Health insurance just became more expensive. Here’s what you need to know

The biggest rise in health insurance premiums this decade will hit 15 million Australians from April after the federal government approved a 4.41 per cent increase in the average policy cost.

Health Minister Mark Butler said the above-inflation increase reflected the costs of delivering medical and hospital services, which rose 5 per cent last financial year. Health insurers said higher payouts for claims were also driving costs higher.

Here’s what you need to know.

How much is my health cover set to rise?

The 4.41 per cent increase from April 1 is an average across all policies. Some policies may rise more or less than this rate. Insurers are required by law to tell their members in writing exactly how much more they will be paying before the changes come into effect.

The average rate of increase also varies between insurers. People insured with AIA, for example, will have an average premium increase of almost 6 per cent, while insurance policies with HBF are set to rise by 2.15 per cent.

About half of all Australians with private health insurance are covered by Bupa and Medibank, which will have average increases of 4.8 and 5.1 per cent, respectively.

Who decides how much health insurance can rise?

Health funds cannot legally change the premiums they charge members without approval from the federal health minister. Every year, usually around November, insurers submit their proposed increases for each policy with justifications for why they are necessary.

These submissions are reviewed by the Australian Prudential Regulation Authority to ensure they are enough to ensure funds remain financially viable while remaining fair for consumers. This advice is then provided to Butler, who can either approve the rise or ask the insurers to revise their figures if he believes it is unreasonably high.

Announcing the increase on Tuesday, Butler said he asked insurers to resubmit their premium requests “multiple times”.

“This year’s decision reinforces that premium increases must be backed by clear evidence and contribute to system-wide improvements, not just insurer balance sheets,” he said. “Australians deserve transparency, fair pricing and confidence their premiums are being directed where they are needed most.”

How does the increase compare to previous years?

The average increase is the highest since 2017, when policies jumped 4.84 per cent overall. Premium rises were comparatively low through the peak years of the COVID-19 pandemic as Australians flocked to private health cover and insurers banked healthy profits.

But the cost of delivering healthcare has since risen sharply, placing enormous pressure on the financial viability of private hospitals.

Healthscope, the country’s second-largest private hospital operator, collapsed into receivership in May owing $1.6 billion to its lenders.

Premium increases are never popular, but the threat of local hospital closures is equally politically damaging. Butler has had the task of convincing health insurers to pay out a higher proportion of their revenue to private hospitals, which has dropped.

“This premium round has been guided by my commitment to maintain the value of private health insurance for Australians, while making sure the sector plays its part in supporting private hospitals facing rising costs and significant challenges,” he said on Tuesday.

Is private health insurance worth it?

More Australians are questioning the value of private health insurance, particularly at the premium end of the scale. The total number of Australians with gold-tier hospital cover dropped from 4.4 million in 2020 to 4 million at the end of 2023, as cost-of-living pressures, maternity service closures, and out-of-pocket fees forced many families to abandon premium cover.

The Australian Medical Association’s annual private health insurance report card, released in December, found about 70 per cent of hospital cover policies contained exclusions preventing members from accessing certain types of treatment.

Rachel David, the chief executive of industry group Private Healthcare Australia, said insurers were introducing more no-gap and “known-gap” fee services to give members greater certainty about costs.

“More people are using their health insurance for high-cost hospital care such as joint replacements and cancer treatment, and the cost of delivering care continues to rise. This premium increase reflects those realities,” she said. “The industry is acutely aware of how tough many Australians are doing it right now.”

The government earlier this month introduced legislation outlawing “phoenixing”, where insurers stop offering a policy and introduce an identical one at a higher price – bypassing the regulatory process for premium increases.

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