With Gold cover in structural decline, a $1 billion annual prostheses pricing gap outside the current consultation scope, and hospitals and insurers publicly at odds, the debate about fixing Australia’s private health system is sharpening – and the stakes for brokers managing client renewals have rarely been higher. The Members Health Fund Alliance lodged its submission to the Department of Health, Disability and Ageing’s Private Health Sector Reform Consultation – Tranche 1 on August 13, 2026. The document broadly supports the government’s reform direction across Hospital in the Home (HITH), maternity care, mental health, and risk equalisation, but its most pointed argument concerns what the consultation does not address: the two structural cost drivers Members Health says are doing the most damage to premium affordability.
The first is prostheses pricing. Members Health estimates that privately insured Australians may be paying more than $1 billion per annum above what would be expected if prostheses pricing aligned with public sector benchmarks, based on the Independent Health and Aged Care Pricing Authority’s (IHACPA) National Hospital Cost Data Collection (Public Sector 2023-24) and the Department of Health and Aged Care’s Private Hospital Data Bureau (PHDB) Annual Report 2023-24. “If private patients were charged public sector prostheses prices, the private sector could save up to $1 billion a year, based on current patient volumes. The current regulatory system for prostheses has failed Australian consumers and is not sustainable,” Members Health CEO Matthew Koce said in June 2025.
The four-year Prescribed List reform program ran from July 2021 to June 2025 and included staged reductions in benefits for medical devices – in July 2022, July 2023, and July 2024 – before a pause on further reductions took effect between July 2025 and June 2026, according to the Department of Health, Disability and Ageing. Members Health argues further reform remains one of the largest affordability levers available and should run alongside the current consultation, not after it.
That argument comes against a backdrop of rising premium pressure. The government approved an average premium increase of 4.41% from April 1, 2026, with medical and hospital service costs rising 5% in the prior financial year. Independent actuarial firm Finity Consulting found that while the 4.41% headline figure appeared modest, it masked “widening divergences by tier, product status, and insurer strategy,” with structural margin pressures increasingly visible across hospital products, according to Finity’s State of the 2026 PHI Market report published in April 2026.
The reform proposals with the most immediate implications for brokers concern product design. Members Health opposes removing Basic and Plus products, arguing these are the entry-level tools that keep price-sensitive clients – particularly younger Australians – in the system rather than lapsing. The market data shows how acute the problem already is. The rise in the price of Gold-level coverage has produced a notable drop in the number of Australians with comprehensive cover: from 39% in 2020 to 28% at the end of 2025. The proportion of Gold products has fallen further, with the latest figures from March 2026 at just 30%, down from 43% when product tiering was introduced in April 2019.
Private Healthcare Australia (PHA) CEO Dr Rachel David has described the trend in direct terms. “The trouble is that gold contains the cover for mental health and for maternity care, and if we can’t offer an affordable solution to those things, why would anyone under the age of 50 have private health insurance?” David said, as reported by AFR, calling the flight from top hospital cover an “existential threat” to the sector.
Members Health goes further, recommending the government “seriously consider relaxing requirements around product design” given that the 2019 tier reforms produced unintended adverse selection outcomes for Gold. It also opposes standardising excesses and co-payments while supporting the option to allow higher excesses – a mechanism that gives brokers a lever to retain price-driven clients at renewal without requiring a full tier downgrade. A nationally representative survey by Money.com.au found 46% of policyholders planned to respond to the April premium increase by cancelling, downgrading, switching funds, or adjusting their policy settings. Among Generation Z respondents, 30% said they planned to cancel their health insurance.
Two maternity proposals carry direct implications for how brokers position Silver and Gold products for younger female clients. Members Health opposes reducing the waiting period for pregnancy and birth services, arguing it would increase incentives for consumers to join cover shortly before requiring maternity services and exit shortly afterwards – distributing higher costs across all policyholders, including those whose products do not include maternity benefits. The submission notes the consultation paper provides no modelling of participation, affordability, or adverse selection impacts.
Members Health equally opposes mandating maternity cover in product tiers below Gold, arguing it would raise premiums for consumers who do not need that cover, reduce product flexibility, and potentially encourage downgrading. Insurers already have the discretion to offer maternity through Silver Plus products where consumer demand exists – making further mandating difficult to justify on market grounds, the submission argues.
On HITH, Members Health supports expanding services where they improve outcomes but raises a specific question the consultation does not answer: how was the proposed $360 minimum benefit figure determined? The submission warns the amount may have unintended implications for provider behaviour, contracting arrangements, and premium costs, and calls for robust data collection on service delivery costs and utilisation patterns before permanent funding settings are established. It also calls for clinical governance and oversight obligations to be clearly assigned where HITH services are subcontracted – a gap it says the consultation paper leaves unaddressed.
The Actuaries Institute has identified a structural link between Gold cover’s decline and the design of risk equalisation. The system’s Age-Based Pool shares a proportion of hospital and medical outlays for claiming policyholders aged 55 and over, while its High-Cost Claimants Pool applies to individual claims exceeding $50,000. The institute says this leaves some Gold-specific services – particularly pregnancy, weight-loss surgery, and in-hospital psychiatric treatment, which are typically claimed by people under 55 – with minimal risk-sharing, making those costs harder for individual insurers to absorb and contributing to affordability pressures on Gold-tier cover
According to Australian Prudential Regulation Authority (APRA) data, the national gross risk equalisation deficit increased from approximately $8.66 billion in 2023-24 to roughly $9.30 billion in 2024-25. Any structural change to how that deficit is distributed will alter the competitive cost base of individual insurers and the premiums across product cohorts that brokers work with at renewal. Members Health recommends the government define what Australia’s risk equalisation system is meant to achieve, publish a reform roadmap, and run a shadow model before any structural changes take effect.
Not all industry voices are pulling in the same direction. While Members Health urges caution on implementation pace, Catholic Health Australia (CHA) – representing the hospital sector – has called for faster action. CHA noted that in the past five years over 90 private hospital services have closed, and that the latest data shows private hospitals posted an operating loss of $756 million while private health insurers posted $2.7 billion in profits in 2024-25. CHA acting CEO Dr Katharine Bassett said the consultation “takes on problems patients and hospitals have been raising for years.” PHA’s Dr David acknowledged the premium pressure but framed the 4.41% increase as a response to genuine cost growth. “If health funds could keep premiums the same without jeopardising their ability to pay claims, they would. The industry is acutely aware of how tough many Australians are doing it right now,” she said, as reported by ABC.
Members Health’s submission sits between those positions – supportive of reform direction but insisting on sequencing that addresses the largest cost drivers before imposing structural changes that may redistribute costs without reducing them. The Department’s consultation closes August 20, 2026. The federal government has committed $3.2 million for consultation on further private healthcare reforms, according to Baker McKenzie’s analysis of the 2026-27 federal budget. Proposals in Tranche 1 do not represent government policy.
