PHA Fact Check

The 90:10 ratio is comparing two different numbers – it is not a like-for-like comparison.  “Operating Profit Before Tax” as reported by the sampled Australian Bureau of Statistics (ABS) data is a subset of “Profit Before Tax”. In the above documents the latter is derived from APRA figures. Using the private health insurance industry surplus/(deficit) before tax data and equating this with operating profit before tax is incorrect.  It fails to accurately calculate the operating profit for insurers on the same basis as the private hospital operating profits published by the ABS, overestimating insurer operating profits by $929 million on a like-for-like basis. A ‘90:10’ profit split ratio cannot be derived from this data.

It is unclear how an effective ratio could be derived, as it is a gross oversimplification of the health insurance sector where health funds pay for a lot more than hospital costs alone. Revenue and costs for ‘extras’ such as dental, physiotherapy and other allied health have not been differentiated from hospital accommodation costs.

There is no reference to these figures in APRA reports, or any reference to underfunding of private hospitals in any publication or report issued by APRA.  There is no evidence health funds have underfunded private hospitals or owe them money. APRA data shows health funds paid $18.73 billion in 2024 for members’ hospital treatment, up 8% on the year before. This was higher than health inflation (the changing cost of health services) which rose 4% during the same period, and higher than the average increase in health insurance premiums (3.03% last year.)

It appears the organisation making these claims has derived this figure from extrapolating historical growth prior to the pandemic into the pandemic years and beyond using a multiplier it calls ‘activity’. If this is the case, they are suggesting that health funds should have been paying hospitals for services that did not occur during the pandemic. Hospitals also received $1.5 billion from the Federal Government during this period in viability payments. It appears they are seeking funding for a desired level of activity rather than demonstrating a failure of health funds to pay appropriately for work they actually did and that is likely to occur in future.

Data from APRA show in the latest financial year, 2023-24, hospital benefits were $18.009 billion. Six years earlier, in 2017-18, hospital benefits were $15.064 billion. This is an increase of 20 per cent.

US-style managed care, where health funds influence the types of care able to be provided, is illegal in Australia.

Managed care broadly refers to measures brought in by US health funds in the 1980s and 1990s to control rapidly rising healthcare costs.  Following a consumer backlash, many of these have since been abandoned. Some of the tactics used during this era included the pre-authorisation of medical treatments by health funds, the employment of doctors who were directed to use certain clinical guidelines and care plans by the funds, and the use of narrow networks of hospitals so patients faced big co-payments if admitted outside the network.

 ‘US -style managed care’ is illegal in Australia. 

• Under Medicare and private health insurance legislation, health funds must pay benefits when a Medicare benefit is payable, regardless of whether clinical guidelines or care plans have been followed or not.
• Pre-authorisation of treatment is not a feature of Australia’s health system. It is not permitted for health funds to do this.
• Under the Health Practitioner Regulation National Law Act 2009, there are penalties for directing doctors and other health professionals to act against their patients’ best interests.
• Health funds must pay benefits for care in every hospital in Australia, through a default benefits scheme. This includes private patients admitted to public hospitals, and hospitals without a health fund contract.
• Direct employment of private doctors and control of their incomes is unconstitutional in Australia.

Australian health funds have no interest whatsoever in taking over the role of clinicians – it’s counterproductive to do so. Unlike in America, where health insurance is often tied to employment, Australians can change health insurer at any time. Australian health insurers have a strong vested interest in keeping their customers happy and healthy.

While not wanting to be involved in clinical decision making, health funds have a role that extends well beyond simply passively paying claims.  They have an interest in advocating for the highest quality and most cost-effective care for their members, and in helping their members stay healthy and informed about their medical care.

The following are examples of things supported by health funds which are not “managed care”.

• Doctors providing informed financial consent and an upfront quote for surgery prior to admission – this is just common courtesy and is regulated by the Australian Consumer Law, although it is poorly enforced.
• Governments and health funds providing advice to patients about which specialists offer no gap fee services.
• Health funds investing in health services for the purpose of offering no or low gap treatment or clinician led centres of excellence.
• Health funds investing in health services to ensure access to healthcare in a regional area.
• Bringing healthcare to the patient through out-of-hospital care and telehealth if clinically indicated.
• Cost-effective supply chain management and procurement, so wasteful costs aren’t passed on to patients.
• Zero tolerance of fraud, waste and financial abuse. Audit and compliance activities with the goal of detecting and preventing this.
• Distributing and providing clinician feedback on independently validated evidence-based best practice guidelines, e.g. those provided by the Australian Commission on Safety and Quality in Healthcare.

Hospitals open and close regularly, as reported by the Department of Health and Aged Care here. Australia has more private hospitals than it did six years ago, and hospitals are continuing to open across Australia. For example, in the first two months of 2025, Ramsay Health Care opened new services in Albury-Wodonga on the NSW Victorian border, in Brisbane, and in Caloundra in Queensland.

In relation to APHA’s list of 20 private overnight hospitals that according to APHA “have shut their doors entirely” since 2019, there are at least 13 private overnight hospital facilities that have been taken over by either public or other private operators, with no loss of services and capacity provided to the public.

The average premium increase is 3.73% from 1 April 2025, which is lower than the rising rate of expenditure by health funds for their members’ claims (8% last year), as well as the rate of health inflation (the changing cost of goods and services in the health sector which is 4%).  0.75% of the premium increase this year is due to additional private health insurance funding redirected for public hospitals by the government of NSW, against the advice of the health insurance sector. 

Eighty four per cent of every premium dollar earned is returned to customers in claims paid.  The net margins of private health insurers are closely scrutinised in the premium setting process and are significantly lower than those of the hospitals that are obliged to be transparent about their financial statements.

The APHA claim that $2.23 billion will be earned by a 3.73% premium increase is incorrect.  This assumes all 15 million people covered by PHI hold a separate policy. There are only 7.5 million policies in the market.

Health funds need to manage and verify claims, prevent fraud, manage data and provide claiming services. Many go above and beyond these basics and provide information to customers about healthcare, lifestyle and other services.

The overall claims ratio for health funds has only exceeded 88% once in the past 20 years.

Mandating a claims ratio of 90 cents in the dollar is unrealistic and would send some health funds broke.  Due to the inflationary pressure on contract prices and the impact on risk equalisation, the first funds to go underwater as a result of fixing the claims ratio at 90 will be those that currently have the highest claims ratios.  This would appear to be the opposite of the policy intent of the lobby groups advocating for this change.

CHA has selectively quoted from the Nous report without essential context. Health funds are passing on savings from medical device funding reform to their members when they calculate premiums.

Background: Since 2006, the Federal Government has regulated medical devices and supplies that private health funds must pay for through a price list of around 11,000 items. This list is called the “Prescribed List of Medical Devices and Human Tissue Products” (PL).

This rigid pricing mechanism fails to vary with global market prices even as the cost of older technology comes down, causing health funds to pay more for supplies in the private hospital system compared to what governments pay in the public hospital system. This means Australians investing in health insurance have been paying the highest prices in the world for medical devices and supplies – up to four times more than comparable economies.

With an ageing population and an increasing number of surgical procedures, the growth in benefits paid for these items has put severe upward pressure on health insurance premiums. In 2022, after a long period of campaigning by the private health sector and some consumer advocates, the federal government attempted modest reforms to align PL prices to those in the public hospital system. This culminated in a unilateral agreement made with the organisation representing the US suppliers of surgical implants prior to the 2022 Federal election. As part of these discussions, health funds agreed to pass on any savings made on medical device claims to members in the premium round.

However, the unilateral agreement with the suppliers unexpectedly locked in a 7 – 20% surcharge on medical implants and surgical supplies above public sector prices, and a number of the benefit reductions in the agreement have not been implemented. For example, the price of heart pacemakers in the private system is still double the price charged in the public hospital system.

To this day, the price of many medical implants and surgical supplies in Australia is 30 – 100% more than prices charged around the world, and spending on these items by health funds is higher than ever.

In its recent media release, CHA selectively quoted a government-commissioned report by Nous about the PL. The Nous report clearly states that consumers have been paying more for medical devices overall and that the cost of medical devices per procedure has continued to increase in recent years, just at a slower rate.

The latest data from the Australian Prudential Regulation Authority shows spending on medical devices for the calendar year 2024 was the highest on record – $2,445,763,470. This is partly due to significant increases in the number of hospital episodes which reached a record 5,117,834 in 2024.

However, we are now finally starting to see some savings occur from medical device pricing reforms. The best measure of this is the cost of medical devices per episode, as this covers both cost and volume. In 2024, this has declined from an average $480 to an average $478 per episode, saving health funds around $13 million. This saving was accounted for in the last premium round and has been passed on to health fund members.

“Management expenses” or “management fees” are terms formerly used by regulators to describe the operating costs of health funds or the costs of doing business. These terms are no longer in use. The breakdown of health funds’ operating expenses is illustrated below.

Click on the chart image above to zoom in.

Almost half of the operating expenses of health funds are employee costs, and the great majority of these are call centre workers who are required by law to provide consumers with product information and assistance. Only a tiny percentage is for executive salaries.

Almost 30% is for operations and administration where the biggest cost drivers are cybersecurity, billing, payments processing and IT. The cost of these services is higher than for other business types because the IT providers need to connect a legacy system used by the Federal Government to process Medicare billing with smartphone, EFTPOS and other modern claiming processes. Health funds also need to keep the system secure and protected from scammers and hackers. This accounts for an 18% increase in costs referred to by the Australian Private Hospitals Association here. Rents and offices make up a tiny percentage of this category because health funds offer flexible work and a larger percentage of employees work from home than in other sectors.

Like any other financial service business there are expenses for marketing and brokers. These services make it easier for consumers to understand private health insurance and to choose a product that is suitable for them.

Increasingly health funds are funding health services unrelated to claims out of their operating expenses because of gaps in service delivery in the health sector. Most of these are related to preventive health such as free heart health checks and telehealth appointments, but there are two hospitals and multiple dental practices in regional areas that are financially supported by local health funds because there is no alternative funding source for these services.

The operating expenses of health funds, including executive salaries, are scrutinised multiple times by federal regulators during the annual premium setting process and published by APRA. In contrast, hospitals, medical specialist practices and medical device companies are not held to account in this way. There is no mandatory annual reporting of their operating expenses in Australia. This makes it difficult to draw any conclusions about the operating expenses of health funds compared to the rest of the private health sector. Health funds do however compare well to other insurance types:

Expense Ratio: Comparison of Private Health Insurance Industry versus Other Types of Insurance Sectors

Source: APRA, Year Ending December 2024

Insurance Sector	Expense Ratio
Travel	49.3%
Fire and Industrial Special Risks (ISR)	39.9%
Marine and aviation	30.9%
Public and product liability	30.8%
Houseowners/householders	29.9%
Commercial motor vehicle	27.2%
Professional indemnity	27.2%
General Insurance	26.0%
Domestic motor vehicle	21.6%
Employers’ liability	16.2%
Compulsory Third Party (CTP) Motor Vehicle	15.3%
Private Health Insurance	11.0%

As addressed in the sections above on our Fact Check page, health funds are passing on savings from medical device funding reform.

No regulatory body, including the Federal Government, has asked health funds to pay hospitals an extra $1 billion per annum. This $1 billion figure was raised by Ramsay CEO Natalie Davis during a “fireside chat” session at the Australian Financial Review’s Health Summit on 7 April 2025, and was reported in the AFR on 8 April 2025. It represents an amount of funding the hospitals would like to have. Ramsay Health Care is a hospital company, not a health insurance company, and Ramsay is the largest member of the APHA.

Health funds have not been asked for this amount and have at no point “cried poor”.

Health funds are not profiteering or exploiting consumers. When health funds close products, it is usually because those products are making a loss. The Australian Prudential Regulation Authority (APRA) does not permit loss-making health insurance products to remain in the market indefinitely.

When more expensive policies are created, the pricing reflects the underlying cost of healthcare, which is increasing every year in an inflationary environment. APRA data shows health funds paid $18.73 billion in 2024 for members’ hospital care, up 8% from the year before. In the same year, the approved premium rise was 3.03%.

The rules around issuing Complying Health Insurance Products (CHIP) are strict, and to our knowledge our member funds have complied with the law.

Heath funds want to deliver affordable Gold products that will meet their members needs without incurring losses that make those products unsustainable. This has been a challenge for some time with health inflation surging and health insurance claims rising for an older, sicker population. This means health funds have an increasingly unbalanced ratio of older, high-claiming members to younger, low-claiming, members.

For several years, PHA has been calling for an overhaul of the rigid ‘Gold, Silver, Bronze, Basic’ tiering of products introduced in 2020. Under the tiering system, Gold health insurance covers the most expensive treatments in our health system, including obstetrics, psychiatry, joint replacement surgery, weight loss surgery and other complex procedures.

Confining the most expensive medical treatments to the Gold tier attracts people who know they are going to claim. This creates a high-risk pool where the cost of care compounds and rises quickly. This is often unsustainable for health funds.

Health funds are continuing to work with the Government on concerns about the ‘Gold, Silver Bronze, Basic’ product tiering system, so we can create a system for more sustainable health insurance products.