Private health inusrance. Unfit for purpose and in need of reset

A $6.9 billion annual subsidy supports a private health insurance model that is losing consumer confidence. There is a proven alternative. Claudia Weisenberger reports.

Bupa CEO Nick Stone recently described private health insurance as a “discretionary spend” and revealed that almost one in ten customers (440,000 people) have had their credit score reduced within two years. Former Deputy Chief Medical Officer Nick Coatsworth reinforced the assessment: PHI “is not always a good value for many families.”

The data support these assumptions. Despite the “average” premium increase of 4.41% reported in February, CHOICE Magazine research shows Gold premiums have increased by 45% over four years, while approved averages are only 11.9%. Premiums have increased 132% above inflation since 2001. One in seven Australians is expected to give up insurance by 2026.

Meanwhile, the infrastructure PHI supposedly supports is collapsing. Eighty-two private hospitals have closed since 2020. Healthscope, Australia’s second largest hospital operator with 37 facilities and 19,000 staff, entered the trustee system in May 2025. Research in the Medical Journal of Australia predicts private maternity care will disappear by the end of this decade.

But as hospitals close, insurers are expanding elsewhere: Bupa plans to establish 130 GP medical centers by 2027, while Medibank owns 90% of the 105 MyHealth clinics. Vertical integration raises questions about incentives when insurers control both primary care providers and payment decisions.

Health insurance premiums will cut more than hip pockets

Model does not work

Private health insurance applies a framework designed to address planned, known expenses in response to unforeseen disasters. Traditional insurance that protects against house fires or car accidents bundles risks for rare events. Australian PHI does the opposite: it funds predictable procedures that people know they will eventually need, such as hip replacements, cataract surgery and knee reconstructions.

This creates structural tensions. Community rating regulations prevent risk-based pricing; This means that healthy members subsidize the immediate needs of higher claimants rather than building reserves for their own future care. Government penalties such as the Medicare Levy Surcharge and Lifetime Health Insurance loading mandate participation regardless of the value provided.

The resulting economics are challenging. Australian taxpayers contribute $6.9 billion a year in subsidies. Insurers made a total profit of $1.7 billion (Medibank $785 million, Bupa $607 million, NIB $289 million), but the funds were diverted to the purchase of GP clinics, leaving hospitals underpaid by over $1 billion a year.

When consumers switch insurance companies based on airline ratings and reimbursement plans rather than healthcare quality or hospital networks, the market signal is clear:

the product provides insufficient healthcare value to sustain voluntary participation.

singaporean road

Singapore took a different path four decades ago. Rather than subsidizing insurance premiums, the city-state allows citizens to accumulate personal health funds through mandatory savings accounts. The result: 4.5% of GDP was spent on healthcare, compared to Australia’s 10.7%, while life expectancy was 84.9 years.

Singapore’s system has three tiers: mandatory savings for routine care, catastrophic insurance for major illnesses, and safety nets for those who cannot save. More importantly, savings accumulate as personal assets, grow over time, remain individually owned, and can be used for the health needs of family members.

The model encourages consumer discipline: Individuals make cost-conscious decisions knowing they are spending their own accumulated funds. Price competition naturally occurs when providers know that patients are comparing values. Healthcare inflation in Singapore has remained significantly below that of Australia, despite high economic growth.

There are significant differences between Singapore and Australia in terms of population size, federal structure, existing healthcare infrastructure and the complexity of transitioning from established systems. Direct reproduction is not possible. But the basic principle of enabling personal health care savings rather than subsidizing insurance consumption remains transferable.

Australian app

Australia currently manages $3.5 trillion in superannuation funds thanks to world-class APRA regulation. The infrastructure for accumulating and investing long-term savings exists and works well.

Adapting this framework to health care savings requires policy design, not new institutions.

One transition path could reflect the evolution of retirement: start with tax-advantaged health savings accounts as an alternative to PHI deductions for those who choose it. Let the funds accumulate and combine. Maintain catastrophic coverage requirements for truly unforeseen major health events. Maintain safety nets for low-income Australians and those with chronic conditions that require urgent, ongoing care.

Existing PHI participants can transition gradually, saving money while existing coverage continues. Young Australians can start saving their healthcare funds early and build significant reserves before significant health needs arise. Change will not happen overnight, but over decades.

Fundamental design questions remain: appropriate contribution rates, investment guidelines, withdrawal rules, integration with Medicare, and protections for vulnerable populations. These require careful policy development, stakeholder consultation and actuarial modelling. Singapore’s four-decade history provides valuable evidence, but Australia’s solution must suit Australian conditions.

Financial and political logic

The economics are simple for a government focused on budget repair. Current policy provides $6.9 billion in annual subsidies, supporting a model of declining consumer confidence and shrinking infrastructure. The ten-year forward cost exceeds $69 billion.

A savings-based alternative directs investment toward personal wealth accumulation rather than insurance company income. Taxing contributions would have a fiscal impact, but it allows individuals to build health care assets rather than purchasing coverage with zero residual value.

The political opportunity is unusual: fiscal conservatives oppose continued corporate subsidies, progressives support consumer empowerment and wealth building for ordinary Australians. A well-designed transition that protects vulnerable populations and gradually builds on existing retirement infrastructure would be of interest to parties.

Singapore’s experience shows that personal healthcare savings can deliver superior outcomes at lower system costs. Australia has the regulatory capacity and existing infrastructure to adapt the model. Declining participation and rising costs of the current system indicate that the status quo is unsustainable.

The question is not whether there will be reform, but when and who will lead it.

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