Private health insurance customers may be breathing a sigh of relief after Health Minister Mark Butler knocked back a proposal for significant premium hikes for next year.

But experts warn COVID-era low premium hikes are still on the way out.

Before next year’s annual premium rate hikes, private health insurers sought Butler’s approval of the proposed changes, as they must do under federal law.

Insurance providers were reportedly chasing an average hike of up to 6 per cent – well above the annual rises since the beginning of the pandemic, which were all less than 3 per cent.

Butler rejected the proposed increases, and told TND in a statement that it was his role to ensure any premium increase was “justified and proportionate” as Australians face ongoing cost-of-living pressures.

“Over half of all Australians – nearly 15 million people – have private health insurance and every Australian taxpayer funds the system through the private health insurance rebate,” he said.

Butler’s rejection of proposed premium hikes was likely a blow to insurance providers. Photo: AAP

“Based on the information currently provided by private health insurers, I am not inclined to approve their proposed premium increases.

“I’ve written to every private health insurer, directing them to have another go and put forward a more reasonable figure that considers their years of record profits and the declining proportion of premiums they return to customers, particularly while household budgets are under pressure.”

Consumer Health Forum director of advocacy and engagement Melissa Le Mesurier said the organisation supported the government’s refusal of the 6 per cent increase.

“We are hearing all the time from consumers that they absolutely are feeling the squeeze from the rising cost of living, particularly from those who have a long-term or chronic condition,” she said.

“Maintaining their level of health care really is starting to impact their finances.

“I think it is very hard for consumers to see private health insurers ask the government to increase the premiums by so much when last year the sector recorded a profit of almost $2.2 billion, it’s hard for consumers to understand how that is justifiable.”

COVID encouraged softer premium hikes

Choice health insurance expert Uta Mihm said a large increase of health insurance premiums would “really hurt” Australians facing the increasing pressures of inflation.

Providers – under pressure from the Australian Competition and Consumer Commission – took their foot off the accelerator during the pandemic and in the immediate years following lockdowns because they continued to rake in profits while claims decreased as things like dentist appointments and surgeries were put off.

Some providers chose to roll out premium hikes throughout the year rather than the traditional rate increase date of April 1, and some even made cash-back offers to customers.

But those days appear to be ending; Mihm said private health insurance providers will be telling Butler that a lift in claims and inflationary pressures require higher premiums.

Industry costs going up

A statement by Private Healthcare Australia, the industry’s peak representative body, said inflation and soaring use of private health care will affect the cost of health insurance, but health funds were “doing everything they can to keep premiums as low as possible”.

Private Healthcare Australia CEO Rachel David said any approved premium rise for 2024 would likely fall short of other types of insurance, such as home and car insurance, which she said jumped 14 per cent this year, and electricity, up 13 per cent.

“The cost of medical and hospital services increased 5.9 per cent this year and there’s been a 9.6 per cent surge in hospital admissions funded by insurers. This is putting pressure on premiums,” David said.

“Inflation is hitting the health sector hard. Hospitals are struggling with the rising costs of recruitment, power and food and this flows through to health funds.

“Every week, hospital groups are asking major health funds for additional funding beyond their agreed contracts to chase inflation.”

Compromise needed

Although the private health insurance sector faces rising costs, it is far from in danger of sinking.

An Australian Medical Association report released in December revealed private health insurers earned $1.3 billion more than two years ago – while returning less rebates and money to customers.

Finder analysis in 2022 found the cost of health insurance had increased by 195 per cent since 2000; more than double the rate of inflation over the same period, which sat at 69 per cent.

This meant a policy priced at $1000 in the year 2000 would now cost $2953 for the same coverage.

Finder health insurance expert Tim Bennett said it was hard to feel sorry for health insurance providers when they were raking in billions of dollars in profit while many Australian family are struggling to pay for their Christmas meals.

However, insurance funds are affected by rising inflation as much as anyone, and potentially on a bigger scale.

Although a 6 per cent premium increase is far higher than seen in recent years, it would not be unprecedented; 2015 was the last time the industry raised premiums by the same amount.

“Not that I would ever accuse a politician of playing politics, but I think there is definitely a good look to kind of pushing back [on the recent proposed hike],” Bennett said.

“That being said, the Health Minister’s job is to make sure that the private health insurance industry is a robust one so that it can do the job that it ostensibly is there to do, which is to take pressure off Medicare. And to do that, the funds do actually need to run a business.

“At a certain point, he will actually have to come to the table and … find a number that works for both parties.”