The Psychiatric Waiver: Balancing Access and Sustainability in Gold Hospital Products

Gold Hospital premiums increased by 32% to 43% between 2020 and 2024, substantially outpacing other health insurance products. Contributing to pricing pressure are utilisation patterns following policy upgrades, particularly related to legislative changes in 2018 ^[1] (2018 Psychiatric Waiver that allows one-time lifetime upgrades to Gold cover without serving standard waiting periods for psychiatric cover). I

In FY25, $81m of psychiatric hospital care was paid to members joining within the exemption period up from $44m in the first year of the scheme.  Preliminary analysis of industry data suggests that 53% of mental health admissions occur within the first three months of obtaining Gold coverage.

There are also concerns that pregnancy, IVF and weight-loss services are only required to be offered on Gold and are both high-cost (net of risk equalisation), and can also be planned. These contribute to members only remaining on Gold products for a short period while utilising these services.  This reduces direct cost to the policyholder and allows access for use of psychiatric, pregnancy, IVF and weight-loss services, but at the cost of driving Gold premium increases and reduced Gold product offerings.

This third article in our four-part series examines how waiting periods can better manage anti-selection while maintaining long-term sustainability and consumer access to comprehensive coverage.

Understanding waiting periods and the 2018 Psychiatric Waiver

Waiting periods delay access to benefits following policy commencement or upgrade and are designed to discourage opportunistic enrolment by consumers around the point of needing treatment. Under Australian regulations, waiting periods are capped at 12 months for most services.

The 2018 Psychiatric Waiver represented an important policy innovation aimed at reducing barriers to mental health care. It allows a one-time lifetime upgrade to Gold Hospital cover for psychiatric services without serving any waiting period, recognising the importance of timely access to mental health treatment.

Emerging data suggests this waiver may have created unintended consequences for product sustainability. The current structure creates opportunities for short-term enrolment patterns, where individuals purchase Gold policies, access psychiatric services and subsequently downgrade or exit insurance cover. Hospital cover is purchased on a recurring basis with guaranteed acceptance and pro-rata refunds upon cancellation, further enabling this behaviour. This dynamic concentrates costs within Gold products, the class of products which covers psychiatry, and creates pricing pressures that ultimately affect all Gold policyholders.

Additionally, consumers with medical needs which can be planned rather than emergencies can utilise the PHI system to reduce costs. This includes high cost services such as some pregnancies, IVF, weight loss, exacerbated when the public hospital system waits are greater than the PHI waiting period restriction.

International context

International health systems demonstrate alternative approaches that balance consumer protection with sustainability:

• Ireland allows waiting periods of up to five years for pre-existing conditions, giving insurers flexibility to competitively shorten them.  This spreads the insurers’ risks more effectively and reduces short-term Gold cover, protecting existing portfolio policyholders.
• The Netherlands and Switzerland both operate community-rated health insurance systems with mandatory participation. Rather than limiting waiting periods, these countries rely on compulsory coverage, reducing the need for these short-term behavioural safeguards.

By comparison, Australia’s 12-month maximum waiting period provides limited protection against short-term enrolment patterns, which has been exacerbated by the psychiatric waiting period waiver created a concentration of claims shortly after commencement of Gold coverage.

To quantify the extent of adverse selection across different service categories, following collation of structured industry data, the Working Group will conduct detailed experience analysis.

Reform options

A range of potential reforms could help balance the dual objectives of maintaining access while supporting long-term sustainability:

1. Review the Psychiatric Waiver settings:The 2018 Psychiatric Waiver has successfully reduced barriers to mental health care. However, its interaction with short-term enrolment patterns warrants review.

• Reintroduce a psychiatric waiting period for upgrades to Gold Hospital cover with psychiatric services to be 12-month, noting the issues with even a 12-month waiting period outlined above. This would retain the waiver’s access benefits and provide consumers with ongoing coverage, improving product sustainability.
• Some consumers upgrading their coverage would face delays in accessing psychiatric benefits. Careful design would be needed to ensure those with genuine need for coverage are not disproportionately affected.

2. Review service: Specific waiting period settings:

• Allow differentiated waiting periods for some services that are longer than 12 months, potentially varying by service type or age group.  Introducing two-year to three-year waiting periods on some service types would improve premium stability.
• Services with longer planning horizons are better suited to extended waiting periods, as consumers can anticipate their needs and maintain coverage accordingly. Services that could be considered for extended waiting periods include those that are often anticipated or planned, such as joint replacements, weight-loss surgery and maternity.

3. Review multi-year coverage arrangements: Multi-year arrangements would allow insurers to offer consumers the option of longer-term coverage commitments (beyond the current annual cycle) in exchange for benefits such as premium certainty or modified waiting periods.

Consumers could voluntarily commit to maintaining coverage for a defined period (e.g., 2-3 years) with locked-in premium rates or shorter waiting periods for certain services. This would be an optional product design alongside traditional annual policies.

• Allow insurers to offer contracts longer than one year, possibly with modified waiting periods in exchange for upfront premium commitments.
• This would provide security of cover for consumers and improved risk pooling for insurers.  However, affordability of lump-sum payments, complexity and future premium commitments may limit uptake; and insurers may also face additional capital requirements.

Trade-offs and policy implications

Balancing Competing Objectives

Any modification to waiting period settings requires careful consideration of multiple stakeholder interests.

Groups benefiting from recalibration include existing Gold Hospital members through improved long-term affordability; lower-tier policyholders through more sustainable risk pooling; and the sustainability of comprehensive private hospital coverage more broadly.

Groups potentially facing greater barriers include consumers seeking to upgrade their coverage who would face longer waiting periods. Consumers needing urgent access to services would be most affected, raising important equity considerations.

The Psychiatric Waiver specifically presents a complex policy challenge. The 2018 reform successfully reduced barriers to mental health care – an important policy achievement. However, the concentration of claims immediately following upgrade suggests the current settings may require recalibration to ensure long-term viability of Gold products and sustained access to mental health coverage for all policyholders.

Any changes to mental health coverage settings must be designed with particular care, given the critical importance of maintaining timely access to these services. Options such as shortened waiting periods (six months rather than 12 months), exemptions for consumers maintaining continuous coverage, or alternative risk-sharing mechanisms should be thoroughly explored.

Multi-year commitments may complicate portability between insurers that government policy seeks to preserve.  Insurers may face reduced flexibility to adjust premiums and coverage in multi-year policies, necessitating higher capital reserves. These additional costs may create pricing pressure offsetting the intended anti-selection benefits.

Conclusion

Waiting periods serve an important role in supporting sustainable private health insurance by encouraging ongoing participation rather than short-term enrolment around anticipated treatment needs. Current Australian settings warrant review to ensure they effectively balance consumer access with long-term product viability.

The Psychiatric Waiver stands out as an immediate reform opportunity.  While the 2018 reform successfully improved access to mental health care, recalibrating its settings could help ensure the long-term sustainability of Gold Hospital products that provide this coverage. Any changes would need careful design to preserve access for consumers with genuine ongoing need while addressing the pricing pressures affecting all Gold policyholders.

Broader reforms – including differentiated waiting periods for other services – offer additional pathways evident in international markets. These considerations should form part of a comprehensive discussion to strengthen Gold Hospital product viability and broader private health insurance sustainability.

This article was prepared by the Actuaries Institute Gold Hospital Products Taskforce. Views expressed aim to inform policy discussion and do not constitute formal Actuaries Institute policy positions. We welcome feedback and alternative perspectives as part of constructive dialogue on these important issues

^[1] https://www.health.gov.au/sites/default/files/private-health-insurance-reforms-supporting-mental-health.pdf