Webinar: Health Economics

Affordability Under Pressure

Australia's health system faces mounting strain from an ageing population, escalating chronic conditions, and high expectations for access to new treatments. The Pharmaceutical Benefits Scheme (PBS), which subsidises prescription medicines, remains a cornerstone of affordability, but recent changes underscore both progress and challenges.

In January 2026, the maximum general PBS co-payment dropped from $31.60 to $25—the second reduction in the scheme's history. This directly lowers out-of-pocket costs for millions filling scripts, providing relief amid cost-of-living pressures that have driven broader economic concerns.

Yet this concession comes against a backdrop of broader fiscal tightening. Private health insurance premiums rose by an average 4.41% from April 2026—the largest increase in nearly a decade—prompting questions about value, as the proportion of premiums paid out in benefits has fallen and participation in private cover has declined.

Central to these dynamics is the health technology assessment (HTA) framework, overseen by bodies like the Pharmaceutical Benefits Advisory Committee (PBAC). A major review completed in 2024 produced 50 recommendations to update methods for evaluating cost-effectiveness, equity, and other factors in funding decisions for medicines and medical services. An advisory group established in 2025 is translating these into a sequenced implementation plan, targeted for January 2026.

These reforms could ease market entry for innovative therapies—particularly high-cost cell and gene treatments—while addressing criticisms that current processes undervalue certain benefits or delay access. However, they also risk tighter reimbursement criteria if budgets remain constrained, creating trade-offs between innovation and affordability.

Non-obvious tensions include equity considerations: recent analyses show PBAC tends to favour funding paediatric medicines over adult ones even at similar cost-effectiveness, reflecting implicit social value judgements. Meanwhile, broader health expenditure continues climbing as a share of GDP, with calls for prevention and productivity gains to offset demographic pressures without eroding universal access principles.