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What your health insurance premium is really funding

“We want to see the money that patients pay in premiums fund their health care, not increased profits for insurers.”

A stylised image of a person breaking a hospital in half with money coming out to represent insurance costs.
Private hospitals' expenses have been rising, forcing some to close down. (Source: Yahoo Australia)

The price of insurance is going up like crazy. In the most recent official data, insurance inflation was among the highest of any category.

As the next chart shows, insurance hasn’t gone up this fast since the year 2000.

(<em>Source: supplied)</em>
(Source: supplied)

Premiums are up enormously. Given how high profits are for private health insurers, you might expect them to be the biggest part of the problem. But actually, it’s home insurance doing most of the damage - health insurers are finally backing off.

Also by Jason Murphy:


My health insurer, Australian Unity, isn’t lifting premiums at all this year. The government let them lift prices on April 1, and the company agreed to a rise of 3.76 per cent. But then they chose to delay that increase until 2024.

“We understand there are many in our community who are doing it tough and by deferring the 2023 premium increase, we hope to ease some of the financial pressures our private health insurance members may be experiencing,” CEO Rebecca Windsor said.

Don’t swoon just yet. It’s not exactly a tough decision for health insurers to pause their premium hikes. The industry is rolling in profit.

They made $2.25 billion in the pandemic by continuing to collect premiums, even though nobody was having elective surgery. And, in the last financial year, profits went up again. The industry made $2.2 billion after tax in the 12 months to June 30, 2023, which was more than double the year prior.

As the next chart shows, profit before tax rose sharply too.

Chart showing insurance information.
(Source: Australian Prudential Regulation Authority)

Around 45 per cent of Australians have private health insurance and we are paying for those profits. However, we are also paying more out of pocket when we need to go to the hospital. Out-of-pocket costs per treatment episode were $408.38 last financial year compared to $314.51 back in the 2019 financial year, according to APRA statistics.

Doctors are not happy.

“We want to see the money that patients pay in premiums fund their health care, not increased profits for insurers,” Australian Medical Association president Professor Stephen Robson said in December 2022.

Private hospitals are furious too. Their costs - food, laundry, wages, electricity, equipment - are going up. Some are losing money - for example, Epworth Hospital, which reported a deficit of $37 million in 2021 and $16 million in 2022. This year, Orange Private hospital went broke and entered administration.

“This is one of the worst times the sector has experienced. Many of our hospital operators are calling it the worst in living memory.” Australian Private Hospitals Association CEO Michael Roff said.

“Australian Bureau of Statistics data from their most recent issues paper shows private hospitals reporting a profit or just breaking even has dropped from 89 per cent in 2019-20 to 30 per cent in 2021-22. We know from anecdotal feedback that figure is even lower today.”

They want the insurers to release another $700m worth of cash they are supposedly sitting on – not just cutting premiums but paying more for every day a patient stays in hospital.

“Health insurance companies have the capacity to ensure the viability of private hospitals without the need for massive premium increases. Earlier this year, the insurers lobby group said they would work with private hospitals to address the increasing cost of operations, but these have proven to be just empty words,” Roff said.

In our cost-of-living crisis, while it’s helpful that insurance premiums aren’t rising much, it’s not good if people are skipping the treatment they need because the cost of going to hospital is too high.

And it‘s no good for the health of the country if private hospitals are closing down or losing money. The health of the insurance industry is not as important as the health of Australians.

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Yahoo Australia