The largest affordability lever in Australia's private health system - estimated at more than $1 billion annually - is not on the table in the government's current reform consultation. 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, broadly supporting the government's direction on Hospital in the Home, maternity care, mental health, and risk equalisation. Its most pointed argument concerns what Tranche 1 does not address: prostheses pricing and Gold cover's structural decline are the two cost drivers doing the most damage to premium affordability, and neither is in scope.
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 National Hospital Cost Data Collection and the Department of Health and Aged Care's Private Hospital Data Bureau Annual Report for 2023-24.
The four-year Prescribed List reform program ran from July 2021 to June 2025 and included staged reductions in benefits for medical devices before a pause on further reductions took effect between July 2025 and June 2026. Members Health argues further reform on this front remains one of the largest affordability levers available and should run alongside the current consultation, not be deferred to a subsequent tranche.
That argument arrives 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. Finity Consulting's State of the 2026 PHI Market report found that while the headline figure appeared modest, it masked "widening divergences by tier, product status, and insurer strategy," with structural margin pressures increasingly visible across hospital products.
The reform proposals with the most immediate implications for advisers concern product design. Between the introduction of product tiering in April 2019 and March 2026, Gold products fell from 43% of the market to 30%. The proportion of Australians with Gold-level coverage has fallen from 39% in 2020 to 28% at the end of 2025 - a loss of more than one in four Gold holders over five years, driven primarily by affordability pressure rather than a change in consumer preferences for cover scope.
Private Healthcare Australia 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 the AFR, describing the flight from top hospital cover as an "existential threat" to the sector.
Members Health opposes removing Basic and Plus products, arguing these are the entry-level products that keep price-sensitive clients - particularly younger Australians - in the system. It also recommends the government seriously consider relaxing requirements around product design, given that the 2019 tier reforms produced unintended adverse selection outcomes for Gold.
Crucially for advisers, Members Health supports the option to allow higher excesses in Gold products. A higher excess is one of the few levers that can retain a price-sensitive client in a Gold product at renewal without 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. For advisers with younger clients in Gold products, the ability to offer a higher-excess option rather than a tier downgrade may be the difference between retaining coverage and losing it.
Two maternity proposals carry direct implications for how advisers 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 on products without 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 and reduce product flexibility. Insurers already have discretion to offer maternity through Silver Plus products where consumer demand exists. For advisers, neither proposal - if adopted - would simply make Gold more affordable for younger female clients. The maternity waiting period reduction would raise Gold premiums through adverse selection. Mandating maternity in lower tiers would raise those tiers' premiums instead. The advice challenge is that there is no structural solution on offer - only a choice of where in the premium base the cost lands.
On Hospital in the Home, Members Health supports expanding services where they improve outcomes but raises a specific concern 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 obligations to be clearly assigned where HITH services are subcontracted - a gap it says the consultation paper leaves open.
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 hospital and medical outlays for claiming policyholders aged 55 and over, while the High-Cost Claimants Pool applies to individual claims exceeding $50,000. This leaves some Gold-specific services - 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 directly to affordability pressure on Gold-tier cover.
The APRA data confirm the system is under strain. 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 advisers 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 support the same sequencing. Catholic Health Australia - representing the hospital sector - has called for faster action, noting that in the past five years more than 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."
Private Healthcare Australia's Dr David acknowledged 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.
Members Health's submission sits between those positions: supportive of the 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. Proposals in Tranche 1 do not represent government policy. For advisers with clients considering tier changes or policy cancellations in the coming renewal period, the practical message from this submission is clear: the reforms most likely to improve Gold cover affordability are not the ones currently under consultation.
