Introduction by Croakey: Many groups have been sounding the alarm about the Federal Government’s planned private health insurance reforms, which would remove the higher premium rebate provided to people aged 65 years and older, as detailed recently in multiple editions of The Zap.
Some state and territory governments have also been vocal in their opposition, the ABC reported this week.
However, researchers from the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne argue the reforms deserve support based upon their research and peer-reviewed evidence, and that they correct “a poorly targeted subsidy”.
In their submission to a related Senate inquiry, health economist Professor Yuting Zhang and colleagues say there are good policy reasons to support the Private Health Insurance Amendment (Modernising the Private Health Insurance Rebate) Bill 2026, as it will improve equity.
Additionally, they say “the economic rationale for incentivising older Australians to purchase private health insurance is unclear”.
“If we want to target financial support to those most in need of support, income is a better basis to achieve this than age,” says the submission. “Even after the proposed change, because of community rating, older Australians will continue to receive substantially more in benefits than they contribute in premiums.”
Meanwhile, health economist Professor Stephen Duckett, presenting yesterday to the Senate Community Affairs Committee inquiry, highlighted the submission by Zhang and colleagues.
He suggested that opposition to the reforms sounds like Henny Penny, a chicken who mistakenly believes the sky is falling in when an acorn lands on her. His presentation follows below.
Stephen Duckett writes:
An acorn has dropped on the head of the private health insurance industry, and they are all running around crying that the sky is falling. Like Henny Penny, or Chicken Little, they are misleading themselves, the Parliament, and the Australian public.
My colleagues, who will present after me, have shown in their meticulous submission, based on their research, that there is no evidence for the industry’s scaremongering claims. The acorn is just an acorn.
But it is useful to unpack what is actually happening.
We know that when the rebates increased for over 65s, few older people took up private health insurance, not much happened. It is likely that if this legislation is passed not much will happen.
Because health insurance purchases are quite sticky – that is, people tend to stay with insurance once they have it – health insurance is essentially price inelastic, so there may be even a smaller impact than the government estimated.
The current structure of an extra age-related subsidy for private health insurance is an example of a failed policy. But it is a very expensive failed policy, with just the 65+ add on costing more than $700 million a year (based on government estimate of savings of $3b over 4 years), that is money that should be redirected to more useful purposes.
But the Henny Pennys in the private health insurance industry want to keep this wasteful spending, rather than addressing the real problems of the industry, which contribute to the fact that it is a bad product.
Insurers pay too much for devices, and some surgeons charge way too much for operations, leaving patients with huge out of pockets. No wonder consumers are dropping their levels of insurance.
To return to the Bill. If you were a rational 70+ consumer you would look at the premiums currently paid and your expected payout and decide that it is a rational purchase. But consumers don’t do that.
What the industry is telling us is their product is so bad, that consumers will drop out in droves unless there is an extra subsidy over and above what other private health insurance consumers receive. And they say that with a straight face.
The Commonwealth has estimated that about 44,000 people will drop insurance as a result of this change, and this is probably an overestimate. This is about 1.6 percent of the 2.7 million over 65s who have private health insurance now.
A drop of 44,000 over 65s with private health insurance will still leave more over 65s with private health insurance than there were this time last year.
More Henny Pennys
I also want to mention the states. A number of state Henny Pennys have claimed this will have a huge impact on their public hospital systems.
Assuming all those were in private hospitals, and they all swap over, the 1.6 percent shift means that Tasmanian public hospitals might have to accommodate a maximum of an extra three elective admissions each day, spread across the whole state. This is not the overwhelming impact that reading those state submissions might have you believe.
Although all the credible evidence suggests the impact of the proposed change will be trivial, the industry has produced many anecdotes about potential adverse impacts on individuals of the change.
One way of reconciling this may be to allow insurers to discount premiums for people over 65, similar to the freedom given to insurers to offer discounts to people under 30.
The maximum discount might be kept at, say, eight percent, vary by type of level of insurance (gold, silver etc.), depend on how long the contributor has been insured with that insurer, or restricted to full age care pensioners. This would allow more nuanced market responses, rather than a one-size-fits-all approach.
In conclusion, an acorn has fallen on the head of the private health insurance industry. It is just that.
The sky is not falling in and will not do so. The public hospital system will not collapse, and nor will the private sector. I support the Bill.
https://www.austaxpolicy.com/carrot-or-stick-what-separating-australias-health-insurance-penalty-from-its-subsidy-reveals-about-smarter-tax-design/
https://theconversation.com/health-insurance-rebates-may-change-for-the-over-65s-our-new-study-shows-what-to-expect-289146
See Croakey’s archive of articles on private health insurance
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