A 150-run defeat, England's third heavy loss in succession, would have been even bigger had it not been for a magnificent century by Ben Stokes in only his second test match, and McGrath said it was time England tried something different.
"England have issues both with bat and ball, they are going to have to make some changes because if you keep doing the same thing hoping for a different result that's the definition of insanity," McGrath told BBC radio.
"From day two in Brisbane I was happy to jump back on the bandwagon and say 5-0 and we're well on the way aren't we."
Former England batsman Geoffrey Boycott, also working for the BBC's commentary team, said coach Andy Flower must decide his future quickly, for the good of the team.
"The first question the English cricket board should be asking themselves and asking Andy privately is are you staying or going because if you're going, sooner the better, then we move on," Boycott said.
"If you are staying - and he's a good man - then we got to start now. You've got to start planning, you've got to have the mental strength, tenacity and desire to build another team to get the Ashes back."
McGrath said Australia's stunning return to form began during the away series in England earlier this year which the visitors lost 3-0 despite competing hard.
"The way the last Ashes series went in the UK 3-0 was probably not a true indication of how close the series was," McGrath said. "At the start of that series they were a shambles but they had a change of coach, Darren Lehmann coming on board, and felt a bit more settled and things started to turn around.
"I'm not surprised what has happened in this series, Darren Lehmann has played a big role, the Australian team needed to get back to the old school where you work hard but enjoy it, the boys are happier and I think they have got it right."
The fourth test starts in Melbourne on December 26.