A closer look at the Australian private health insurance rebate
If you have used your private health insurance (PHI), you'll understand how valuable it is. In fact, CEO of Private Healthcare Australia Dr Rachel David states that 84 per cent of people with PHI want to keep it, even though the average income of someone with a policy is under $50,000. That's according to an article that Dr David published on January 26, outlining the reasons why the government rebate on PHI in Australia is an important part of keeping the health insurance industry viable.
Misinformation makes the rebate seem like it's costing the government a lot more than it really is.
There were three measures introduced by the Howard coalition in the early 2000s - Lifetime Health Cover, the Medicare Levy Surcharge, and the 30 per cent PHI rebate. The rebate in particular, which was originally 30 per cent of the premium applied as a reduction in premiums by the health insurers or as a direct rebate to policyholders, has been far more affordable than many first thought, because of legislation passed in the last eight years. Misinformation makes the rebate seem like it's costing the government a lot more than it really is.
What legislation is making the rebate cheaper for the government?
The 2009-10 federal budget included a change to means testing for the rebate that commenced in 2012, according to Dr David. Over the four years to July 2016, this was predicted to save the government as much as $6.78 billion. Further legislation regarding the Medicare Levy Surcharge, Lifetime Health Cover and inflation indexed rebates were predicted to save almost $1.5 billion more by the end of the 2017-18 financial year.
Thus, rebate costs to the government will decline over time, not become more expensive. This is not only good news for the government (planning future budgets), but also for the health insurance industry as a whole.
"While it is understandable that government needs to make budget savings, it is arguable that savings in the area of rebates for PHI premiums are counterproductive," comments Managing Director for Health Insurance Consultants Australia Jethro Still.
"I think it is generally agreed that PHI diverts excessive demand away from the public system where the government pays 100 per cent of the cost of treatment. The reductions in rebates over time will exasperate the issue of affordability and eventually see a migration of the people that can least afford PHI across to the public system. One of the more inauspicious outcomes is that health insurers, in their attempts to maintain affordability and retain customers, will produce products that simply do not represent value or leave consumers bereft of adequate quality coverage."
What effect has this legislation had on the real cost of the PHI rebate?
The 2013-14 forecast for the rebate was $5.5 billion, but a year later, the actual cost was just $3.7 billion.
The government expenditure on the rebate was supposed to be 30 per cent - but that's not the case. The means testing process provided that some customers should not receive the same amount as others, and that some customers weren't eligible at all. The highest tier for the rebate currently only costs the government 27 per cent of the total premiums, and it is predicted to decrease to just 16 per cent by 2026 if nothing changes, states Dr David.
Real expenditure on the rebate is calculated by the Australian Taxation Office, after it is predicted in a report a year earlier. For example, the 2013-14 forecast for the rebate was $5.5 billion, but a year later, the actual cost was just $3.7 billion. With government payments for the rebate expected to drop even further over the next 12 months, the real cost to the Australian government will be lower.
For more information about choosing the right private health insurance policy for your needs, and to chat about what rebate you may be eligible for, get in touch with HICA today.
