Private health premium rise cancels interest rate drop

Almost 15 million Australians covered by private health insurance will see their premiums jump up by an average of 3.73 per cent, with many insurers to exceed the average premium hike.

Health Minister Mark Butler. Picture: NewsWire / Scott Gelston

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Almost 15 million Australians covered by private health insurance will see their premiums jump up by an average of 3.73 per cent from April 1, eating away at the relief provided by the Reserve Bank’s decision to cut the cash rates last week.

Many insurers will exceed the average premium hike, which outstrips the current annual rate of wages growth and headline inflation, with industry major nib revealing it would slug its customers with an increase of almost 5.8 per cent.

The decision comes after several months of negotiations between insurers and the government, during which Health Minister Mark Butler twice rejected proposed premium increases of up to 6 per cent.

“By taking the time and going through a proper process to interrogate the claims of insurers, the Albanese government has achieved a better deal for Australians,” Mr Butler said.

“Insurers must ensure their members are getting value for money and that premiums are contributing to system-wide improvements, like higher wages for nurses and other health workers and sustainable hospital services.”

According to Canstar, average hospital and extras health insurance currently costs about $3200 for a single consumer aged 36 or younger.

That cost will now jump to more than $3318 a year, thanks to the average premium increase.

In response to announcements from nib and other insurers that they would increase their premiums by well above the agreed-upon average hike, Mr Butler said “all private health insurers need to justify their rises to their customers”.

The premium rise comes as households also face the largest increase in out-of-pocket electricity costs ever recorded unless federal and state power bill subsidies are renewed.

And while the RBA slashed rates by 0.25 – in the first interest rate cut since 2020 – the central bank is unlikely to embark on another cut when it next meets given stubborn services inflation and the persistently tight jobs market.

Private Healthcare Australia said the increase came in below the rate of inflation for health services, which was 4 per cent according to the Australian Bureau of Statistics, with the agreed-upon rise in premiums representing the lowest insurers could go.

“The increase of 3.73 per cent, agreed with federal regulators, is as low as the health funds can go without seriously squeezing private hospitals and other providers,” PHA chief executive Rachel David said.

“In addition to costs rising, health insurers are also facing unprecedented pressure from the private hospital sector for additional funding.”

About 55 per cent of Australia’s population is covered by private health insurance, with the cost partly subsidised by government via a tax rebate which reduces as a policy holder’s income grows.

Health insurance premiums have risen fairly modestly in recent years, climbing 3 per cent in 2024 and 2.9 per cent in 2023.

This was compared to annual increases of between 3.95 and 6.18 per cent from 2012 to 2018.

Australian Private Hospitals Association chief executive Brett Heffernan said the premium increase would deliver a $2.2bn “windfall” for the insurance industry at a time when private providers were struggling to keep their facilities open.

Nearly 20 private hospitals have closed their doors since 2022, while more than 70 services in other private hospitals stopped being offered.

“When the federal health minister approves premium hikes each year the federal government cannot abrogate responsibility for how those funds are, ultimately, spent, siphoned or squirrelled away by insurers,” Mr Heffernan said. “The last thing Australia’s health system needs is more private hospital services sacrificed due to insurance company greed and government indifference.”

Opposition health spokeswoman Anne Ruston said the premium increase was the highest in seven years and above the rate of inflation. “This is another hit to Australians’ household budgets at a time when they can least afford it,” she said.

Senator Ruston criticised the timing of the decision, which she said was significantly delayed and had left the private health sector in the dark. “Labor appears to be on track to kill off our private health system through delay and inaction,” she said.

“During the Coalition’s time in government, we supported more than 15 million Australians to take out private health cover at the lowest rate in more than 20 years.

“A Dutton Coalition government will remain strongly committed to supporting the role of private health insurance in Australia’s healthcare system.”

The political fallout over the premium increases follows the resurgence of Labor’s Mediscare campaign, with the government declaring the Coalition was being “tricky” with its language when announcing it would match Labor’s $8.5bn Medicare boost.