Australian Health Insurers Impose 4.41% Premium Hike Despite Record Profits
Australia's private health insurance sector has once again demonstrated the perils of excessive government regulation and market intervention, with insurers securing approval for a 4.41% premium increase that will burden 15 million Australians with higher costs from April 1.
This represents the largest premium hike in nine years, adding hundreds of dollars annually to family budgets already strained by inflation. The increase significantly outpaces general inflation at 3.8%, raising serious questions about the effectiveness of Australia's regulatory framework.
Regulatory Approval Process Lacks Market Discipline
The current system requires insurers to seek government approval for premium increases through the Australian Prudential Regulation Authority and Health Minister. This bureaucratic process, mandated under the Private Health Insurance Act 2007, creates artificial market distortions rather than allowing natural price discovery.
Health Minister Mark Butler claims to have scrutinized applications rigorously, yet still approved increases well above inflation. Individual insurers received varying approvals: NIB at 5.5%, Medibank at 5.1%, and Bupa at 4.8%, while HBF secured just 2.1%.
COVID Policies Created Market Imbalances
The premium surge stems directly from government-imposed lockdowns and medical restrictions during COVID-19. When authorities cancelled elective surgeries in 2020, benefit payouts dropped 5.5% while premiums continued flowing to insurers, creating artificial surpluses.
The inevitable correction arrived in 2021, with pent-up demand driving benefit costs up 8.3% against premium increases of just 2.7%. Total benefits grew 10.2% in 2023 and 7.6% in 2024, while approved premium increases remained artificially suppressed at 2.9% and 3.0%.
Profit Margins Reveal Market Realities
Industry profits tell the real story behind regulatory failure. After-tax profits surged from $951 million during COVID to $1.98 billion in 2022, before settling at $1.59 billion in 2023. Over five years to June 2024, net industry profits rose 48%.
Medibank alone posted $741.5 million in operating profit for 2024-25, while gross margins peaked at 18.8% in 2022 before moderating to 17% in 2023. These figures demonstrate how regulatory interference creates boom-bust cycles rather than stable pricing.
International Comparisons Highlight Regulatory Overreach
The United States requires health insurers to return at least 85 cents per premium dollar to members in large group markets under the Affordable Care Act. Australian insurers returned only 81 cents in 2022 and 83 cents in 2023, suggesting regulatory capture rather than consumer protection.
However, imposing additional regulatory requirements would likely worsen market distortions. The solution lies in reducing government intervention, not expanding it.
Market Solutions Over Regulatory Band-Aids
Australia's health insurance sector demonstrates how government regulation creates the very problems it claims to solve. Artificial price controls during COVID created surpluses, followed by inevitable corrections that burden consumers.
Rather than imposing more bureaucratic oversight, policymakers should consider reducing regulatory barriers that prevent genuine competition and price transparency. Market forces, not ministerial approval, should determine premium levels.
The 4.41% increase may be mathematically justified given recent claims growth, but the underlying system that created these imbalances requires fundamental reform toward greater economic freedom and reduced government intervention.