Health insurers need to do more to give back their profits to members, doctors and Mark Butler warn.
Australians are getting less value from their private health insurance and are dropping policies as a result, the Australian Medical Association’s 2025 Private Health Insurance Report Card has found.
AMA president Dr Danielle McMullen has renewed calls for an independent Private Health System Authority to drive sector reform.
“Unfortunately, our report shows that value for money is eroding and calls for us to reform the system because that balance of public and private care is what makes Australia’s healthcare system unique and world leading,” she said on ABC News Breakfast this morning.
A key concern is how much insurers return to consumers. The report found that only 84.2% of premiums were paid back in benefits in 2024-25. By contrast, private health insurers recorded $3.62 billion gross margin from hospital insurance premiums.
The AMA and federal health minister Mark Butler continued to call for insurers to increase this margin to 90%.
“We’ve made it very clear to insurers over the last 12 months that we expect more of the revenue that they earn from the millions of households who take out private health insurance to be returned in services,” said Mr Butler today.
“We don’t want it to go into profits or the management expenses for these big insurers. We expect it to go back to hospital services that deliver better health for patients.
“I’ve said if I don’t continue to see those increases then we will consider our legal options to mandate them,” he continued.
Dr McMullen acknowledge that private health insurers have to make a surplus to be sustainable.
“But it is clear they are holding out on Australians while recording significant profits each year. These insurers have ample capacity to increase the benefits paid to patients,” she said.
However, Dr Rachel David, CEO of Private Healthcare Australia, said that was unrealistic.
“There is no need for a mandatory claims ratio of 90% (the proportion of premiums paid back to members for health services),” she said.
“The average claims ratio for private health insurance over the past 20 years has consistently been between 84-86%. It has only once reached 88% (in 2019-20).
“A claims ratio of 90% would send some health funds broke. We have seen insurers collapse in the past. We don’t want to see that again. It will only reduce competition in the sector which affects prices,” she said.
“The AMA’s claims about value don’t reflect the reality shown in independent APRA data. Health insurers return more of their premium income to their members than any other type of insurance. Health insurers are also paying out more for patient care than ever before.
“Payments for hospital care increased 5.7% to a record high of more than $19.4 billion in the 12 months to September 2025.
“We also know many people value their extras, particularly dental check-ups, and contributions to health services such as physiotherapy or psychology,” Dr David continued.
Premiums becoming unaffordable
The report card showed that the growth of private health insurance premiums has outstripped inflation, health sector inflation, average weekly earnings and the indexation of the Medicare Benefits Schedule (MBS) in every year since 2008.
Premiums are up more than 100% while MBS indexation increased by less than 20%.
According to Dr McMullen:
“We’ve also seen private health insurers really bump up the premiums for their products far beyond wage price indexes, beyond CPI and beyond the cost of even health CPI.
“And so as a result of that, premiums, particularly high-quality gold ones, are getting out of reach for many Australians, and then we’re seeing a lot of people underinsured.”
However, Mr Butler disagreed with the AMA on that score.
“Over the three years I’ve approved rises, the increase has averaged a smidge over 3% — 3.1% or 3.2%, which is below health inflation. That tends to run more like 4% or 5%.
“So compared to what is happening in other insurance products that are recording double-digit increases, we’ve managed to keep a lid on those premium rises. I’m happy to have a discussion with the AMA about that.
“But I’m under no illusion that a lot of households are really struggling to pay their private health insurance premiums at a time of really big cost of living pressure on them,” he said.
Gold policies in particular have become increasingly unaffordable. Government data has shown that the number of gold-tier policies held by Australians with hospital cover is falling sharply.
“In June 2025, 360,000 fewer gold-tier policies (covering 743,000 Australians) were held compared with the start of the pandemic (March 2020 quarter). This occurred despite a total increase of 640,000 policies (covering 1.3 million people) over the same period,” the AMA report highlighted.
“These trends show that private health insurance is becoming less affordable for many Australians — and we are already seeing the drastic effects of this, with at least 14 private maternity units closing over the past five years,” Dr McMullen said.
Dr David said that while more people were opting for silver products over gold products due to cost, that was not always a bad thing.
“Many people who choose exclusions are being savvy about what they don’t need cover for. For example, if you’ve completed your family, you might choose not to have maternity cover in a more expensive gold health insurance product,” she said.
The report card also highlighted significant variation in the amount private insurers will pay for the same procedure.
“For example, for MBS Item 16519 (uncomplicated delivery of a baby), there is a 29% variation ($522 difference) between the benefits paid by the insurer that pays the most, and the one that pays the least.
“These differences contribute to varying out-of-pocket costs for patients and highlight the importance of looking beyond the premium charged for different policy products to ensure value for money,” the report card highlighted.
The AMA also found that 15 years ago, few hospital policies contained exclusions, but by 2018 most policies shifted to include them.
“The trend towards an increasing proportion of hospital insurance policies with exclusions has continued its steady rise, with 68.4% of private hospital treatment policies no longer covering all types of care,” the report card said.
The report also highlighted continued “phoenixing”, where a top-tier product is removed from the market and replaced with one at a higher cost to get out of the government’s cost controls.
“It’s a pretty dodgy tactic,” Dr McMullen said.
“We’ve called that out this year. It’s not an acceptable practice and we do need all of our groups to come together and figure out what are we doing in this private health sector, how do we give patients affordability but also that confidence that their private health insurance is delivering them value,” she said.
Calls for reform
Dr McMullen said an independent Private Health System Authority was needed.
“The need for a Private Health System Authority to better regulate the sector and drive long-term reform has never been more crucial. There are too many bodies involved in the regulation of private health — a single, independent authority would provide a unified and coherent approach.”
Australian Private Hospital Association CEO Brett Heffernan said the report card echoed the issues raised by APHA.
“There is an urgent need for reform, especially in face of rampant insurer profiteering, all while short-changing private hospitals by over $1b a year,” he said.
“The insurers are pushing sub-par policies with exclusions to save themselves money on claims that cost patients dearly in out-of-pocket costs.
“The contracting system between insurers and hospitals is broken, with insurance companies abusing their market power to foist bad deals on hospitals or see insurers coerce doctors to take their patients elsewhere.
“A mandatory code of conduct is needed to bring the dodgy contracting abuses of insurers into the light. This transparency would force fairness and proper funding from the health insurance industry that is out of control,” he said.
However, Dr David disagreed.
“There is no need for an independent authority to oversee the private health system, which is currently regulated by the Department of Health, Disability and Ageing, the Australian Prudential Regulation Authority, the Commonwealth Ombudsman, and the Australian Competition and Consumer Commission, among others,” she said.
“We are one of the most heavily regulated sectors in Australia.”
Read the full AMA private hospital report card.
