Means testing for private health rebate on the cards

A new report has found the private health insurance industry increased its premium revenue by $1.25 billion in the last financial year, providing further evidence to Parliament that the industry is healthy and robust, and would not be significantly affected by means-testing of the private health insurance rebate.

Minister for Health Tanya Plibersek said the Private Health Insurance Administration Council's Operations of Private Health Insurers Annual Report 2010-11, showed premium revenue for the industry increased by 8.8% on the previous financial year, to a total of $15.4 billion.

She said the report also showed that benefits paid out to members increased by 7.6% and that 45.3% of Australians were covered by private hospital insurance at the end of the last financial year.

"Because the private health insurance industry is in a strong financial position, it is not appropriate for lower and middle income Australians to be subsidising the health insurance of millionaires," said Ms Plibersek.

"And while the industry grows, so does the cost to taxpayers of the private health insurance rebate—so that if we don't act now the rebate will deprive the wider Australian health system of $100 billion over the next 40 years."

Ms Plibersek said private health insurance incentives were introduced in 1997 when the sector was struggling and incentives were required to encourage Australians to take out policies.

However, the private health insurance rebate is now one of the fastest growing areas of health expenditure, and is expected to cost taxpayers around $5 billion in 2011-12. The Government's reforms would save taxpayers about $2.4 billion over three years.

"As the administration council's report shows, the 2010-11 financial year was good for the industry, with margins and investment returns on the increase."

All families and individuals that pay private health insurance premiums are eligible for the rebate on the cost of the insurance. This means all taxpayers subsidise the rebates given to high income earners.

"The proposed changes to the private health insurance rebate will ensure Government subsidies are focused on the millions of low and middle income Australians who need assistance."

Nearly eight million private health insurance policy holders won't be affected by the changes at all. If means testing applied now, individuals earning around $80,000 or less and couples and families earning around $160,000 or less would not be affected. Families would need to be earning around $248,000 or more to lose the rebate entirely.

She said Treasury modelling estimates that, after these changes come into effect, 99.7% of people will remain in private health insurance as a result of incentives such as Lifetime Health Cover and the Medicare levy surcharge.

(Source: The Hon Tanya Plibersek MP Minister for Health: Operations of Private Health Insurers Annual Report 2010-11)