While Australians struggled with the cost-of-living crisis, the three largest private health insurers of Medibank Private, BUPA and NIB made pre-tax profits of $1.7 billion in 2023-24, according to APRA data.

Even with this these huge profits they continued to ask for more. The private health insurance lobby had been pushing for increases in insurance premiums beyond inflation. On 26 February the Minister, Mark Butler, permitted an average premium increase of 3.73%, which will apply from 1 April 2025. The Minister also claimed to have considered the insurers “years of record profits” yet Medibank, BUPA and NIB all received approval for above-average increases of 3.99%, 5.10% and 5.79% respectively.

The profits of Medibank, BUPA and NIB contradict the insurance industry’s claims that “nearly every dollar that comes into health insurance goes back out to hospitals, to doctors, to physiotherapists to dentists”.

Australia’s private health insurance industry is highly concentrated with the top five insurers (Medibank, BUPA, NIB and not-for-profits HCF and HBF) accounting for 79% of all premium income.

While Medibank, BUPA and NIB made a combined $1.7 billion in profits, Australia’s 27 other private health insurers made a combined profit of just $545 million. As might be expected in a concentrated industry, the 3 for-profit companies received the lion’s share of the profit. The top 3 accounted for 59% of pre-tax profit.

These are big companies and so one might expect that their profits would also be large when expressed as a dollar amount, but when we examine their profit as a share of their equity it is clear they are making profits well in excess of community expectations.

Medicare made a whopping 45% return on equity and, as a result, now has a market value of 4.53 times its book value. A company making ordinary returns on equity would expect to have a market price roughly equal to its book value with the latter is equal to the equity. NIB and BUPA also have very high returns on equity at 40% and 34% respectively.

The other smaller health insurers made much more modest returns on equity averaging 11%, while the not-for-profits make returns closer to zero as befits a not-for-profit entity.

As The Australia Institute has noted for a long time, Australia’s private health insurance industry “is a dud.” The profit figures reported here suggest an industry in which the major players are very profitable and need very little by way of higher premiums.

Some smaller insurers may not be doing as well financially but it is not clear that the government should subsidise unviable players. Rather it might be better to encourage the unviable insurers merge with more efficient ones as, for example, the government has been doing with superannuation funds that underperform, or encourage more people back into the public health system.