How private health insurance shifts the risk to customers, taxpayers

Private health insurance operates differently than other insurance companies and transfers the risk to its customers and taxpayers. Claudia Weisenberger explains.

Australian private health insurers do not assess your individual health risk before selling you a policy. Done with this community rating A system designed to be fair. However, when you make a claim, these companies do not assume the risk. Through excesses, gap fees, and exclusions, insurers have quietly transferred billions of dollars of financial risk from their balance sheets to you, the consumer.

All this while making $2.11 billion in profits and receiving $7.9 billion in government subsidies. This is the story of how they did it.

The question is; If private health insurance companies do not evaluate individual risk and do not fully assume the risk when you request it, what exactly are they insuring?

Fundamentals of insurance

With all other types of insurance, the deal is simple: assess the risk, price accordingly, and bear it when something goes wrong. Australian private health insurance works on a completely different basis.

Community rating was introduced by the Australian Government to make the system fair. Like Private Health Australia It explains: “Health funds are prevented from discriminating against members based on health status, age or claims history.” A 35-year-old healthy person and a 70-year-old person with heart disease pay the same premium. In other words, the young and healthy provide financial support to everyone else.

Under the community rating system, you expect insurers to assume all financial risk when you make a claim.

That’s not what’s happening.

Private health insurance history

In 1997, roughly two-thirds of all private health insurance policies were “coverage”; No exemptions, no excesses, no exceptions. Your insurer paid when you went to the hospital. Today that figure has fallen to about one in eight. “This represents a major transfer from private health insurers to the insured in who bears the risk of hospital admission costs,” according to a 2019 analysis by the Grattan Institute.

The proportion of Australians taking on their own health insurance risk has increased from 33% to 87.5%; This represents a 165% increase in consumer risk. CHOICE reported in March 2026 that comprehensive coverage continues to decline from 39% of policyholders in 2020 to just 28% in 2025.

Insurers did not announce this transfer. They did this silently through four basic mechanisms.

1. Extremes

The excess is the amount you pay out of pocket for each hospital admission before your insurer pays anything. By Comparing the MarketThe most common excess in 2026 is $750. If you need a hip replacement, you pay the first $750. Only then does the insurer pay.

Risk transferred: $500-$1,000 per entry from the insurer to you.

2. Vacancy fees

According to money.com.au“unknown gap” costs — previously undisclosed fees — jumped from $418 to $685, a 64% increase over five years. You pay premium. You pay more. Then you discover that the surgeon’s fee is $5,000, your insurer covers $2,500, and you’re on the hook for the rest.

Transferred risk: hundreds to thousands of dollars per treatment.

3. Exceptions

ACCC warned: “There are some conditions that consumers may not anticipate, including psychiatric care, heart conditions, and plastic and reconstructive surgery, all of which may be excluded under lower-tier policies,” i.e.

You may not be covered if you have a heart attack or need mental health care.

Transferred risk: potentially tens of thousands of dollars per treatment.

4. Waiting times

Insurers impose waiting periods, usually 12 months, for pre-existing conditions before making a claim. You pay premium from the first day, but you cannot claim it for a year. During this time, you pay out of pocket.

Transferred risk: the full cost of treatment during the waiting period.

Paying for the privilege of payment

You are a single professional with private health insurance. You pay ~$2,500 annual premium. When you go to the hospital, you also pay a $750 excess fee, vacancy fees, and any excluded charges.

UTS researcher Nathan Kettlewell say clearly: “People pay for insurance, then they pay twice. They pay for the privilege of paying.”

Australian private health insurance has become something unique in the insurance world. It does not evaluate your risk. It does not price according to your risk. And increasingly, it doesn’t carry your risk.

Despite this, it receives $7.9 billion in government subsidies and makes a profit of $2.11 billion. The risk has shifted from insurance companies bearing full liability for 67% of policies in 1997 to just 12.5% ​​today. This means transferring billions of dollars of financial risk from companies to individuals.

Budget: huge subsidies, private healthcare profiteering as waiting lists grow

Claudia Weisenberger is a management consultant with deep experience in pharmaceutical, hospital transformations and strategic due diligence on four continents. It combines keen analysis with hands-on application.