A $6.9B annual subsidy supports a model for private health insurance that’s losing consumer confidence. There’s a proven alternative. Claudia Weisenberger reports.
Bupa CEO Nick Stone recently described private health insurance as “discretionary spend” while revealing that almost one in ten customers (440,000 people) have downgraded in two years. Former Deputy Chief Medical Officer Nick Coatsworth reinforced the assessment: PHI is “not always good value for many families.”
The data support these admissions. Despite February’s reported 4.41% “average” premium increase, CHOICE Magazine research shows Gold premiums rose 45% over four years while approved averages totalled just 11.9%. Premiums have increased 132% above inflation since 2001. One-in-seven Australians are expected to abandon coverage in 2026.
Meanwhile, the infrastructure PHI supposedly supports is collapsing. Eighty-two private hospitals have closed since 2020. Healthscope, Australia’s second-largest hospital operator with 37 facilities and 19,000 staff, entered receivership in May 2025. Research in the Medical Journal of Australia predicts private maternity care will be extinct by the end of the decade.
Yet as hospitals close, insurers expand elsewhere: Bupa plans 130 GP medical centres by 2027, Medibank owns 90% of 105 MyHealth clinics. The vertical integration raises questions about incentives when insurers control both primary care gatekeepers and payment decisions.
Model not working
Private health insurance applies a framework designed for unpredictable catastrophes to scheduled, known expenses. Traditional insurance, protecting against house fires or car accidents, pools risk for rare events. Australian PHI does the opposite: it funds predictable procedures like hip replacements, cataract surgery, and knee reconstructions that people know they’ll eventually need.
This creates structural tensions. Community rating regulations prevent risk-based pricing, meaning healthy members subsidise higher claimants’ immediate needs rather than building reserves for their own future care. Government penalties, such as Medicare Levy Surcharge and Lifetime Health Cover loading, enforce participation regardless of value delivered.
The resulting economics are challenging. Australian taxpayers contribute $6.9B annually in subsidies. Insurers posted $1.7B in combined profits (Medibank $785m, Bupa $607m, NIB $289m), yet underpay hospitals by over $1 B annually, with funds redirected to GP clinic acquisitions.
When consumers switch insurers based on airline points and cashback schemes rather than healthcare quality or hospital networks, the market signal is clear:
the product delivers insufficient healthcare value to sustain voluntary participation.
The Singaporean way
Singapore took a different path forty years ago. Rather than subsidising insurance premiums, the city-state enables citizens to accumulate personal healthcare funds through mandatory savings accounts. The result: 84.9-year life expectancy while spending 4.5% of GDP on healthcare, compared to Australia’s 10.7%.
Singapore’s system has three tiers: mandatory savings for routine care, catastrophic insurance for major illness, and safety nets for those unable to save. Critically, savings accumulate as personal assets, they grow over time, remain individually owned, and can be used for family members’ healthcare needs.
The model encourages consumer discipline: individuals make cost-conscious decisions knowing they’re spending their own accumulated funds. Price competition emerges naturally when providers know patients are comparing value. Healthcare inflation in Singapore has remained substantially below Australia’s, despite higher economic growth.
Important differences exist between Singapore and Australia, population size, federal structure, existing healthcare infrastructure, and transition complexity from established systems. Direct replication isn’t feasible. But the core principle of enabling personal healthcare savings rather than subsidising insurance consumption remains transferable.
Australian implementation
Australia already manages $3.5 trillion in superannuation with world-class APRA regulation. The infrastructure for accumulating and investing long-term savings exists and functions well.
Adapting this framework for healthcare savings requires policy design, not new institutions.
A transition pathway could mirror superannuation’s evolution: begin with tax-advantaged healthcare savings accounts as an alternative to PHI rebates for those who choose it. Allow funds to accumulate and compound. Maintain catastrophic coverage requirements for genuinely unpredictable major health events. Preserve safety nets for low-income Australians and those with chronic conditions requiring immediate, ongoing care.
Current PHI participants could transition gradually, building savings while existing coverage continues. Younger Australians could start accumulating healthcare funds early, building substantial reserves before significant health needs emerge. The shift would occur over decades, not overnight.
Key design questions remain: appropriate contribution rates, investment guidelines, withdrawal rules, integration with Medicare, and protections for vulnerable populations. These require careful policy development, stakeholder consultation, and actuarial modelling. Singapore’s forty-year track record provides valuable evidence, but Australia’s solution must fit Australian circumstances.
Fiscal and political rationale
For a government focused on budget repair, the economics are straightforward. Current policy delivers $6.9B in annual subsidies supporting a model where consumer confidence is declining, and infrastructure is contracting. The ten-year forward cost exceeds $69B.
A savings-based alternative redirects that investment toward personal wealth accumulation rather than insurance company revenue. Tax treatment of contributions would have fiscal impact, but enables individuals to build healthcare assets rather than purchase coverage with zero residual value.
The political opportunity is unusual: fiscal conservatives oppose ongoing corporate subsidies, progressives support consumer empowerment and wealth building for ordinary Australians. A well-designed transition that protects vulnerable populations and builds gradually on existing superannuation infrastructure could attract cross-party interest.
Singapore’s experience demonstrates personal healthcare savings can deliver superior outcomes at lower system cost. Australia has the regulatory capability and existing infrastructure to adapt the model. The current system’s declining participation and rising costs suggest the status quo is unsustainable.
The question isn’t whether to reform, but when and who will lead it.
Heat is on to put Sydney’s privatised Cayman Islands hospital back in public hands