The industry view. Why a health savings model could leave sick Australians behind

Australia’s complex healthcare system is under pressure and some are questioning whether private health insurance is fit for purpose. Rachel David He argues that it is.

Australia’s healthcare system is under increasing pressure. In private healthcare, rising premiums are causing some people to reduce their insurance coverage, while high out-of-pocket specialist fees are causing others to delay or forego care.

At the same time, private hospitals face rising costs, while the outdated business model they relied on in years past – keeping patients in hospital longer – is no longer compatible with people’s preferences for receiving care and advances in clinical care. All of this is happening in the midst of a protracted cost of living crisis.

Against this backdrop, a proposal has emerged to replace Australia’s private health insurance model with a savings-based alternative similar to Singapore’s. Private hospital transformation expert Claudia Weisenberger and health clinic CEO Lyle Holm argued that the idea of ​​reducing taxpayers’ $6.9 billion annual contribution to the system, which will increase as our population ages, should be seriously considered.

Private health insurance. Not fit for purpose and needs to be reset

But what their analysis misses is that more private hospitals have opened across Australia since 2020 than have closed. It is also based on factually incorrect claims that insurers systematically underpay hospitals, and is based on figures derived by the Australian Private Hospitals Association from obscure arithmetic that no one else can understand let alone prove.

Claims that $1 billion in funding for private hospitals is insufficient are laughable; Health funds increased their financing to private hospitals by 5.7% last year.

Mandatory health savings

On the face of it, savings on essential health care may sound practical. But while such an approach may work for healthy, high-income Australians with a stable employment history and the capacity to accumulate funds over time, it risks eroding community rating, one of the most important protections built into our health system.

Critics of Australia’s private health insurance model often argue that it funds predominantly predictable care procedures that we will all need at some stage, such as hip replacements, cataract surgery and joint reconstructions. But community-rated insurance is much more than a payment mechanism; It is a deliberate system based on risk sharing between time, income and health status.

Those who are healthy today help fund the care of those who are currently unwell, with the understanding that conditions can change suddenly and without notice.

This cross-subsidization is not a flaw, it is the basis of the system. It ensures that people with cancer, autoimmune disease, mental illness, congenital conditions or pregnancy complications are not left without care when they need it most.

A savings-based model weakens this principle by individualizing risk.

Australians with a steady income, minimal health shocks and the capacity to build assets are likely to do well. However, those whose working lives have been disrupted by illness, disability, caring responsibilities or low wages will not do this.

Healthcare cost distribution

Healthcare costs are also extremely unevenly distributed. A relatively small proportion of Australians account for the majority of their lifetime health expenditure, and this is often due to factors entirely beyond their control – genetics, illnesses in early life or just plain old bad luck. Asking these people to rely primarily on personal savings places the financial burden of ill health on those least able to bear it.

Community rating exists to prevent exactly this outcome. It allows someone born with cystic fibrosis, endometriosis or a congenital heart condition to pay the same premium as someone who never needs hospital care. This reflects a fundamental principle: illness is not a financial choice and access to care should not depend on a person’s capacity to accumulate savings.

In a model that prioritizes savings (even with safety nets in place), people with chronic or early-onset conditions are much more likely to deplete their funds early, forcing them to rely on government support. In practice, this risks recreating a two-tier system where wealth determines the timeliness and quality of care.

Supporters often point to Australia’s superannuation system as evidence that forced savings can work. But the comparison with healthcare is flawed. Retirement works because most people stay relatively healthy during their peak earnings years, allowing balances to grow over time. Health needs do not follow such a predictable course.

Different care needs

Those who need care early in life or more frequently will be thrown out of balance before compound growth can take effect, effectively punishing people for circumstances completely beyond their control.

International experience also shows that savings-based systems require increasingly complex exemptions, subsidies and safety nets to avoid difficulties. Over time, these mechanisms begin to resemble the insurance structures they were designed to replace.

None of this is to deny that Australia’s private healthcare sector faces real and urgent challenges. Access to private maternity services is decreasing, financial pressures on hospitals are intensifying (even though we do not need many private hospital beds in the areas where we are concentrated), and legitimate questions remain about whether parts of the system are developing in line with society’s expectations.

Reforms need to be made on these issues. But giving up on community ratings is not the solution. It is the stabilizing force that prevents the disintegration of the system where risk-based pricing puts those with the greatest health needs first; This is neither a fair nor sustainable outcome.

Australia does not need to choose between reform and equality. We can modernize the system while maintaining common protections that ensure access to care is based on need, not how much money you have in the bank.

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