Private Health Insurance: Rising Premiums, Shrinking Coverage, and Junk Policies
By Direct Democracy
Every year, like clockwork, private health insurers apply to raise their premiums. Every year, the government approves them. And every year, millions of Australians quietly pay more for cover that increasingly fails to cover them when they actually need it.
This is one of the most expensive, most convoluted, and least-examined policy failures in modern Australian public life - and both major parties are responsible for it.
What Is the Private Health Insurance Rebate - and What Does It Cost You?
Since 1999, the federal government has subsidised private health insurance through the Private Health Insurance Rebate. Depending on your age and income, the government pays somewhere between 8% and 32% of your premium directly to your insurer.
The cost to taxpayers? Over $7 billion per year.
That's $7 billion annually flowing from the public purse to a private industry - an industry that posted $2.3 billion in net profit in 2022–23 according to APRA data. Medibank Private alone returned over $440 million in profit that year.
On top of the rebate, there's the Medicare Levy Surcharge - an extra tax of 1% to 1.5% on income for those who don't hold private hospital cover and earn above $93,000. And then there's Lifetime Health Cover loading, which penalises people who don't take out private hospital cover before age 31 by charging them higher premiums for the rest of their lives.
In other words: the entire policy architecture is designed to push Australians into buying private health insurance, regardless of whether it actually serves them.
The Premium Problem
In April 2024, insurers were approved to raise premiums by an average of 3.03% - on top of a 2.9% rise in 2023 and a 2.7% rise in 2022. Over the past decade, premiums have risen roughly 40–50% in real terms.
The average Australian family with hospital and extras cover now pays somewhere between $4,000 and $6,000 per year depending on the level of cover and the insurer.
Meanwhile, wage growth has barely kept pace with inflation. For many households, private health insurance has gone from a sensible supplement to a significant financial burden.
Junk Policies: Paying for Nothing
Here's where it gets truly frustrating. In response to premium sensitivity, insurers have proliferated lower-tier policies - often called "junk policies" - that technically count as hospital cover (satisfying the surcharge rules) but exclude enormous categories of treatment.
Common exclusions in budget hospital policies include:
- Joint replacements (hips, knees)
- Heart surgery and cardiac procedures
- Psychiatric and mental health admissions
- Rehabilitation services
- Obstetrics and pregnancy-related care
People buy these policies believing they have health cover. Then they get sick, they need surgery, and they discover their insurer won't pay. They either go back to the public system - which they've been subsidising all along through Medicare - or they face out-of-pocket costs that can run into tens of thousands of dollars.
The government introduced tiered product categories (Gold, Silver, Bronze, Basic) in 2019 under the Morrison government, which was supposed to make things clearer. In practice, the tiers still allow extensive exclusions at lower levels, and many Australians still don't understand what they're actually covered for until they need to use it.
Who Benefits From This System?
Let's be direct about who this policy architecture actually serves:
| Beneficiary | How They Benefit |
|---|---|
| Private health insurers | $7B+ annual government subsidy; captive market via tax penalties |
| Private hospitals | Steady insured patient stream; premium pricing |
| Specialist doctors | Ability to charge well above Medicare Benefits Schedule |
| Federal government | Reduced pressure on public hospital waitlists (in theory) |
The argument for the rebate has always been that it takes pressure off the public system. If millions of Australians use private hospitals, that frees up public beds for everyone else.
There's a kernel of truth there. But the evidence that the rebate actually achieves this efficiently is weak. A 2015 Grattan Institute report found the rebate was poor value for money - it costs more per patient shifted to the private system than it would cost to simply treat those patients publicly. The policy has continued anyway.
Why Does This Keep Happening?
The private health insurance industry is a significant political donor and lobbying force. Medibank, Bupa, HCF, and NIB collectively have significant capacity to shape policy debate. Both Labor and the Coalition have received donations from the sector.
Beyond donations, there's a structural political problem: any government that tried to wind back the rebate would be accused of "hurting families" and "destroying the health system." The industry and its allies have successfully framed a corporate subsidy as a social good.
Labor has flirted with reducing the rebate in opposition but consistently maintained it in government. The Coalition built the current architecture and has never seriously questioned it. Meanwhile, Australians pay more each year for less certainty of coverage.
What Would Australians Actually Choose?
Polling consistently shows that Australians support a strong public health system. When surveyed, most people say they'd prefer investment in Medicare and public hospitals over corporate subsidies. But that preference never translates into policy - because voters don't get to set the agenda. Politicians do.
This is exactly the kind of issue where direct democracy produces different outcomes than representative politics. When everyday Australians - not lobbyists, not party donors, not industry insiders - get to vote directly on whether $7 billion a year should subsidise profitable private insurers or fund public hospitals, the answer would almost certainly be different from the status quo.
The current system persists not because it's popular, but because the people who benefit from it have more access to decision-makers than the people who are being ripped off by it.
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