NSW has raised taxes on private health funds. Here’s what that means for premiums

The news

Private health insurer HCF has agreed to cover the cost of their members staying in public hospitals in an attempt to avoid the NSW government hiking state taxes on the sector.

Chief executive Sheena Jack said the fund had “reluctantly agreed” to the deal after legislation passed in NSW parliament on Thursday night allowing the government to tax insurers a maximum of $3.27 per person per week – up from $1.77.

NSW Treasurer Daniel Mookhey said he hoped the remaining three big insurers – Medibank, Bupa and NIB – would follow suit, but the industry has warned premiums will rise as a result.

How we got here

The gazetted single-room rate is the fee charged to patients who are not covered by Medicare, or who choose to use their private cover. It is set by the state government to offset some of the cost of a patient’s stay.

In the last state budget, Mookhey promised to recoup $490 million over four years by making health insurers pay the set rate – currently $892 per night – for private patients staying in public hospitals.

After the four largest health funds refused, the government decided to raise the money by increasing the levy charged on every private health policy taken out in NSW.

That legislation passed the upper house on Thursday, giving the government the option to charge a higher levy.

NSW is the only state to charge an additional tax on private health insurance.

Why it matters

The cost of providing healthcare has risen 5.7 per cent in the past 12 months, which the Australian Bureau of Statistics said was due to a 6.7 per cent increase in the cost of medical and hospital services.

Wage costs, medical supplies and electricity prices have all risen, and the Minns government is attempting to rein in spending while finding new ways to generate revenue.

At the same time, the health funds are under pressure from private hospitals to cover their inflated costs.

While insurers generated record profits during the pandemic, Private Healthcare Australia (the peak body representing the health funds) argued these cost pressures will inevitably result in members paying higher premiums.

Citing modelling from economic consulting firm Mandala, Private Healthcare Australia said the higher levy would lead to a 4.1 per cent increase in premiums, meaning individuals would pay $78 more and families an extra $156.

The modelling suggested this would lead to 75,000 dropping their cover altogether.

What they said

What’s next

Mookhey said the government was still open to negotiating the bills with the other for-profit health insurers.

Currently, NIB pays the state $491 per night for their members to stay in a single room, Bupa pays $501, and Medibank pays $515. If the insurers agreed to pay the full rate, Treasury estimates the government would net an additional $86.8 million per year.

If they refuse, the government now has the option to raise the money by hiking taxes on all health funds. Private Healthcare Australia has launched an aggressive TV, advertising and social media campaign against the tax, arguing it would force more people into the public system and place further pressure on emergency departments and surgery wait times.

Proposed premium rises are examined by the Australian Prudential Regulation Authority (APRA) and must be approved by federal Health Minister Mark Butler before they can be applied to members’ policies.

Butler last year approved a 3.03 per cent rise, lower than the annual inflation rate of 4.1 per cent, but expect the health funds to cite the NSW stoush when lobbying the Commonwealth for a higher rate next year.

More reading

• Painful contraction for private maternity hospitals

• Thousands of patients face massive cost hikes as hospitals pull plug on NIB

• The private health funds that have shortchanged NSW hospitals by $700 million

Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.