Mark Butler flags rising costs and struggling private hospitals

Australia’s 15 million private health insurance customers are facing a premium hike of more than 4 per cent next year as rising costs, and a struggling private hospital sector, are expected to force the federal government to approve the largest hike in premiums since 2017.

Health Minister Mark Butler approved an average 3.7 per cent rise for April 1 this year. It was the first premium increase to exceed 3 per cent since 2020.

But in September – as negotiations for the 2026 premium increase began – Butler flagged that more financial support is needed for the private hospital sector, which experienced the collapse of its second-largest operator, Healthscope.

“More strenuous efforts by insurers are needed to support the long-term viability of this essential part of our health system, including more equitable funding outcomes for the wide range of private healthcare providers,” Butler said in his statement of ministerial expectations.

Despite the public’s embrace of private health insurance since the pandemic – more than 55 per cent of the population is now covered – and declining use of hospital cover keeping a lid on claims, a significant increase in premiums would be needed to sustain industry margins, industry analysts say.

“Despite reducing claims coverage, claims inflation per person is stabilising at 3.6 per cent per person, suggesting weighted average industry [April 1, 2026] price rises need to edge higher to 4.7 per cent [UBS forecast is for 4.4 per cent] to sustain industry margins,” UBS analyst Kieren Chidgey, said.

Chidgey said that while ASX-listed insurers, Medibank and NIB account for half of the industry’s underwriting profit, the prudential regulator is mindful of the entire sector remaining profitable – including not-for-profit operators on margins of just 1.7 per cent.

Citi analyst Nigel Pittaway said: “We would be surprised if approved rate increases do not exceed CPI.”