Australia’s private health insurance industry is in a death spiral. Government and the industry must come together to agree on a new industry plan to ensure the private health system is sustainable.

Grattan Institute and others have for years identified the problems with, and proposed solutions for, the health insurance market. But it’s now clear that regulatory tinkering, government handouts, and blame shifting are not going to solve the industry’s fundamental problems.

The causes of the death spiral are well known. An ageing population, increased use of healthcare services, and rising healthcare costs are driving up the amount of benefits that insurers have to pay out each year. As benefits paid increase, so do premiums. Rising premiums make health insurance less affordable and less attractive – particularly to younger and healthier people. As younger, healthier people drop their insurance, the insurance risk pool gets worse, premiums go up, more young people drop out, and the cycle continues.

Change is inevitable. But at the moment each industry player is looking out for themselves, and policy settings inhibit many sensible reforms. All players need to come together to create an industry rescue plan: governments, insurers, private hospitals, device importers and manufacturers, and private specialists. Their joint interest in the sustainability of the sector must be brought to the fore. It’s up to the major political parties to create a stable policy environment in which the federal government can build consensus among the competing interests.