Key Takeaways
- The Australian government spends $6.7 billion annually on private health insurance rebates, but these largely benefit higher-income earners who would likely purchase insurance regardless.
- There’s reason to believe that rebates actually do very little to incentivise the uptake of private insurance among older Australians.
- More targeted subsidies based on income rather than age could be better in terms of value for taxpayers while also making it more affordable for low-income Australians.
Who really benefits from private health insurance rebates?
Private health insurance rebates were introduced to make health cover more affordable and to encourage everyday Australians to take out private hospital cover. But the current system isn’t exactly serving its intended purpose. While the government spends $6.7 billion per year subsidising private health insurance, take a closer look at the numbers and you’ll see that these rebates mainly benefit higher-income earners who would likely take out insurance anyway.
So, who is really benefiting from private health insurance rebates?
And is this massive government expenditure actually providing value for money?
The original intent of private health insurance rebates
The private health insurance rebate started life back in 1999 as a universal subsidy covering 30% of private health insurance premiums for every Australian. The rationale was simple: lower the financial barriers to private health cover and relieve pressure on the public system by encouraging more Aussies to seek treatment in private hospitals.
In 2005, the Howard government raised rebates for older Australians, with the subsidy jumping to 35% for those aged 65-69 and 40% for those aged 70 and above, irrespective of their income. The belief was that older Australians – who are more likely to need medical care – would be more inclined to take out private health insurance if they had a bigger financial incentive.
Over the years, rebates have been adjusted based on income brackets rather than being universally applied, with those earning higher incomes receiving smaller rebates. That part of it makes sense. But the higher rebates for seniors have stayed a consistent feature of the system.
Are older Australians actually buying more private health insurance?
The power of these rebates in broadening private health cover among seniors has been questionable.
A study cited by The Conversation analysed tax-return data from 300,000 Australians over the 2001–2012 period. Researchers found that a 10% reduction in premium prices due to rebates only increased private health insurance uptake by 1–2% among those aged 65 and up. Doesn’t this show that rebates have very little impact on encouraging older Aussies to take up private health insurance?
For a government program that costs billions of dollars annually, such a modest bump in participation suggests a poor return on investment.
So, who benefits most from the rebates?
Despite being originally planned as being an affordability measure, higher-income Australians benefit disproportionately from private health insurance rebates these days. The reality is that for the 2024–25 financial year, singles earning up to $151,000 and families up to $302,000 still qualify for rebates, despite having the financial capacity to afford private health insurance without government assistance.
Research suggests that higher-income earners would take out private health insurance even without rebates, meaning that much of the government subsidy is a financial windfall for those who are already inclined to buy cover. By contrast, low-income earners benefit the least, as many singles and families can’t afford private health insurance even with rebates.
Portability
Don’t re-serve waiting periods when you switch to a new health fund or policy
“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”
Is the rebate delivering value for money?
The biggest question that policymakers need to ask is this: does this rebate provide good value for taxpayers? Current research suggests otherwise:
- A 10% decrease in premiums due to rebates results in only a 3.5–5% increase in private health insurance uptake across all Australians.
- Among older Australians, the impact is even smaller, at just 1–2%.
- The rebate is estimated to contribute at most 10–15 percentage points to the overall private health insurance participation rate.
With such marginal improvements in cover rates, it’s worth questioning whether the billions spent on rebates could be better spent on public hospitals, primary care and preventive health services.
What would happen if we scrapped the rebates?
It’s something worth debating. After all, one popular argument for keeping rebates as they are is that removing them would cause even longer public hospital waiting times due to an influx of newly uninsured patients.
However, as another piece from The Conversation showed, private health insurance actually has quite a minimal impact on reducing public hospital wait lists. That’s because public hospitals prioritise cases based on urgency, not your insurance status.
Income-based subsidies are a more targeted approach
Given the limitations of the current rebate structure, there have been calls to shift things to a more income-based approach. Here are a few possibilities of how a few tweaks to the system could improve healthcare for all Australians:
- Remove rebates for high earners (both singles and families), as these groups are financially capable of paying for private insurance without government assistance.
- Increase rebates for lower-income Australians, regardless of age, to make private health insurance more accessible to those who would genuinely struggle to afford it otherwise.
- Rethink the age-based rebate system, as older Australians with high incomes are already inclined to take out private health insurance.
Conclusion
It’s true that the current system is working well for lots of Australians, but there are also plenty of groups – those who are marginalised due to low income – that can’t take advantage of the top rebates simply because they aren’t in their senior years. Given that the rebate structure has already changed a number of times since its inception in 1999, it’s possible that it could become a more equitable system in the years to come.
If you are looking to take advantage of the private health insurance rebates, speak to the team at Fair Health Care Alliance today to find out which policy best suits your current circumstances.
FAQ's
Singles earning up to $151,000 and families earning up to $302,000 qualify for rebates, with the amount decreasing as income goes up.
While the majority of private health insurance holders receive some rebate, higher-income Australians – especially seniors – benefit the most, as they are more likely to take out cover even without government support.
