What benefits (payouts) do health funds provide for customers?
There are two main parts of private health insurance, benefits for hospital treatment, and benefits for general treatment (dentists, allied health services such as physiotherapy, and other benefits). Health funds are not allowed by law to provide benefits for general practitioners, or specialists in their private rooms.
Benefits for hospital treatment include hospital accommodation payments, medical rebates for doctors’ services, and medical devices. Around five out of every seven dollars paid out by private health funds for in-hospital care goes to hospital accommodation charges, with one dollar for medical rebates and one dollar for medical devices.
How are hospitals paid?
Health funds contract with private hospitals to deliver care to their members. Health funds and hospitals contract to ensure patients do not receive out-of-pocket costs for their hospital accommodation charges. These contracts often contain other measures of quality and transparency.
From these payments, private hospitals must pay their staff (including nursing staff), pay for food and accommodation costs, manage their operating theatres, pay their management expenses, pay for their buildings (e.g. rent or servicing capital costs) and take a profit or surplus.
These contracts can be complex, but in the end come down to $X for Y service. More than 90% of the market is covered by these contracts, and there are safety nets for non-contracted services so they still get paid a basic benefit by health funds.
Are hospitals being paid more?
Hospitals are being paid more than in previous years. Benefits paid for treatment in all private hospitals in 2024 totalled $12.234 billion, an increase of 9.0% on the year ending December 2023 – the highest amount on record.
Partly, this is because the number of hospital services that health funds are paying for has increased. Private health insurers paid benefits for 4.88 million hospital episodes in the year ending December 2024 (the highest number on record), with associated bed days numbering 12.15 million.
Also, hospital benefits per episode have increased. Overall hospital benefits per episode have increased from $3,616 in the year to June 2021 to $3,824 in the year to December 2024 (the highest on record). This reflects inflation in the Australian economy.
The largest payments for hospital treatment are hospital accommodation payments – averages have increased from $2,538 in the year to June 2021 to $2,753 in the year to December 2024 (again, the highest on record). These increased payments are occurring despite shorter average lengths of stay.
Are hospitals more profitable than health funds on average?
Hospitals have significantly higher rates of profit than health funds on average, but there is significant variation. According to figures from the Australian Prudential Regulatory Authority (APRA), health funds’ average profitability (health insurance business net margin) in 2023-24 was 4.2%. According to the health check of private hospitals conducted by the Department of Health and Aged Care, “the department estimates that the sector’s weighted average EBITDA margin is likely to have been between 7% and 8% in 2022-23.”
Health funds’ profits and other operations are clearly outlined by APRA. These data can be examined in aggregate or by individual fund. The averages are highlighted below.
| Financial Year | Health Insurance Business Net Margin for the private health insurance sector (%) |
|---|---|
| 2013-14 | 4.1% |
| 2014-15 | 4.4% |
| 2015-16 | 5.4% |
| 2016-17 | 5.2% |
| 2017-18 | 5.3% |
| 2018-19 | 4.9% |
| 2019-20 | 2.7% |
| 2020-21 | 5.1% |
| 2021-22 | 7.0% |
| 2022-23 | 6.6% |
| 2023-24 | 4.2% |
Source: APRA
Private hospitals do not have the same rigorous reporting standards. Private hospital business structures include listed companies (such as Ramsay), not for profit entities (such as St Vincents), hospitals owned by foreign private equity firms (such as Healthscope), and hundreds of small hospitals, many of which are owned by the doctors operating them.
Australia’s largest hospital supplier, Ramsay Health Care, is listed on the stock exchange and does post profit results, below.
| EBITDAR margin (%) | 2020-21 | 2021-22 | 2022-23 | 2023-24 |
|---|---|---|---|---|
| Ramsay Health Care (Australian operations) | 15.8% | 13.2% | 14.0% | 13.4% |
Source: Ramsay Health Care Annual Reports
What is a claims ratio?
Like other forms of insurance, health funds provide benefits to customers and require funds to manage those claims. For every dollar spent on health insurance premiums, the latest data shows 84 cents on average is paid back to consumers (last 12 months to December 2024). This is the highest return for any type of insurance.
| Average returns per premium dollar by insurer types in Calendar Year 2024
(Note: Figures in cents below denote average return per premium dollar.) |
|
|---|---|
| Private health insurance | 84 cents |
| Compulsory Third Party (CTP) insurance | 77 cents |
| Employers liability insurance | 72 cents |
| Domestic motor vehicle insurance | 71 cents |
| Consumer credit insurance | 66 cents |
| Commercial motor vehicle insurance | 65 cents |
| Houseowners/Householders insurance | 61 cents |
| Professional indemnity insurance | 57 cents |
| Public and product liability insurance | 56 cents |
| Marine and aviation insurance | 47 cents |
| Fire and Industrial Special Risks (ISR) insurance | 42 cents |
| Other accident insurance | 40 cents |
| Travel insurance | 39 cents |
Source: APRA
The average claims ratio for private health insurance over the past twenty years has been around 84-86%. It has only once reached 88% over the past twenty years (in 2019-20).
| Financial Year | Overall Average Health Insurance Business Claims Ratio for the private health insurance sector (%) |
|---|---|
| 2023-24 | 84.23% |
| 2022-23 | 82.61% |
| 2021-22 | 83.10% |
| 2020-21 | 85.41% |
| 2019-20 | 88.03% |
| 2018-19 | 85.98% |
| 2017-18 | 85.81% |
| 2016-17 | 85.99% |
| 2015-16 | 86.08% |
| 2014-15 | 87.11% |
| 2013-14 | 87.41% |
| 2012-13 | 86.92% |
| 2011-12 | 85.74% |
| 2010-11 | 85.34% |
| 2009-10 | 86.28% |
| 2008-09 | 86.78% |
| 2007-08 | 85.20% |
| 2006-07 | 84.76% |
| 2005-06 | 85.31% |
| 2004-05 | 87.79% |
Source: APRA