Insurers paying less from growing coffers

IT takes a feat of financial gymnastics to suggest health insurers paying out more than last year makes hospitals better off. It's the insurance industry's favourite tactic of squinting, looking at data sideways and telling anyone who'll listen they are doing the right thing. They are not.

Recently, the health insurers claimed that "insurance pay-outs for private hospital treatment were up 7.7% compared to the previous year". Sounds impressive, but it isn't.

To put it simply, if it costs me $10 to provide a service and you pay me $8, I'm $2 out of pocket. Next year it costs me $15 to provide that service and you pay me $10, so I'm even worse off despite you paying me more than you did last year.

Welcome to private health insurance in the modern era. Too tricky by half in trying to play people for mugs.

In fact, the Australian Prudential Regulation Authority's (APRA's) Quarterly Private Health Insurance Statistics damningly exposes that the proportion of patient payments going to private hospitals has continued to nose-dive, falling to just 80.7% from 82.9% last quarter.

It's a far cry from the 88% benchmark – an annual threshold the insurers have not met since 2019-20.

In the wake of Toowong Private Hospital's closure due to insurer underpayments and a raft of insurance contracting abuses, this data is indefensible and clearly shows the insurance industry is failing to meet its obligations to the healthcare costs of insured patients.

Over the last few years 20 private hospitals have closed entirely, while some 80 services in other hospitals, most notably maternity and mental health units, have been permanently cancelled.

We are advised that as many as eight more private hospitals now face closure.
Meanwhile, health insurance companies have pocketed an average $2 billion a year in unprecedented profits from people's annual premiums, in addition to $3.5 billion a year in higher 'management fees', all while short-changing private hospitals by over $1 billion a year. In the last quarter alone, APRA reveals the insurers banked another $431 million in profits.

When the middlemen in healthcare are allowed to gouge their members at one end and short-change private hospitals at the other, the funding model is being abused to the point that it is broken.

Federal Health Minister Mark Butler's pledge to make the insurers pay more has fallen flat. Ther Minister says the insurers are now paying close to 87%, but h4e has supplied no evidence to support this claim.

To achieve a full 2024-25 financial year payout ratio of 87%, the last quarter would need to be 99% - an uplift of around $883 million.

In short, there's no way this can be delivered. We'd love it if it could.
The system is broken and Toowong example is a classic case as to why. After almost 50 years serving Brisbane and surrounding areas, the hospital closed its doors on 11 June.

A 58-bed acute private psychiatric hospital, treating more than 3,000 patients a year and employing 154 specialist staff, it was renowned for its acute mental health care and seen as an exemplar in providing innovative approaches to the continuum of psychiatric care inside and outside the hospital setting.

It was also a teaching hospital for Psychiatric Registrars, as well as providing clinical placements for medical and nursing students.

The irony of a highly respected, well-run psychiatric hospital closing during a mental health crisis when the Federal Government says mental health is a priority, should not be lost on anyone.

Toowong copped lengthy delays in private health insurance contract negotiations, some by months and with one major insurer by over a year. That means payments to the hospital significantly lagged behind costs.

It is staggering that another insurance group refused to negotiate a contact with Toowong at all since 2017. Instead, this insurance group chose to place Toowong under second tier arrangements, which forces insured patients to pay hefty out-of-pocket costs to cover their stay. This is not the practice of an insurer interested in its members.

Patients are losing choice and access, while the quality they expect from their premiums is also compromised due to the inability of hospitals to invest in technology, treatments, services and staff.

Many hospitals, including Toowong, took the unprecedented step of opening their books to the Federal Government over a year ago to demonstrate the failure of insurance companies to pay for the care of insured patients in full.
The Government point-blank refused to act.

Health insurance is just a means to an end. It is often seen by punters as a necessary evil. But it's the quality healthcare provided by private hospitals, with patient choice of doctor and no waiting list, that makes the financial pain worth it.

But that equation no longer adds up. Australians are paying more and more to health insurance companies but getting less and less for it.

Brett Heffernan is Chief Executive Officer for the Australian Private Hospitals Association. Published in the July 2025 edition of Australian Doctor magazine (available by subscription only).

Previous Feature Articles:
6/6/2025 Paying more for less: The emergency of health insurance