
It’s not just premiums climbing; gap fees and out-of-pocket costs are surging as well. Even with insurance, patients often pay extra when doctors or hospitals charge above the insured amount. Recent data from the Australian Prudential Regulation Authority (APRA) showed the average out-of-pocket “gap” payment for a private hospital visit hit $470.80 in early 2025 – up 10.4% from the year prior.
In other words, seniors are now paying on average nearly $471 from their own pocket each time they use their private hospital cover, on top of the premiums they’ve already paid. And that’s just the average – some specialty areas incur even higher gaps. For example, orthopaedic surgery (think hip and knee replacements) carries an average gap of around $760, the highest of all specialties. It’s no wonder many older people feel they’re being slugged twice: once through rising premiums, and again through unexpected bills when they actually need treatment.
These rising costs are colliding head-on with the reality of seniors’ finances. Many retirees live on limited incomes, such as the Age Pension (currently around $1,064 per fortnight for a single person). When health cover premiums climb a few hundred dollars a year, something else in the budget often has to give. In a recent National Seniors Australia (NSA) survey of 4,500 over-50s, more than half of insured respondents said they would need to cut back or shop around to keep paying for their cover. Alarmingly, about one in five said they would reduce other essential spending – even groceries or power bills – to afford their insurance. These are real sacrifices being made to hang onto private health coverage. As NSA Chief Executive Chris Grice bluntly summed up: “Those who do have it are paying more for less and make sacrifices in other areas to hold onto it.”
If private health insurance is causing so much financial heartburn, one might ask: why do seniors persist in paying for it at all? Simply put, some older Australians see it as almost essential – a necessary safeguard in their later years. In the NSA’s survey, over 90% of respondents with insurance said it was important to them – three-quarters said very important. And 95% planned to keep their current level of cover for the next year, despite the costs. This loyalty stems from a mix of practical and emotional reasons:
So, paradoxically, even as premiums rise, many seniors feel they have no choice but to keep paying – the alternative, going without, is too unsettling. One retiree, Fred Giles, lamented that health insurance for pensioners “has become unaffordable,” yet like so many others, he soldiers on with it because the fear of medical bills is greater than the pain of premiums (especially after each annual increase). It’s very much a “damned if you do, damned if you don’t” scenario – as National Seniors titled one report – where dropping cover might save money but could cost dearly in health outcomes or huge bills later.
Still, not everyone can grit their teeth and pay up. A significant share of older Australians have already left the private system. The NSA survey found about 19% of over-50s had no private cover at all, and among those fully dependent on the Age Pension (with no other income), 45% had no insurance – likely because they simply can’t afford it.
Tellingly, 72% of those without insurance were former policyholders who quit their cover. Their top reasons for walking away: unaffordable premiums (cited by 63%), and poor value for money (40%). Many also felt Medicare was sufficient for their needs, or that their policy didn’t cover the specific specialists/procedures they required. In other words, a lot of older people have reluctantly concluded that paying thousands in premiums just isn’t worth it – a troubling sign for a system that relies on their participation.
Behind these statistics are real Australians grappling with tough choices. Take the example of Diane Bunworth in Melbourne’s outer suburbs. At 76, Diane and her husband are exactly the kind of customers private insurance is supposed to benefit – they’ve held a policy for decades, dutifully paid premiums through their working lives, and now in retirement they may need expensive health care.
But as Diane describes, the price of peace of mind has skyrocketed. “Our current monthly premium is $462,” she says, “that’s a big dent in our age pension”. Paying nearly $5,500 a year for insurance, on a limited fixed income, has stretched the couple’s finances to the limit. Every premium notice forces a reassessment of the household budget.
Diane has crunched the numbers and considered downgrading to a cheaper policy. But downgrading comes with risks. “If we drop a tier and pay a lower premium, we risk losing cover for procedures often needed for people at our stage of life,” she explains. Cheaper “basic” or “bronze” level policies often exclude things like joint replacements, cataract surgery or cardiac rehab – precisely the treatments many seniors eventually need.
For now, Diane is hanging on to a top hospital policy, but she admits “letting go of private health and losing the security it provides isn’t a decision we’d take lightly – yet it’s one we reluctantly may be forced to make.” Her story reflects a broader trend: over half of policyholders over 50 say they are struggling to pay their premiums and juggling costs to do so. And like Diane, many are torn between financial relief and health security.
Another common story involves those who have already let their cover lapse. Often it’s not because they stopped valuing it, but because the bills became impossible.
One recurring tale heard by seniors’ advocates is of long-time policyholders cancelling after decades, right when their health needs are increasing. Imagine paying for insurance from age 30 to 70, then dropping it because you just can’t afford it on a pension – only to need an operation at 72. It’s a scenario that keeps health advocates awake at night. The Australian Patients Association recently found that for Australians 65 and older, private health insurance costs have become the number one financial concern. Not groceries, not utility bills – health insurance. That gives a sense of how deeply this issue is biting into retirees’ peace of mind.
Even those who maintain coverage often do so at a cost to their quality of life. NSA’s research noted cases of seniors cutting down on basics – “making sacrifices in other areas” – to keep paying premiums. Some will dip into meager savings or superannuation, others forego holidays or home repairs. For a subset, it can even mean skimping on food or heating in winter, which can have serious health implications of its own. It’s an awful Catch-22: compromising your well-being in one way (living frugally, even uncomfortably) in order to protect your well-being in another (health care access).
Australia’s mixed public-private health system can boast real strengths. Medicare provides universal basic coverage, and private insurance offers choice and relieves some burden on public hospitals. Many seniors will tell you that private cover has served them well – it got their cataracts fixed quickly, or paid for a knee replacement with their doctor of choice.
Private hospitals perform about two-thirds of elective surgeries in Australia, much of it paid by insurance, which undoubtedly helps shorten public hospital queues. And insurers do pay out billions in benefits annually. In the year to March 2025, health funds paid a record $12.3 billion to private hospitals for insured services (up 7.7% on the previous year). According to Private Healthcare Australia (the insurers’ industry body), 85 cents of every premium dollar in that period went back to members as benefits, a ratio in line with historical norms. So, from one perspective, the private system is working as intended for many: it’s pooling premiums to fund treatments, and giving those who can afford it more healthcare options.
Source: HCF Australia / YouTube
Yet from another perspective, the system is ailing – and older consumers often feel it the most. Premiums keep rising faster than general inflation, year after year, while many feel their coverage is shrinking (due to exclusions, higher excesses, or lower rebates for extras like dental). Out-of-pocket costs are a constant gripe.
National Seniors reports “the value of private health insurance is being eroded by rising costs, reducing coverage, increasing hospital excesses and gap fees”. To put it bluntly, seniors are paying more for less, as even the Health Minister has acknowledged. There’s growing frustration that despite government subsidies and multiple past reviews, “private health insurance holders continue to face premium increases, product limitations, and soaring out-of-pocket costs”.
Why is this happening? Part of the answer lies in demographics and the dreaded insurance “death spiral”. As younger, healthier people opt out of private cover (often viewing it as poor value), the insurance risk pool skews older and sicker.
Older members claim more benefits (understandably, since health needs rise with age), which drives costs up for insurers, who then raise premiums to maintain profits. Higher premiums then push even more low-risk (often younger) members away, and the cycle continues. A 2019 Grattan Institute report warned that without changes, fewer than 40% of Australians would have private hospital cover by 2030 – down from 45% today – as this spiral accelerates.
We’re not at crisis point yet; in fact, overall membership has been relatively stable around 45% of the population. But the composition of that membership is shifting toward older ages, which is not a sustainable trajectory long-term. As one health economist observed, “Private health insurance seems to be unsustainable... particularly if we have this pattern of older people entering and younger people leaving”.
Another factor is the tension (some might say finger-pointing) between insurers and healthcare providers over who is to blame for high costs. Private hospitals complain that insurers are too stingy; insurers counter that hospitals and doctors charge too much.
Recently, this boiled over when Healthscope, one of Australia’s largest private hospital groups, hit financial trouble. Catholic Health Australia (CHA), representing many non-profit hospitals, argued that “health insurers are making enormous profits and returning less to patients and the hospitals that deliver the services”. They pointed out that in one quarter, insurers collectively made $431 million profit while dozens of private hospitals were in financial strife. CHA’s view is that insurers should be plowing more of those premium dollars back into payments to hospitals (to cover nurses, equipment, etc.) rather than into their own margins.
On the other side, Private Healthcare Australia (PHA) – the insurers’ association – paints a different picture. They note, as mentioned earlier, that they pay out the bulk of premium revenue in claims (the 85 cents per dollar figure). PHA also suggests that costs are being driven by factors like skyrocketing specialist fees (outside insurer control) and inefficiencies on the hospital side.
PHA’s chief, Dr Rachel David, pointed to the high cost of some specialist doctor consultations dampening demand for private care, implying that if doctors charged more reasonably, insurance would be more attractive and used more often. In short, each side – hospitals and insurers – believes the other needs to tighten its belt so patients can pay less. Caught in the middle of this tug-of-war are everyday older Australians, who just want affordable care without the drama. From their perspective, the causes matter less than the results: they are left confused and frustrated, unsure why their premiums keep climbing and what exactly they’re getting for it. As consumers often quip, it feels like “everyone’s making money off this except us patients.”
Source: ABC News (Australia) / YouTube
So, what is the government doing about this private health affordability crunch? After all, Canberra has significant “skin in the game,” as Health Minister Mark Butler recently noted. Each year, the federal government spends around $8 billion on a Private Health Insurance Rebate – a subsidy to help Australians (especially seniors and lower-income earners) afford premiums. That rebate covers roughly 25–30% of premiums for many policyholders (the exact rate varies by age and income). It means taxpayers are footing a big chunk of the private system’s bill, ostensibly to take pressure off Medicare. With such investment, the government is keenly interested in the sector’s health.
Minister Butler, who took on the health portfolio in 2022, has shown an activist stance toward private insurance lately. In the wake of the Healthscope saga, he made it clear there’d be “no public bailout” for mismanaged private companies – but he also put insurers on notice.
Butler observed that insurers’ payout ratios to hospitals had been dropping while profits and management expenses rose. He publicly challenged health funds to increase the share of premiums going back into patient care, giving them a deadline of a few months to restore their payouts to a more historically normal level. “If they haven’t done so to my satisfaction,” Butler warned, “I’ll look at taking regulatory action.”. Strong words – essentially, the government is saying “do right by patients, or we’ll force you to.”
Beyond that immediate insurer-vs-hospital issue, there are broader reforms on the table. National Seniors Australia and other advocacy groups have been loudly calling for a comprehensive review of the private health system. They want the Productivity Commission – an independent advisory body – to conduct a deep dive into how to improve value for consumers. This idea has support across the political spectrum and among health experts. In fact, back in 2020, the then-Opposition (now government) pushed for such a review, though it was resisted at the time.
Now it seems to be back on the agenda. “The inquiry should identify ways to improve [private insurance’s] value proposition to policyholders in general and older policyholders in particular,” says NSA’s Chris Grice. In plainer terms, the goal would be to make insurance worth the money again – whether by curbing cost growth, improving coverage, or ideally both.
What kind of changes are being floated? Here are some ideas under discussion in the public arena:
As Chris Grice warns, if large numbers of older Australians drop their insurance, it may slightly lower premiums for those remaining (since the highest claimers exit the pool), but it would shift the burden onto Medicare – meaning taxpayers – to care for an influx of older, sicker patients. “Good for private, bad for public,” he quipped of that scenario. In other words, one way or another, we all pay – the question is whether it’s via premiums or taxes, and whether seniors have choice in their care.
Talking to older Australians about private health insurance often reveals an emotional tug-of-war. On one hand, pride and prudence: many feel it’s the responsible thing to maintain their cover, and they take pride in having “never been a burden” on the public system. On the other hand, frustration and fear: frustration that despite doing the “right” thing, they’re being priced out; fear of what might happen if they let it go. The challenge for policymakers and the industry is to restore faith that private health insurance is worth it – that it’s not just a costly security blanket, but a genuinely valuable tool for wellbeing in later life.
So far, the debate has prompted more questions than answers. How do we ensure insurers, hospitals and doctors deliver better value for money? Can the government afford to increase subsidies, or would that be pouring good money after bad? Should there be special protections or plans for seniors in the insurance market, recognizing their loyalty and needs? Or is it time to consider more radical changes, like integrating aspects of private care into Medicare for seniors? These are big questions that Australia will need to confront as our population ages.
One thing is clear: doing nothing is not really an option. The discontent is growing – you can hear it in the voices of pensioners calling talkback radio to complain about premium letters, and see it in the statistics of people dropping cover. The silver lining is that the issue is now squarely in the spotlight, and stakeholders appear willing to engage. The Health Minister’s ultimatum to insurers, the senior advocates’ campaign for a system overhaul, even insurers rolling out more no-frills policies or discounts – all suggest a system probing for solutions.
In the meantime, older Australians like Diane soldier on, navigating an increasingly complex and costly private health maze. Many will continue tightening belts to keep their insurance, while others will sadly conclude they have to let it go. It’s a personal decision as much as a financial one, and there’s no one-size-fits-all answer.
But the heart of the issue comes down to value and affordability. As a nation, we have to ask ourselves: How can we ensure that those who raised families, paid taxes, and built our society can access the health care they need without breaking the bank? Seniors love their private health cover – now, what will it take to make sure they can afford to keep loving it?
What do you think, members? Do you still have private health insurance? Has it been worth it for you—or is it getting too hard to justify the cost? We’d love to hear your story.
READ MORE: How much will the private health insurance premiums increase be costing you this year?
Rising premiums and out-of-pocket “gap” fees are squeezing seniors’ budgets, leaving many to wonder how much longer they can hold onto the cover they value so dearly. It’s a paradox playing out in households across the country: retirees love their private health cover, yet increasingly hate the price tag.
The numbers tell a stark story. In 2025, health funds raised premiums by an average of 3.73% – the biggest annual hike since 2018. This follows increases of 3.03% in 2024 and 2.9% in 2023.
While a 3–4% rise might sound modest, for seniors on fixed incomes like the Age Pension, every dollar counts. As one 76-year-old health fund member, Diane Bunworth, put it: “Our current monthly premium is $462 – that’s a big dent in our age pension”. For Diane and her husband, who have been dutifully paying premiums for decades, the cost has crept to the brink of unaffordability.
Dropping to a lower level of cover could save money but would mean losing coverage for procedures often needed at our stage of life, she says. It’s a dilemma faced by many older Australians: stick with expensive top cover, or downgrade and risk hefty bills for things like hip replacements or cataract surgery.
Source: Seniors Discount Club
It’s not just premiums climbing; gap fees and out-of-pocket costs are surging as well. Even with insurance, patients often pay extra when doctors or hospitals charge above the insured amount. Recent data from the Australian Prudential Regulation Authority (APRA) showed the average out-of-pocket “gap” payment for a private hospital visit hit $470.80 in early 2025 – up 10.4% from the year prior.
In other words, seniors are now paying on average nearly $471 from their own pocket each time they use their private hospital cover, on top of the premiums they’ve already paid. And that’s just the average – some specialty areas incur even higher gaps. For example, orthopaedic surgery (think hip and knee replacements) carries an average gap of around $760, the highest of all specialties. It’s no wonder many older people feel they’re being slugged twice: once through rising premiums, and again through unexpected bills when they actually need treatment.
These rising costs are colliding head-on with the reality of seniors’ finances. Many retirees live on limited incomes, such as the Age Pension (currently around $1,064 per fortnight for a single person). When health cover premiums climb a few hundred dollars a year, something else in the budget often has to give. In a recent National Seniors Australia (NSA) survey of 4,500 over-50s, more than half of insured respondents said they would need to cut back or shop around to keep paying for their cover. Alarmingly, about one in five said they would reduce other essential spending – even groceries or power bills – to afford their insurance. These are real sacrifices being made to hang onto private health coverage. As NSA Chief Executive Chris Grice bluntly summed up: “Those who do have it are paying more for less and make sacrifices in other areas to hold onto it.”
Why Older Australians Cling to Private Health Insurance
If private health insurance is causing so much financial heartburn, one might ask: why do seniors persist in paying for it at all? Simply put, some older Australians see it as almost essential – a necessary safeguard in their later years. In the NSA’s survey, over 90% of respondents with insurance said it was important to them – three-quarters said very important. And 95% planned to keep their current level of cover for the next year, despite the costs. This loyalty stems from a mix of practical and emotional reasons:
- Covering big expenses: The top reason seniors keep private insurance is to help cover major hospital costs that Medicare might not, such as elective surgeries. A private policy can pay for costly procedures – heart operations, joint replacements, cataract removals – that might otherwise eat up a huge chunk of their savings.
- Shorter waiting times: Many older people fear the long waitlists in the public system for elective surgery. With private cover, they hope to reduce waiting times for surgery – for example, getting a knee replacement in weeks rather than months.
- Choice and peace of mind: Having insurance gives seniors the peace of mind that they can be treated as a private patient, choose their doctor, or have their own room in hospital. It’s an emotional security blanket – you can almost hear the refrain, “I’ve paid into it all these years, just in case.” For many, it reduces stress knowing they have options outside the crowded public system.
So, paradoxically, even as premiums rise, many seniors feel they have no choice but to keep paying – the alternative, going without, is too unsettling. One retiree, Fred Giles, lamented that health insurance for pensioners “has become unaffordable,” yet like so many others, he soldiers on with it because the fear of medical bills is greater than the pain of premiums (especially after each annual increase). It’s very much a “damned if you do, damned if you don’t” scenario – as National Seniors titled one report – where dropping cover might save money but could cost dearly in health outcomes or huge bills later.
Still, not everyone can grit their teeth and pay up. A significant share of older Australians have already left the private system. The NSA survey found about 19% of over-50s had no private cover at all, and among those fully dependent on the Age Pension (with no other income), 45% had no insurance – likely because they simply can’t afford it.
Tellingly, 72% of those without insurance were former policyholders who quit their cover. Their top reasons for walking away: unaffordable premiums (cited by 63%), and poor value for money (40%). Many also felt Medicare was sufficient for their needs, or that their policy didn’t cover the specific specialists/procedures they required. In other words, a lot of older people have reluctantly concluded that paying thousands in premiums just isn’t worth it – a troubling sign for a system that relies on their participation.
Personal Stories: When Health Cover Hurts the Hip Pocket
Behind these statistics are real Australians grappling with tough choices. Take the example of Diane Bunworth in Melbourne’s outer suburbs. At 76, Diane and her husband are exactly the kind of customers private insurance is supposed to benefit – they’ve held a policy for decades, dutifully paid premiums through their working lives, and now in retirement they may need expensive health care.
But as Diane describes, the price of peace of mind has skyrocketed. “Our current monthly premium is $462,” she says, “that’s a big dent in our age pension”. Paying nearly $5,500 a year for insurance, on a limited fixed income, has stretched the couple’s finances to the limit. Every premium notice forces a reassessment of the household budget.
Diane has crunched the numbers and considered downgrading to a cheaper policy. But downgrading comes with risks. “If we drop a tier and pay a lower premium, we risk losing cover for procedures often needed for people at our stage of life,” she explains. Cheaper “basic” or “bronze” level policies often exclude things like joint replacements, cataract surgery or cardiac rehab – precisely the treatments many seniors eventually need.
For now, Diane is hanging on to a top hospital policy, but she admits “letting go of private health and losing the security it provides isn’t a decision we’d take lightly – yet it’s one we reluctantly may be forced to make.” Her story reflects a broader trend: over half of policyholders over 50 say they are struggling to pay their premiums and juggling costs to do so. And like Diane, many are torn between financial relief and health security.
Another common story involves those who have already let their cover lapse. Often it’s not because they stopped valuing it, but because the bills became impossible.
One recurring tale heard by seniors’ advocates is of long-time policyholders cancelling after decades, right when their health needs are increasing. Imagine paying for insurance from age 30 to 70, then dropping it because you just can’t afford it on a pension – only to need an operation at 72. It’s a scenario that keeps health advocates awake at night. The Australian Patients Association recently found that for Australians 65 and older, private health insurance costs have become the number one financial concern. Not groceries, not utility bills – health insurance. That gives a sense of how deeply this issue is biting into retirees’ peace of mind.
Even those who maintain coverage often do so at a cost to their quality of life. NSA’s research noted cases of seniors cutting down on basics – “making sacrifices in other areas” – to keep paying premiums. Some will dip into meager savings or superannuation, others forego holidays or home repairs. For a subset, it can even mean skimping on food or heating in winter, which can have serious health implications of its own. It’s an awful Catch-22: compromising your well-being in one way (living frugally, even uncomfortably) in order to protect your well-being in another (health care access).
A System Under Pressure: Strengths, Flaws and Blame Games
Australia’s mixed public-private health system can boast real strengths. Medicare provides universal basic coverage, and private insurance offers choice and relieves some burden on public hospitals. Many seniors will tell you that private cover has served them well – it got their cataracts fixed quickly, or paid for a knee replacement with their doctor of choice.
Private hospitals perform about two-thirds of elective surgeries in Australia, much of it paid by insurance, which undoubtedly helps shorten public hospital queues. And insurers do pay out billions in benefits annually. In the year to March 2025, health funds paid a record $12.3 billion to private hospitals for insured services (up 7.7% on the previous year). According to Private Healthcare Australia (the insurers’ industry body), 85 cents of every premium dollar in that period went back to members as benefits, a ratio in line with historical norms. So, from one perspective, the private system is working as intended for many: it’s pooling premiums to fund treatments, and giving those who can afford it more healthcare options.
Source: HCF Australia / YouTube
Yet from another perspective, the system is ailing – and older consumers often feel it the most. Premiums keep rising faster than general inflation, year after year, while many feel their coverage is shrinking (due to exclusions, higher excesses, or lower rebates for extras like dental). Out-of-pocket costs are a constant gripe.
National Seniors reports “the value of private health insurance is being eroded by rising costs, reducing coverage, increasing hospital excesses and gap fees”. To put it bluntly, seniors are paying more for less, as even the Health Minister has acknowledged. There’s growing frustration that despite government subsidies and multiple past reviews, “private health insurance holders continue to face premium increases, product limitations, and soaring out-of-pocket costs”.
Why is this happening? Part of the answer lies in demographics and the dreaded insurance “death spiral”. As younger, healthier people opt out of private cover (often viewing it as poor value), the insurance risk pool skews older and sicker.
Older members claim more benefits (understandably, since health needs rise with age), which drives costs up for insurers, who then raise premiums to maintain profits. Higher premiums then push even more low-risk (often younger) members away, and the cycle continues. A 2019 Grattan Institute report warned that without changes, fewer than 40% of Australians would have private hospital cover by 2030 – down from 45% today – as this spiral accelerates.
We’re not at crisis point yet; in fact, overall membership has been relatively stable around 45% of the population. But the composition of that membership is shifting toward older ages, which is not a sustainable trajectory long-term. As one health economist observed, “Private health insurance seems to be unsustainable... particularly if we have this pattern of older people entering and younger people leaving”.
Another factor is the tension (some might say finger-pointing) between insurers and healthcare providers over who is to blame for high costs. Private hospitals complain that insurers are too stingy; insurers counter that hospitals and doctors charge too much.
Recently, this boiled over when Healthscope, one of Australia’s largest private hospital groups, hit financial trouble. Catholic Health Australia (CHA), representing many non-profit hospitals, argued that “health insurers are making enormous profits and returning less to patients and the hospitals that deliver the services”. They pointed out that in one quarter, insurers collectively made $431 million profit while dozens of private hospitals were in financial strife. CHA’s view is that insurers should be plowing more of those premium dollars back into payments to hospitals (to cover nurses, equipment, etc.) rather than into their own margins.
On the other side, Private Healthcare Australia (PHA) – the insurers’ association – paints a different picture. They note, as mentioned earlier, that they pay out the bulk of premium revenue in claims (the 85 cents per dollar figure). PHA also suggests that costs are being driven by factors like skyrocketing specialist fees (outside insurer control) and inefficiencies on the hospital side.
PHA’s chief, Dr Rachel David, pointed to the high cost of some specialist doctor consultations dampening demand for private care, implying that if doctors charged more reasonably, insurance would be more attractive and used more often. In short, each side – hospitals and insurers – believes the other needs to tighten its belt so patients can pay less. Caught in the middle of this tug-of-war are everyday older Australians, who just want affordable care without the drama. From their perspective, the causes matter less than the results: they are left confused and frustrated, unsure why their premiums keep climbing and what exactly they’re getting for it. As consumers often quip, it feels like “everyone’s making money off this except us patients.”
Source: ABC News (Australia) / YouTube
Government’s Role: Skin in the Game and Calls for Reform
So, what is the government doing about this private health affordability crunch? After all, Canberra has significant “skin in the game,” as Health Minister Mark Butler recently noted. Each year, the federal government spends around $8 billion on a Private Health Insurance Rebate – a subsidy to help Australians (especially seniors and lower-income earners) afford premiums. That rebate covers roughly 25–30% of premiums for many policyholders (the exact rate varies by age and income). It means taxpayers are footing a big chunk of the private system’s bill, ostensibly to take pressure off Medicare. With such investment, the government is keenly interested in the sector’s health.
Minister Butler, who took on the health portfolio in 2022, has shown an activist stance toward private insurance lately. In the wake of the Healthscope saga, he made it clear there’d be “no public bailout” for mismanaged private companies – but he also put insurers on notice.
Butler observed that insurers’ payout ratios to hospitals had been dropping while profits and management expenses rose. He publicly challenged health funds to increase the share of premiums going back into patient care, giving them a deadline of a few months to restore their payouts to a more historically normal level. “If they haven’t done so to my satisfaction,” Butler warned, “I’ll look at taking regulatory action.”. Strong words – essentially, the government is saying “do right by patients, or we’ll force you to.”
Beyond that immediate insurer-vs-hospital issue, there are broader reforms on the table. National Seniors Australia and other advocacy groups have been loudly calling for a comprehensive review of the private health system. They want the Productivity Commission – an independent advisory body – to conduct a deep dive into how to improve value for consumers. This idea has support across the political spectrum and among health experts. In fact, back in 2020, the then-Opposition (now government) pushed for such a review, though it was resisted at the time.
Now it seems to be back on the agenda. “The inquiry should identify ways to improve [private insurance’s] value proposition to policyholders in general and older policyholders in particular,” says NSA’s Chris Grice. In plainer terms, the goal would be to make insurance worth the money again – whether by curbing cost growth, improving coverage, or ideally both.
What kind of changes are being floated? Here are some ideas under discussion in the public arena:
- Boosting rebates for those who need it most: One immediate step advocated by seniors groups is to increase the government’s Private Health Insurance Rebate for low-income older Australians. Currently, retirees over 65 get a slightly higher rebate percentage than younger people, but NSA argues this isn’t keeping pace with premium hikes. Lifting the rebate would directly lower premiums for pensioners and others on tight budgets, hopefully preventing them from dropping their cover. “Increasing the PHI rebate for lower-income households will help those most at risk of dropping PHI to hold onto it,” Grice notes. Of course, this means a bigger bill for taxpayers, so it would require political will to invest more in the subsidy.
- A Seniors’ Dental Benefit Scheme: Dental expenses are a major pain point for older Aussies – Medicare doesn’t cover most dental work, and many extras insurance policies only rebate a portion, leaving big out-of-pocket costs. National Seniors has proposed a targeted Seniors Dental Benefits Scheme (akin to the existing child dental scheme) to give older people access to affordable dental care. If implemented, that could take pressure off the need for costly extras cover or reduce one significant health expense for seniors. While this isn’t a direct fix for insurance premiums, it’s a related measure to improve overall health affordability.
- Cracking down on excessive fees and gap charges: Another avenue is improving transparency and fairness in medical fees. There are already “no gap” or “known gap” arrangements where doctors agree to charge at or below a certain fee so the patient isn’t out-of-pocket. Expanding such arrangements or shining a light on specialists who charge well above schedule fees could help rein in the worst gap payments. The Commonwealth Ombudsman recently looked into “loopholes” that make insurance more expensive, like insurers reclassifying policies in sneaky ways. Tackling those loopholes and simplifying policies would make it easier for consumers to compare and choose good-value cover – an oft-cited need for a more “consumer-friendly, transparent” insurance system.
- Incentivising younger members: Some suggest that to stop the death spiral, more must be done to attract young, healthy people into private cover. Ideas here include greater premium discounts for under-30s (beyond the small age-based discounts now allowed) or even partially deregulating premiums so insurers could offer cheaper rates to younger customers. The Grattan Institute proposed allowing insurers to charge less for younger adults (while keeping age-based pricing banned for older folks). The notion is controversial – it could make insurance more affordable for the young, but it implies relatively higher costs for older members, which raises equity issues. Policymakers would have to balance intergenerational fairness carefully.
- Preventative health and alternate models: Some experts argue the private sector needs to innovate – for example, funding more preventative health programs to keep people out of hospital, or covering care in cheaper settings. If insurers could, say, invest in a chronic disease management program for seniors that reduces expensive hospital admissions, it might save costs overall. At least one industry figure has called for insurers to focus more on prevention rather than blaming device prices or other scapegoats. The idea here is to get more value for the premium dollar by keeping members healthier and avoiding the most costly interventions.
As Chris Grice warns, if large numbers of older Australians drop their insurance, it may slightly lower premiums for those remaining (since the highest claimers exit the pool), but it would shift the burden onto Medicare – meaning taxpayers – to care for an influx of older, sicker patients. “Good for private, bad for public,” he quipped of that scenario. In other words, one way or another, we all pay – the question is whether it’s via premiums or taxes, and whether seniors have choice in their care.
Finding a Balance: The Road Ahead
Talking to older Australians about private health insurance often reveals an emotional tug-of-war. On one hand, pride and prudence: many feel it’s the responsible thing to maintain their cover, and they take pride in having “never been a burden” on the public system. On the other hand, frustration and fear: frustration that despite doing the “right” thing, they’re being priced out; fear of what might happen if they let it go. The challenge for policymakers and the industry is to restore faith that private health insurance is worth it – that it’s not just a costly security blanket, but a genuinely valuable tool for wellbeing in later life.
So far, the debate has prompted more questions than answers. How do we ensure insurers, hospitals and doctors deliver better value for money? Can the government afford to increase subsidies, or would that be pouring good money after bad? Should there be special protections or plans for seniors in the insurance market, recognizing their loyalty and needs? Or is it time to consider more radical changes, like integrating aspects of private care into Medicare for seniors? These are big questions that Australia will need to confront as our population ages.
One thing is clear: doing nothing is not really an option. The discontent is growing – you can hear it in the voices of pensioners calling talkback radio to complain about premium letters, and see it in the statistics of people dropping cover. The silver lining is that the issue is now squarely in the spotlight, and stakeholders appear willing to engage. The Health Minister’s ultimatum to insurers, the senior advocates’ campaign for a system overhaul, even insurers rolling out more no-frills policies or discounts – all suggest a system probing for solutions.
In the meantime, older Australians like Diane soldier on, navigating an increasingly complex and costly private health maze. Many will continue tightening belts to keep their insurance, while others will sadly conclude they have to let it go. It’s a personal decision as much as a financial one, and there’s no one-size-fits-all answer.
But the heart of the issue comes down to value and affordability. As a nation, we have to ask ourselves: How can we ensure that those who raised families, paid taxes, and built our society can access the health care they need without breaking the bank? Seniors love their private health cover – now, what will it take to make sure they can afford to keep loving it?
What do you think, members? Do you still have private health insurance? Has it been worth it for you—or is it getting too hard to justify the cost? We’d love to hear your story.
READ MORE: How much will the private health insurance premiums increase be costing you this year?
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