Young adults are leaving private health insurance — and the biggest impact may be on insurers, not public hospitals
A continued slide in private cover, led by younger adults
Private health insurance participation in Australia is continuing to fall, and the decline is being driven most visibly by younger adults. New data released by the private health insurance regulator for the three months to the end of 2019 show that, compared with the same period a year earlier, 44,000 fewer people aged 25 to 34 held private health insurance.
Across the whole population, the share of people with some form of private hospital insurance is also lower. It has fallen by 0.7 percentage points compared with the December quarter in 2018 and now stands at 44.0%. That headline figure is often used as a shorthand for the health of the private system. But it does not, by itself, explain who is leaving, what cover they had, and what that means for insurers, consumers, and the public hospital system.
The private health insurance industry argues that a “youth exodus” will put major additional pressure on public hospitals. Yet the relationship between falling private coverage and demand for public care is more complicated than that claim suggests. The changing composition of the insured population affects different stakeholders in different ways — and the largest immediate downside may land with insurers and remaining members rather than with public hospitals.
An ageing insured population changes the economics
While younger adults are dropping cover, the insured population is getting older. The same dataset shows there are 60,000 more people aged 70 and over with private health insurance than a year ago. As a result, the average age of a person with private health insurance continues to creep upwards.
This matters because insurance relies on pooling risk across people with different expected health costs. Younger people, on average, use hospital care less than older people. When younger members leave in greater numbers, the “risk pool” worsens: the remaining membership is, on average, more likely to claim. That dynamic can push up the price of insurance for everyone.
Higher premiums can then trigger further departures among younger and lower-claim members, reinforcing the problem. In industry terms, this feedback loop is often described as a “death spiral”: fewer low-cost members remain, premiums rise, and still more low-cost members exit. The result is a private health insurance market that becomes increasingly expensive for those who stay and increasingly difficult for insurers to sustain without losing membership.
Who loses when young people leave?
The consequences of younger members leaving are not evenly distributed. The most direct losses fall on insurers and on remaining policyholders.
Insurers lose premium-paying members. Fewer people paying premiums reduces revenue and worsens the balance of claims risk.
People who remain insured can face higher premiums as the pool becomes older and higher-claiming on average.
The public hospital system may not see a proportional jump in demand, because those most likely to leave are also those least likely to use hospital services in the first place.
This is the key point often missed in public debate: a falling coverage rate does not automatically translate into a matching increase in public hospital activity. It depends on which people leave, how frequently they would have used hospital care, and whether their policies would have covered the relevant services anyway.
Why a youth-led decline does not automatically flood public hospitals
A critical question is what happens to demand on the public system as the proportion of people who are privately insured declines. The people most likely to drop out are younger people and those who do not expect to use hospitals much. Logically, that profile suggests only limited movement of hospital admissions from private to public care.
In other words, if the people leaving were rarely going to be admitted to hospital, there are fewer admissions available to “shift” from private to public. This does not mean there is no impact at all — only that the size of the effect should be assessed realistically, rather than assumed to be large because the membership numbers are large.
Coverage levels matter: not all private insurance is the same
Private health insurance products are now differentiated into Gold, Silver, Bronze, and Basic tiers, with “+” designations for the last three. Public discussion often focuses on the number of people insured and overlooks what their policies actually cover. But the level of cover is central to understanding how changes in membership could affect public hospitals.
About 41% of insured people have cover with “no exclusions” — the equivalent of Gold. That means less than 20% of the total population has insurance coverage for all conditions. Put differently, a substantial share of people who hold private health insurance are not fully covered for all hospital treatments. Many already rely on the public system for procedures that are excluded from their policies.
This limits the extent to which a reduction in private membership can increase public demand for certain services, because for some treatments the public system was already the default option for many insured people.
Examples: maternity and joint replacements illustrate the limits
Two common examples show why the link between membership decline and public hospital pressure can be overstated.
Maternity care is usually only covered at the Gold tier. People holding Silver, Bronze, or Basic products were presumably always going to have their baby in a public hospital. If membership falls among people with those lower-tier products, it would have no impact on demand for maternity care in public hospitals, because their policies did not cover that care in the private system in the first place.
Joint replacements, such as hips and knees, are also normally covered only in Gold products. The same logic applies: if a person’s policy does not cover a service, their private insurance status is less relevant to where they receive that care.
These examples do not imply that private insurance is irrelevant to hospital demand. Instead, they highlight why it is not enough to count how many people have a policy; it is also necessary to consider what that policy includes and excludes.
Insurance is “sticky” — but the stickiness varies by age
There has been extensive research attempting to predict the impact of declining private insurance on public hospitals. One consistent finding is that consumers are relatively slow to respond to changes in the price of insurance. Private health insurance is therefore often described as “sticky”.
Once insured, people — especially older people — tend to stay insured. When premiums rise, they may respond by downgrading their cover (for example, moving from Gold to Silver) or by taking on a higher excess that they must pay if they go to hospital. Importantly, taking on a higher excess is unlikely to make them choose a public hospital instead. This suggests that premium rises can change the generosity of cover without necessarily shifting large numbers of hospital episodes from private to public.
The biggest changes in terms of dropping out are happening among people who are new to private health insurance — younger adults who have not established a long history with insurance. That is where participation is falling most sharply.
A slow-moving “death spiral” and what modelling suggests
Modelling described in the extracted material suggests the “death spiral” dynamic is real, but slow. The expectation is that people over 70 will probably still be insured at much the same rate over the next ten years. By contrast, people under 70 are expected to drop out, with people under 55 leaving more rapidly.
This pattern is consistent with the idea that older members are more likely to retain cover even as premiums rise, while younger members are more likely to decide that the cost is not worth it — particularly under a system where premiums are not closely aligned with an individual’s expected use of care.
Why younger people may see private insurance as poor value
Younger people are described as getting a bad deal from private health insurance. Under Australia’s system of “community rating”, the premium a young adult pays is essentially the same as the premium everyone else pays. Yet younger people, on average, have lower expected hospital use than older people.
That creates a gap between what younger members pay and what they are likely to receive in benefits. The extracted material argues that this gap is getting worse, and that it helps explain why young people are leaving in large numbers.
From the perspective of the insurance system, this is a structural challenge. If a product is perceived as poor value by the group that is least likely to claim, the pool becomes increasingly concentrated among people who expect to use it — which is precisely the scenario that drives premiums higher and membership lower over time.
What this means for public hospitals: pressure is not automatic
The private health insurance industry’s argument that falling youth coverage will create massive additional pressure on public hospitals does not necessarily follow from the data and the logic outlined above. If the people leaving are those who use hospital care infrequently, the number of admissions that could shift to the public system is limited.
In addition, because many insured people do not have comprehensive cover — and because key services such as maternity care and many joint replacements are typically covered only at the Gold tier — a reduction in lower-tier membership does not automatically translate into a surge in public hospital demand for those services.
This does not mean public hospitals face no challenges, or that private insurance plays no role in the broader health system. It means that the impact of declining private membership should be assessed with attention to who is leaving, how “sticky” different groups are, and what services their policies actually covered.
The bottom line: insurers and remaining members feel the hit first
The clearest, most immediate impact of younger adults leaving private health insurance is on the private system itself. Insurers lose premium revenue and face a worsening risk pool. People who remain insured can face higher premiums as the membership base ages and claims risk rises.
By contrast, the public hospital system is not guaranteed to experience a large, immediate increase in demand simply because overall private coverage falls. The people leaving are disproportionately younger and less likely to use hospital care, and many of those with lower-tier products already depend on the public system for excluded services.
Understanding these distinctions is essential for a grounded debate about private health insurance and the policy settings that shape it. Membership numbers matter, but so do the age profile of members, the level of cover they hold, and the real-world pathways people take when they need care.