The industry view. Why a health savings model could leave sick Australians behind
· Michael West
Australia’s complicated healthcare system is under strain, and some question whether private health insurance is fit for purpose. Rachel David argues it is.
Visit asg-reflektory.pl for more information.
Australia’s health system is under mounting strain. In private health, rising premiums are driving some people to downgrade their cover, while higher out-of-pocket specialist fees are leading others to delay or forgo care.
At the same time, private hospitals face escalating costs, while the outdated business model they have relied on in years gone by – keeping patients in hospital for longer – no longer aligns with how people prefer to receive care, and advances in clinical care. All of this is playing out amid a prolonged cost-of-living crisis.
Against this backdrop, a proposal has emerged to replace Australia’s private health insurance model with a savings-based alternative, similar to Singapore’s. Private hospital turnaround specialist Claudia Weisenberger and healthcare clinic CEO Lyle Holm have argued the idea deserves serious consideration to reduce the $6.9B annual taxpayer contribution to the system, which is only going to increase as our population ages.
Private health insurance. Unfit for purpose and in need of reset
What their analysis overlooks, however, is that since 2020, more private hospitals have opened than closed across Australia. It also leans on factually inaccurate claims that insurers are systematically underpaying hospitals, relying on figures derived from opaque arithmetic by the Australian Private Hospitals Association that no one else seems to be able to understand, let alone substantiate.
Their claim that private hospitals have been underfunded by $1B is farcical – health funds increased their funding to private hospitals by 5.7% last year.
Mandated health care savings
At face value, mandatory healthcare savings can sound practical. But while such an approach may work for healthy, higher‑income Australians with stable employment histories and the capacity to accumulate funds over time, it risks eroding one of the most important protections embedded in our health system: community rating.
Critics of Australia’s private health insurance model often argue it predominantly funds predictable care procedures such as hip replacements, cataract surgery and joint reconstructions that we’re all likely to need at some stage. But community‑rated insurance is far more than a payment mechanism; it is a deliberate system of risk‑sharing across time, income and health status.
Those who are healthy today help fund care for those who are unwell now, with the understanding that circumstances can change suddenly and without warning.
This cross‑subsidy is not a flaw – it is the foundation of the system. It ensures that people with cancer, autoimmune disease, mental illness, congenital conditions or pregnancy complications are not priced out of care when they need it most.
A savings‑based model weakens this principle by individualising risk.
Australians with steady incomes, minimal health shocks and the capacity to build assets would likely fare well. But those whose working lives are disrupted by illness, disability, caring responsibilities or low wages would not.
Health care cost distribution
Healthcare costs are also highly unevenly distributed. A relatively small proportion of Australians account for a large share of lifetime health expenditure, often due to factors entirely beyond their control – genetics, early‑life illness or just plain old bad luck. Asking these individuals to rely primarily on personal savings shifts the financial burden of ill health onto those least able to bear it.
Community rating exists precisely to prevent this outcome. It ensures that someone born with cystic fibrosis, endometriosis or a congenital heart condition pays the same premium as someone who may never require hospital care. It reflects a fundamental principle: illness is not a financial choice, and access to care should not depend on one’s capacity to accumulate savings.
Under a savings‑first model – even with safety nets built in – people with chronic or early‑onset conditions are far more likely to exhaust their funds early, forcing them to fall back on government support. In practice, this risks recreating a two‑tier system in which wealth determines the timeliness and quality of care.
Proponents often point to Australia’s superannuation system as evidence that compulsory savings can work. But the comparison is flawed when made with healthcare. Superannuation functions because most people remain relatively healthy during their peak earning years, allowing balances to grow over time. Health needs do not follow such a predictable trajectory.
Differing care needs
Those who require care earlier in life or more frequently will draw down their balances before compound growth can take effect, effectively penalising people for circumstances entirely beyond their control.
International experience also shows that savings‑based systems require increasingly complex exemptions, subsidies and safety nets to prevent hardship. Over time, these mechanisms begin to resemble the very insurance structures they were designed to replace.
None of this is to deny that Australia’s private health sector faces real and pressing challenges. Access to private maternity services is declining, financial pressures on hospitals are intensifying (although we don’t need as many private hospital beds in the concentrated areas we have them), and legitimate questions remain about whether parts of the system are evolving in line with community expectations.
These issues require reform. But abandoning community rating is not the answer. It is the stabilising force that prevents the system from fragmenting, where risk‑based pricing drives those with the greatest health needs out first, an outcome that is neither fair nor sustainable.
Australia does not need to choose between reform and equity. We can modernise the system while preserving the shared protections that ensure access to care is based on need, not how much money you have in the bank.