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Private health insurer HCF has agreed to cover the costs of its members staying in public hospitals in a bid to avoid the NSW Government raising state taxes in the sector.

Chief executive Sheena Jack said the fund had “reluctantly accepted” the deal, after legislation was passed by the NSW parliament on Thursday night that allows the government to tax insurers a maximum of $3.27 per person per week – up from to $1.77.

Treasurer Daniel Mookhey said he hoped the remaining big three insurers – Medibank, Bupa and NIB – would follow suit, but the industry warned premiums would rise as a result.

How I got here

The gazetted single room rate is the fee charged to patients who are not covered by Medicare or who choose to use their private coverage. It is set by the state government to offset part of the cost of a patient’s stay.

In the last state budget, Treasurer Daniel Mookhey promised to claw back $490 million over four years by forcing health insurers to pay the set rate – currently $892 a night – for private patients staying in public hospitals.

After the four biggest health funds (HCF, NIB, Bupa and Medibank) refused, the government decided to raise the money in another way – by increasing the fee charged on each private health policy taken out in NSW.

That legislation passed the upper house on Thursday, giving the government the option to levy a higher tax.

NSW is the only state that charges a surcharge for private health insurance.

Why it matters

The cost of providing healthcare rose 5.7 per cent over the past 12 months, which the Australian Bureau of Statistics said was due to a 6.7 per cent increase in the cost of medical and hospital services.

Wage costs, medical supplies and electricity prices have all risen, and the Minns government is trying to contain spending while finding new ways to generate revenue.

At the same time, health funds are under pressure from private hospitals to cover their inflated costs.

While insurers have generated record profits during the pandemic, Private Healthcare Australia (the peak body representing health funds) says these cost pressures will inevitably lead to higher premiums for members.

Citing models from economic consultancy Mandala, the peak body said the higher tax would lead to a 4.1% rise in premiums, meaning individuals would pay $78 more and families $156 extra dollars.

Modeling suggested this would result in 75,000 people losing coverage altogether.

What they said

What’s next

Mookhey said the government is still open to negotiating bills with other for-profit health insurers.

The NIB currently pays the state $491 a night for their members to stay in a single room, Bupa pays $501 and Medibank $515. If it agreed to pay the full installment, the Treasury estimates the government would have an extra $86.8 million a year.

If they refuse, the government now has the option of raising the money by raising taxes on all health funds. Private Healthcare Australia has launched an aggressive TV, advertising and social media campaign against the tax, arguing it would force more people into the public system and put extra pressure on emergency departments and surgery waiting times.

The proposed premium increases are being reviewed by the Australian Prudential Regulation Authority (APRA) and must be approved by federal Health Minister Mark Butler before they can be applied to members’ policies.

Last year, Butler approved a 3.03 per cent rise, lower than the annual rate of inflation of 4.1 per cent, but health funds are expected to cite the NSW ruling when lobbying the Commonwealth for a higher rate next year.

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