Rising Mental Health Claims Strain Private Health Coverage in Australia
HCF reveals that mental health claims are significantly impacting Australia's gold-level private health insurance, prompting concerns about future affordability.
Australia's private health insurance landscape is experiencing increased strain due to rising mental health claims. According to HCF, the country's third-largest health fund, a staggering 90% of claims from gold-level coverage are for mental health services, threatening the sustainability of premium costs for members.
Concerning Trends in Claims and Costs
HCF's CEO, Lorraine Thomas, shared these insights while emphasizing the urgent need for reform within the mental health sector. The average cost of an overnight stay for mental health treatment at HCF surpasses $15,500 as of 2025. Without necessary changes, maintaining affordability for gold policies is becoming increasingly challenging.
The fund's estimates indicate that private health funds paid approximately $749 million for mental health treatments in the 2024-25 financial year, representing around 4% of all claims. Overnight admissions account for the majority of these expenses, totaling $629.6 million, while same-day care contributes another $119.3 million.
Escalating Costs Impacting Premiums
Recent statistics reveal that the average benefit paid for mental health admissions has surged from $3,386 in 2019-20 to $3,980 in 2024-25, reflecting an 18% increase. Overnight treatments showcased an even steeper rise, with costs climbing 24% from $12,515 to $15,541. Patients facing acute mental health episodes now average a stay of 19 days, and HCF predicts this trend will persist.
The financial burden associated with severe cases of mental health conditions is comparable to that of major orthopedic surgeries. For instance, the average payout for treating major affective disorders, including bipolar disorder, reached $23,774 in 2025, while knee and hip replacements cost $24,157 and $27,652 respectively.
Declining Memberships and Premium Increases
In parallel with rising costs, the number of members purchasing gold insurance is steadily declining. HCF reports that gold-level policies formerly accounted for 28% of the total hospital cover market, a decline from 40% in 2019. During this same period, the average premium for gold coverage skyrocketed by 71%.
Consumer advocacy group CHOICE has echoed these troubling trends, noting premium increases of as much as 25% for some gold policies, including HCF's Hospital Optimal Gold product. With competing insurance providers also withdrawing gold policies from the market, the burden of high-cost claims is no longer equitably distributed, exacerbating the issue for remaining policyholders.
Calls for Reform to Address Mental Health Care Funding
HCF advocates for systemic reform to address these challenges effectively, proposing that insurers be allowed to cover mental health treatments before hospital admission. Current regulations limit coverage to inpatient services, but allowing out-of-hospital care—such as psychiatric visits—could prevent longer, more expensive hospital stints.
Bupa, a fellow major health insurer, has made similar recommendations, suggesting amendments to the Private Health Insurance Act 2007 to support early intervention and community-based care, projecting that such changes could avert around 41,000 annual hospital admissions.
Impact on Life Insurance and Employment
The mental health crisis isn't just a challenge for health insurance; life insurers are also grappling with rising claims, which reached $2.2 billion in 2024—almost double the figure from five years prior. This has made mental health issues a leading cause of total and permanent disability claims.
Employers are seeing a similar impact in the workplace, with the number of serious mental health-related workers' compensation claims climbing to 17,600 in 2023-24, marking a 14.7% increase from the previous year, and a staggering 161% rise over the past decade. Young workers are often at the forefront of this upward trend, influencing how mental health issues are reported and understood in the workplace.
Weighing Options for Policyholders
For individuals holding gold-level coverage largely for mental health services, changes could alter their coverage landscape significantly. Currently, members can upgrade their policies to access psychiatric care without serving a waiting period. However, maintaining this care is essential for those considering downgrading their plans, as many crucial procedures also fall under gold coverage.
As Australia navigates this complex landscape, the pressing question remains: will reforms be implemented in time to alleviate the pressures on private health insurance systems and help policyholders maintain affordable coverage?
