Introduction by Croakey: On Channel 7’s Sunrise program this morning, host Natalie Barr referred to “the Government’s failed legislation to scrap private health rebates for over-65s”.
Mark Butler, Minister for Health, Disability and Ageing, soon corrected this error, which appears to have been widely repeated about the Government’s private health insurance reforms.
“First of all, can I say in response to your introduction, there’s no proposal to scrap any rebates,” he said. “The vast bulk of Australians on 50, 70, $90,000 would continue to have about a quarter of their private health insurance bill paid for by the Government under our proposal.
“What would change is that a small top-up that was introduced by John Howard, which only applies to over-65s, would be removed, so that two households next door to each other would receive exactly the same support for their private health insurance, no matter what their age, if they’re on the same income.”
The Minister continued: “…I really want to sort of dispel this idea that the rebate’s being scrapped. We’ll continue to pay about $8 billion every single year to support people’s private health insurance.”
(Whether that is the best buy for Australians’ health and healthcare is a bigger debate altogether.)
Butler said the Government was removing the extra rebate paid to older Australians, introduced by former Prime Minister John Howard, because “we are so desperate to expand aged care services at a time of unprecedented demand for good aged care. And the vast bulk of that investment that we announced in the Budget would go to support aged care beds for pensioners in particular, people who don’t have the ability to pay the big aged care bonds that providers often demand.”
The Minister said he wished he did not have to come to the Cabinet with savings decisions like these, “but there’s not a magic money tree that’s able to fund this huge demand for additional aged care services that I think everyone understands out there, as the baby boomer generation starts to enter their 80s”.
“The year I came to this job, we were spending $24 billion on aged care. This year, we’re spending $44 billion. And that number’s just going to continue to climb,” he said.
Butler said he reintroduced the Bill in order to have a debate in the Senate. “What [Senator Jane Hume] and her other Coalition colleagues and the Greens party did this week was to discharge the Bill from the notice paper, which means we had no ability to have a debate and no ability to consider amendments that Coalition or Greens Senators might want to put, and no ability to hear their alternatives.”
Last month Croakey published a statement by Dr Luke Slawomirski, a health economist, policy analyst and Senior Postdoctoral Research Fellow at the Australia Institute, based on his presentation to a Senate Community Affairs Committee inquiry, explaining his support for the Private Health Insurance Amendment (Modernising the Private Health Insurance Rebate) Bill 2026.
In the article below, Slawomirski argues that the Government has done a terrible job of explaining the reforms.
Luke Slawomirski writes:
Well then, hasn’t the Government made a right old mess of selling its private health insurance rebate changes.
The Bill was effectively thrown out of the Senate this week, although Health Minister Mark Butler brought it straight back.
Whatever happens next, the episode is a useful lesson in how not to sell reform.
Every policy change creates winners and losers. Successful reform means making clear who loses, who gains, and why the trade is worth making.
The pitch here could have been very simple: “We’re redirecting about $3 billion from an already generous taxpayer subsidy for private health insurance into aged care. This is a win for older Australians and for public hospitals.”
Why? The Government said the savings would help fund a broader $3.7 billion aged-care package, including support for an additional 5,000 residential aged-care beds each year, more home-care support and specialist dementia services.
This would make quite a difference to public hospitals.
Rough calculations
Let’s do some rough calculations to demonstrate.
Around 3,500 older Australians are currently stranded in public hospitals waiting for aged care. They are medically ready to leave, but there is nowhere appropriate for them to go.
If 3,500 acute hospital beds are occupied on any given day by people waiting for aged care, that translates to around 1.28 million hospital bed-days a year.
Let’s say the increased aged care capacity can reduce the number of stranded patients by a tenth. That would theoretically free up about 128,000 bed-days a year.
Now, the average overnight stay in an Australian public hospital is 5.9 days. So, purely in capacity terms that amount of bed-days is equivalent to roughly 22,000 overnight hospital admissions.
We can go further. Since private health is all about elective surgery, let’s look at two examples: cataracts and hip replacements.
The 2026-27 IHACPA price weights for admitted acute patients put the average length of stay for Glaucoma and complex cataract interventions (AR-DRG C15) ranges from 1.1 to 2.8 days depending on patient complexity.
Using the longer stay scenario of 2.8 days to be conservative (public patients tend to be more complex than private patients but the typical length of stay is closer to 1.1 days), 128,000 bed days is equivalent, in bed-day terms, to 46,000 public cataract surgeries each year.
That’s almost a quarter of all cataract surgeries performed in Australia – public and private.
A patient undergoing an elective hip replacement (hip replacement for nontraumatic condition, AR-DRG I33), meanwhile, can expect to stay in hospital from 3.3 to 7.3 days on average.
Again, using the more complex scenario, the newly-available capacity is, in bed-day terms, equivalent to 17,000 hip replacements a year – more than a third of Australia’s annual volume of primary total hip replacements.
These numbers are rough. Constraints like hospital staffing, theatres, diagnostics and casemix would play a part. The resource-intensity of care for varies across procedures and DRGs (Diagnosis-Related Groups).
But the numbers illustrate the scale of the capacity that could be freed up when 10 percent fewer patients don’t have to wait for aged care. Even a five percent reduction would still generate impressive cuts to public wait lists.
Missed opportunity
And this is exactly the sort of calculation the Department of Health could have done…just more accurately. It has access to patient-level records and could model how long patients awaiting aged care remain in hospital, how much capacity additional aged-care places would release and – crucially – what this could do to reduce wait times.
Instead, the Government put most of its communications effort into quantifying the downside.
Its headline number was that 44,000 people would drop private health insurance by 2028–29, but documents subsequently released under FOI revealed the estimate rose to 78,000 by the following year.
These are tiny numbers compared to Australia’s 7.7 million public hospital admissions every year.
But they’re numbers. They make those who might lose something visible – while the winners remained largely out of the picture.
That left opponents with a ready-made constituency of pensioners facing higher premiums, people threatening to drop their cover, and needing to go public.
The Government could have created an equally visible constituency of older people getting an aged-care bed sooner, patients getting out of hospital when they are ready…and people getting their operation earlier as a result.
Instead, it allowed the argument to become almost entirely about what was being taken away.
What could have been “46,000 more pensioners could get their cataracts done each year” became “only 44,000 will drop their PHI cover!”.
Good policy can survive bad politics.
But it helps if someone bothers to explain who actually wins.
See Croakey’s archive of articles on private health insurance
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