Private health care. Why community ratings are failing the young
· Michael West
Young members are abandoning private health insurance as lines are blurred between insurers and service providers, and who pays for what and when. Claudia Weisenberger reports.
In a recent article, the CEO of Private Healthcare Australia, the peak body for the private health insurance industry, argued for the use of ‘Community Ratings’, stating, “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.”
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The industry’s argument deserves fair examination before addressing its contradictions.
Community rating requires insurers to charge uniform premiums regardless of health status. A 25-year-old pays the same as a 65-year-old with multiple chronic conditions. This cross-subsidy prevents people being financially penalised for circumstances beyond their control.
The industry view. Why a health savings model could leave sick Australians behind
PHA’s objection to health savings accounts follows directly. Individual savings disadvantage those with chronic illness, congenital conditions, or disrupted employment—people who cannot save enough to cover their costs. This creates a two-tier system where wealth determines access.
These are serious arguments. Community rating protects people from being priced out due to their health status. But contradictions emerge when examining how the system actually functions.
Choice or compulsion?
Three days before defending community rating, PHA recommended Medicare Levy Surcharge increases ranging from 50% to 140%, substantially escalating the financial penalty for Australians who choose not to buy private insurance.
If community rating delivers the equity protections claimed, the product should attract customers on merit. It does not. One in seven Australians will drop coverage in 2026. PHA’s response: make leaving more expensive.
Markets delivering genuine value rarely need compulsion.
A model requiring escalating coercion is held together not by value, but by making alternatives worse.
Community rating protects only those who can afford premiums. And the pool is contracting. The 25–49-year-old share of hospital cover has fallen to 28% in 2024/25, a 27% relative loss of the individuals whose participation makes community rating mathematically viable.
Insurance redistributes from healthy to sick. But under the current system, excess contributions build no transferable asset for the member’s later-life needs. They fund other people’s current care. A 30-year-old paying premiums for 35 years contributes substantial sums, receives minimal claims, and builds zero equity.
The affordability crisis compounds this. Gold policies have risen 75% over the past decade, far outpacing the 27% increase in inflation.
Younger members face escalating costs for minimal claims while building no assets for major health episodes. Without the young pool, community rating fails arithmetically. The exodus PHA’s proposals aim to halt is itself evidence of failure.
PHA warns that health savings accounts would create a two-tier system where wealth determines care. Yet, according to APRA, more than half of Australians have no private hospital cover. They rely on public hospitals where waiting lists have grown 41.6% while premiums have risen 47% over a decade, according to Department of Health data.
A two-tier system determined by wealth exists now. Community rating protects those who can afford premiums. It does not protect those who cannot.
Alternative models exist. Singapore combines individual health savings with universal catastrophic insurance and explicit safety nets, achieving superior health outcomes at lower cost. The cross-subsidy from young to old can be retained without requiring escalating coercion.
Private health insurance. Unfit for purpose and in need of reset
Coercion is not solidarity
A system requiring tax penalties up to 140% increases to maintain participation is not solidarity working. It is a model failing to deliver value to the individuals who need it most.
When exodus meets coercion, not reform, when premiums outpace inflation while young members flee, when equity protections reach fewer Australians each year,
structural failure is evident.
Australians deserve better than compulsory premiums that build no equity and escalating tax penalties when they choose otherwise. They deserve a system that works.
This is the first in a series about private health insure reform. Next, we’ll examine where $7.9B in taxpayer subsidies actually go.