State and territory leaders have rejected the Commonwealth's latest health funding proposal, stating it falls short of covering their increasing costs. The new funding arrangement for public hospitals, which are managed by the states and territories and partially funded by the Commonwealth, was initially agreed upon in principle at a national cabinet meeting in 2023. The plan aimed for the federal government to raise its funding share to 42.5% by 2030 and 45% by 2035. In return, states and territories would co-fund foundational supports intended to transition some individuals off the National Disability Insurance Scheme (NDIS) to help control rising expenses.

Health Minister Mark Butler previously indicated that the deal would result in an increase of $13.2 billion in funding for states and territories between 2025 and 2030. However, negotiations have stalled due to disagreements over the transition process for individuals moving from the NDIS to the new foundational supports program. In August, the government announced a revision of the scheme, introducing "Thriving Kids" to facilitate the transition of children with mild autism from the NDIS, which surprised state and territory leaders.

Nearly two years after the initial agreement, the Commonwealth has proposed an additional $20 billion over five years to the states. A government spokesperson noted, "This is a $7 billion increase from the Commonwealth's most recent offer to states." However, state leaders have expressed concerns that this new offer represents a significant reduction from the original commitment to fund 42.5% of hospital costs. They argue that the actual share of Commonwealth funding would be closer to 35%, resulting in a shortfall of tens of billions of dollars.

The Council for the Australian Federation released a statement warning that this shortfall would hinder the states' and territories' ability to provide essential hospital services. They acknowledged the need to manage rising costs but emphasized that many of these increases stem from factors beyond their control, such as post-pandemic inflation, workforce shortages, and the growing complexity of patient care.

Tasmanian Premier Jeremy Rockliff highlighted the potential impact on his state, stating that if the Commonwealth reneges on its agreement, it could cost Tasmania approximately $673 million over five years. He noted, "That's the equivalent of 128,000 elective surgeries. That's the equivalent of 1.2 million emergency department presentations."

The state and territory leaders reiterated their commitment to assist the Commonwealth in reforming the NDIS, including through the original foundational supports agreement. They expressed a willingness to engage in constructive discussions regarding hospital funding but raised concerns that the new offer would not benefit every state and territory.

A federal government spokesperson stated that the Commonwealth aims to finalize the agreements by the end of the year, reaffirming its commitment to the December 2023 National Cabinet deal. They emphasized the goal of making a fair contribution under the hospital funding agreement to improve access to necessary health services and alleviate pressure on hospitals. Additionally, under a one-year extension of current hospital funding arrangements for this financial year, the Commonwealth has provided an extra $3.71 billion to states and territories.