Out-of-pocket medical costs soar, health insurance premiums set to rise

Out of pocket expenses for private medical services have increased by 38pc in three years, as premiums balloon.

Minister for Health and Aged Care Mark Butler and PM Anthony Albanese during Question Time at Parliament House in Canberra. Picture: NCA NewsWire / Martin Ollman

Out-of-pocket expenses for ­private medical services have ­increased by 38 per cent in the past three years, making health costs increasingly unaffordable for families, as premiums increase at their highest level in five years.

The Australian’s analysis also reveals health insurance premiums have risen 45 per cent over the past 10 years, well above inflation, after the government ­revealed this year’s average policy increase would be 3 per cent.

Consumer advocate Choice warned Australians were at the mercy of a complicated system where higher premiums were just the start, as the Coalition accused the government of playing politics with health by waiting until after the Dunkley by-election to reveal the average increase in premiums.

The Australian revealed last week major health funds were concerned the government was delaying the announcement until after Dunkley. Defending the timing of the announcement, Health Minister Mark Butler said his predecessors generally ­announced the annual increase in the last week of February or the beginning of March.

“I wasn’t prepared to just tick and flick the claims of health insurers, as the opposition was urging me to do,” Mr Butler said. “I asked insurers to go back and sharpen their pencils and put forward a more reasonable offer for the 15 million Australians with private health insurance. Private health insurers must ensure their members are getting value for money. When costs rise, Australians want to know that higher premiums are contributing to system-wide improvements, like higher wages for nurses and other health workers and ensuring that affordable services are available.”

Consumers who are members of some of the major health funds will likely be paying substantially more than the average industry price increase, with nib announcing a premium rise of 4.1 per cent while Medibank flagged increases of 3.31 per cent.

Bupa announced an average premium change of 3.61 per cent, blaming the rise on a $6.15bn ­increase in hospital and ancillary claims.

Although out-of-pocket medical costs have risen, more Australians are purchasing health cover. The number of insured persons increased by 304,225 last year.

But as households dig deeper to meet the cost of medical services, they are also paying more for health insurance.

The average out-of-pocket ­expense paid by Australians for medical services has jumped by nearly 40 per cent over three years, from $185 in December 2020 to $256 at the end of last year, analysis by The Australian of APRA data reveals.

In the wake of Tuesday’s ­announcement, government-­negotiated increases in average premiums over the past three years have led to a 9 per cent rise since 2021 — less than the 16 per cent rise in consumer prices over the same period.

Over the decade, however, private health premiums have surged by 45 per cent, far outstripping the 32 per cent rise in the consumer price index.

Mark Blades, a Choice data analyst specialising in health insurance, said there was a range of factors for the increases in private health costs. This included overcharging by the medical-device industry, high gap charges for specialists and insurers padding their profits. “It’s not just the premium increases, it’s also the out-of-pocket increases and rising co-payments. And more people are getting policies that require excesses to be paid,” Mr Blades said.

While rising health insurance costs are adding to financial pressures on households, analysis by Choice reveals that the pace of growth in premiums has varied depending on the level of coverage. A couple will be paying nearly $2800 a year for basic cover plus extras in 2024 – an increase of $326 a year, or 13 per cent, compared with two years earlier.

While the rate of change is similar for silver-level cover and less for bronze-level, the Choice analysis reveals Australians with gold-level health insurance will on average pay 35 per cent, or $1910, more for their cover than they did in 2022.

Opposition health and aged care spokeswoman Anne Ruston said the announcement on Tuesday proved Mr Butler would “prioritise politics over people” and had sought to hide the increase until after the by-election.

The health insurance announcement sparked a row between health funds and private hospitals, with the hospitals blasting funds for putting their profits ahead of their members and warning insurers’ refusal to reimburse hospitals was forcing them to close down.

Australian Private Hospitals Association chief executive Michael Roff said the onus was on health insurers to ensure the viability of private hospitals, warning health insurance payments had not kept pace with unavoidable cost increases experienced by hospitals. He pointed to Australian Bureau of Statistics data that found only 30 per cent of businesses in the private hospital sector had turned a profit in 2021-22 while health funds profits’ surged by $2bn.

“If health insurance companies continue to refuse to meet cost increases experienced by hospitals it will ultimately be self-defeating,” Mr Roff said. “As capacity in the sector continues to diminish, we are likely to see the emergence of waiting lists for treatment in private hospitals. Fast access to hospital care and avoiding waiting lists is one of the key selling points of private health insurance.”

Private Healthcare Australia, the nation’s peak body representing some of the largest funds including Bupa, AIA Health, HBF, HCF, Medibank, nib and CBHS, defended the increase saying consumers’ claims had “skyrocketed” in the past year.

PHA chief executive Rachel David said inflation had driven up costs for insurers, with medical and hospital services rising 6.5 per cent. Despite rising premiums, Dr David said membership was at record levels with 55 per cent of Australians covered.

Nib chief executive Mark Fitzgibbon said the increase in premiums reflected the return of hospital and ancillary treatment post Covid-19, and a rise in health and medical treatment costs.

Medibank said the premium increase was below inflation and wage growth, and remained below the 10-year industry average of 3.8 per cent.