Australia’s private health insurers could have another significant cost lever as rising claims feed into premiums, with new analysis estimating a $1.1 billion annual gap between private and public-sector medical device costs.
The issue is what further reform could mean for premium pressure. The government approved an average private health insurance premium increase of 4.41% from April 2026, up from 3.73% a year earlier.
Members Health Fund Alliance, representing not-for-profit and member-owned funds, said private prostheses expenditure totalled about $2.48 billion in 2023–24, versus an estimated $1.38 billion if public-sector prices were applied. That implies a theoretical saving of $1.10 billion or 44%.
“These excess costs are a key and avoidable driver of health insurance premium increases. Despite successive reviews and partial reforms, the data shows the prostheses pricing gap has not been adequately addressed,” Members Health chief executive Matthew Koce said.
Among the 30 procedure groups with the highest private use, Members Health calculated an $806 million gap. The largest included minor hip replacements at $101.8 million, minor knee replacements at $89.2 million, minor spinal fusion at $69 million, back and neck procedures at $66.3 million and minor pacemaker implantation at $50.6 million.
APRA's latest private health insurance data shows insurers paid $583.93 million for medical devices and human tissue products in the March 2026 quarter, out of $4.75 billion in hospital treatment benefits.
Affordability pressures are also rising. Average out-of-pocket payments for a hospital episode reached $511.02 in the quarter, up 8.9% year on year, while 12.79 million Australians, or 45.8% of the population, held hospital treatment cover.
The figures come as the government considers its next steps following the final independent evaluation of the Prescribed List reforms.
The review found earlier benefit reductions had already generated an estimated $540 million in savings over the three years to June 2025, including $239 million in 2024–25, putting downward pressure on premiums despite rising utilisation and broader healthcare costs.
It also found the median gap above public hospital prices for affected products fell from $177 to $35, with about 51% of Prescribed List items subject to reductions. However, comparisons with New Zealand and France showed material differences remained for some devices, prompting a recommendation that international prices be selectively considered when benefits are reviewed.
That supports further scrutiny of device pricing without establishing Members Health’s $1.1 billion estimate as an achievable saving.
There are also limits to its impact on premiums. Prostheses benefits fell from 14.1% of total hospital treatment benefits in 2021 to 12.8% in 2025, but absolute spending still rose 8.5% as utilisation increased. Total hospital treatment benefits grew 19.5% over the same period.
For insurance professionals, further reform could therefore reduce one source of claims inflation, but would not translate dollar-for-dollar into lower premiums.
The debate forms part of broader efforts to tackle private health affordability. Insurance Business recently reported that Members Health wants device pricing addressed alongside the government’s wider private health reform program. Meanwhile, private hospital cover has continued to grow, reaching record membership before the April premium increase.
Members Health is calling for further Prescribed List reform using domestic and international pricing benchmarks.
“Aligning private prostheses prices more closely with efficient public sector benchmarks and prices overseas represents one of the most immediate and practical opportunities available to government to ease cost pressures on Australians,” Koce said.
