Private health insurance premiums will rise 4.41% this year. But is it justified?
- Written by Terence C. Cheng, Associate Professor, Centre for Health Economics, Monash University
Around 15 million Australians[1] with private health insurance will pay more from April 1, after the federal government approved a 4.41% average premium increase[2], the largest in nine years.
For a typical family, that means several hundred dollars more a year, on top of a household budget already stretched[3] by rising rents, energy prices and grocery costs.
The premium increase once again outpaces general inflation, which rose to 3.8%[4] in the 12 months to December 2025.
With insurers posting strong profits[5], many people are asking: is this increase actually justified?
How are premium increases decided?
Each year, private health insurers apply to the federal health minister for approval to raise their premiums. These rises kick in each April.
Australia’s financial regulator, the Australian Prudential Regulation Authority, assesses the applications first. Insurers must show projected changes in revenue and claims costs, alongside data on their financial performance.
It then goes to the Minister for Health[6] for approval. Under the Private Health Insurance Act 2007, the minister must approve the change unless it’s against the public interest.
This year, Health Minister Mark Butler said he asked insurers to resubmit their applications[7] multiple times before reaching a final decision. But the approved average of 4.41% was still the highest since 2017.
Individual funds varied considerably[8] in how much they are approved to raise their premiums. NIB was approved at 5.5%, Medibank at 5.1% and Bupa at 4.8% – all above the industry average. HBF came in at just 2.1%.
Each insurer’s approved increase reflects its own financial circumstances[9], including how much it’s paying out in claims, the age and health profile of its members, its financial reserves, and how efficiently it’s run.
How much are companies paying and profiting?
To understand the 4.41% increase, it helps to look at what insurers have been paying out in recent years.
“Benefits” is the industry term for the money paid back to members to cover their medical costs, such as hospital stays and dental appointments.
When benefits grow faster than premiums, insurer margins get squeezed.
Each year insurers request to increase their premiums based on their forecast of benefit payouts in the coming year. But these don’t always align, or may not be approved.
Total benefits paid, covering both hospital treatments and general treatments (such as dental and physiotherapy) grew 10.2% in 2023 and a further 7.6% in 2024.
Over those same years, approved premium increases were just 2.9% and 3.0%. So insurer payouts were growing at roughly double the rate of what they were collecting.
To understand why, we need to go back to the early COVID years. In 2020, elective surgeries were cancelled and people avoided medical appointments. Total benefits paid dropped by 5.5%, even as premiums kept rolling in. Insurers built up large surpluses.
Then, from 2021, that pent-up demand came flooding back. Benefits jumped 8.3% in 2021, against a premium increase of just 2.7%, the lowest on record at the time.
Before COVID, the system was roughly in balance. Benefits grew 3.1% in 2019, broadly in line with the 3.25% premium increase that year.
The escalating premium increases approved for 2025 (3.7%) and 2026 (4.4%) suggest insurers are now trying to claw back that balance.
So is the 4.41% increase justified?
On pure claims-cost grounds, there seems to be a case for increasing premiums. Benefits have grown at roughly double the rate of premiums for two years.
As Australia’s population ages and undergoes elective surgery at a greater rate, we’re likely to see a rise in benefits paid in the coming years.
But the industry’s high profit figures complicate the story.
Industry-wide profit after tax[10] was A$1.39 billion in 2018. It dipped during COVID to around $951 million, then rebounded to $1.98 billion in 2022, the highest in recent years, before settling at $1.59 billion in 2023. That is still well above pre-pandemic levels.
Over the five years to June 2024, net industry profits rose by 48%[11]. Medibank alone posted an operating profit[12] of $741.5 million in 2024–25.
Gross margin, a measure of how much revenue is left after paying claims, tells a similar story. It held at around 14% and 13% in 2019 and 2020, then surged to 18.8% in 2022[13]. By 2023[14], margins had begun to ease downward, at 17%.
Balancing profits and controls
Insurers are not in financial trouble, with profits remaining large, though cracks are beginning to emerge[15] in the industry.
But the bumper years of 2021 and 2022 have passed. Claims are rising faster than premiums, and margins are tightening. A 4.41% increase looks like an attempt to bring revenue back into line with the real and rising cost of what Australians are claiming.
In the United States, health insurers are legally required[16] to return at least 85 cents in every premium dollar to members in large group markets, a rule introduced under the Affordable Care Act.
Australian insurers briefly fell short of that benchmark in 2022, returning only 81 cents per dollar and in 2023, returning 83 cents per dollar.
Imposing a requirement requiring insurers to return a set percentage of premiums as benefits could give consumers greater peace of mind that premiums are being used for care, not profits.
This would bring Australian regulation closer in line with international best practice.
Read more: Will my private health insurance cover my surgery? What if my claim is rejected?[17]
References
- ^ 15 million Australians (www.health.gov.au)
- ^ approved a 4.41% average premium increase (www.health.gov.au)
- ^ already stretched (www.sbs.com.au)
- ^ rose to 3.8% (www.abs.gov.au)
- ^ strong profits (www.insurancebusinessmag.com)
- ^ goes to the Minister for Health (www.health.gov.au)
- ^ asked insurers to resubmit their applications (www.abc.net.au)
- ^ varied considerably (www.afr.com)
- ^ financial circumstances (www.health.gov.au)
- ^ profit after tax (www.apra.gov.au)
- ^ rose by 48% (apo.org.au)
- ^ posted an operating profit (www.medibank.com.au)
- ^ 2022 (www.apra.gov.au)
- ^ 2023 (www.apra.gov.au)
- ^ cracks are beginning to emerge (theconversation.com)
- ^ legally required (www.congress.gov)
- ^ Will my private health insurance cover my surgery? What if my claim is rejected? (theconversation.com)
