Pressure pays off – for now: Health insurers to boost private hospital payouts

Private hospitals have welcomed a shift by health insurers to return more of the premium revenue to patients and providers, following sustained pressure from Federal Health Minister Mark Butler and key stakeholders. The benefits ratio is likely to reach around 87% in the financial year.

The move follows repeated calls from Minister Butler, Australian Private Hospitals Association (APHA) and Day Hospitals Australia urging insurers to lift their contributions amid mounting strain on the private hospital sector.

“A big driver of the reduced profitability that we’ve seen in the private hospital sector in recent years has been, frankly, a cut in the payments that they receive from private health insurers, which after all are their predominant funders,” Minister Butler said.

“The so-called benefits ratio is a critical ingredient here, and that essentially is the percentage of income that private health insurers earn from the millions of hard-working families who pay their cash in insurance premiums, the percentage of that income that ends up being paid to hospitals actually to deliver care.”

Catholic Health Australia (CHA), a long-time critic of insurer underspending, described the change as overdue and essential.

“Today’s news that insurers have lifted the percentage of premium revenue being paid out in patient benefits is a positive step, and one CHA has consistently advocated for. We’re pleased the Minister’s intervention is delivering results,” said Dr Katharine Bassett, CHA Director of Health Policy.

“The APHA represents 286 private hospitals. The bulk of the sector. In the wake of the Minister’s statement, we sought advice from members today, asking them to report if they have seen anything like the bump being claimed,” said APHA CEO Brett Heffernan. “The response was swift and compelling. Noone has reported this as their reality. While patient numbers are up, they are not seeing increases in rates from insurers. This compounds their losses.”

Minister Butler laid bare the deeper issues driving the private hospital system’s viability crisis. He said, “Behind the impact of COVID, there has been a structural drop in the benefits ratio, the amount of money that insurers have been paying to private hospitals. That is reflected in what you can see with insurers having increased profits and in some cases quite substantial increases in their management expenses. Money that at the end of the day is not going to deliver the care that Australians expect when they fork out their hard-earned cash to pay their private health insurance premiums.”

Over the past three months, the Department of Health has monitored how private health insurers have responded to calls for greater funding. Minister Butler confirmed that while some insurers have stepped up more than others, the overall trend is positive.

“There is no cause right now for me to take regulatory action against private health insurers. We will continue to monitor this closely. I’ve made it very clear to private health insurers and their representatives that I expect that trend to continue,” Minister Butler emphasised.

Private Healthcare Australia CEO, Dr Rachel David, said insurers are listening and acting. She confirmed that health funds will be cutting internal costs while increasing hospital payments.

“Health insurers need private hospitals to survive. We want our 12 million members investing in hospital cover to receive rapid access to high quality hospital treatment where and when they need it. With this in mind, we are paying hospitals more to help them meet rising costs for care, including higher staff wages,” Dr David said.

The boost in insurer contributions may offer temporary relief, but the private system remains in a fragile state.

“This improvement cannot be a one-off,” Dr Bassett warned. “Sustained support is essential to keep others from shutting their doors.”

“The extra $250-$350 million expected this financial year from insurers would be a good start. It’s a long way short of the $1 billion annual shortfall in funding to hospitals, so the payment ratio needs to continue beyond this three-month episode. It needs to be permanent,” stated Heffernan. “We recognise the Minister has made the commitment to ensure that it does continue in perpetuity. He also made the point it is not consistent across all insurers. It is also not consistently paid across all hospitals. So we will all need to monitor this closely and hold any laggards to account.”

Dr David pointed to recent shifts in the way hospitals and insurers are working together, from exploring more efficient contracting to delivering care beyond hospital walls.

“We have seen some great collaboration between private hospitals and health insurers recently to contract for more out of hospital services such as chemotherapy, rehabilitation, wound care and mental health treatment. This reduces costs for hospitals, insurers and patients while delivering better health outcomes. This is the way of the future,” she explained.

The Private Hospital CEO Forum is due to meet tomorrow, chaired by Blair Comley, Secretary of the Department of Health, Disability and Ageing.

“A lot of the claims for change have been made by the private hospitals on the funders of their system, which are private health insurers. I’m sure that insurers also have very clear views about the way in which private hospitals can become more effective, more efficient and more modern about the way in which they deliver their services. I expect this discussion to be constructive, but I expect it also to be a two-way street,” emphasised Minister Butler.

CHA is also urging the government to shift oversight of annual premium increases to an independent authority such as the Independent Health and Aged Care Pricing Authority (IHACPA), arguing this would ensure price adjustments are grounded in the true cost of care delivery.

“We now look forward to engaging with the Minister, and the sector more broadly, on the long-term reforms needed to keep private hospitals sustainable and prevent more pressure being heaped on the public system,” remarked Dr Bassett.

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