Key Takeaways
- Private health insurance rebates are decreasing from 1 April 2025, with the base-tier rebate dropping to 24.288% for under-65s.
- Higher premiums and lower rebates could make private health insurance less affordable for low- and middle-income earners.
- To manage these costs, always compare funds and adjust your cover before the April changes.
A double hit for Australian households
From 1 April 2025, Australians with private health insurance will face a double financial setback – not only are premiums going up by 3.73% on average, but for the first time since the COVID-19 pandemic, government rebates on private health insurance are also being reduced.
The cut means that many policyholders – especially low- and middle-income earners – will get less financial support from the government to help cover their premiums. As living costs continue to worsen, this sort of change will pile even more pressure onto households that are already struggling with inflation, mortgage repayments and everyday expenses.
So, just how significant are these changes? Who will be impacted the most? And what – if anything – can you do to offset the pain?
How much are rebates being reduced by?
The private health insurance rebate was introduced to encourage Australians to take up private health cover and ease pressure on the public hospital system. But since 2014, the rebate has been gradually declining, and 2025 will mark another notable drop.
For Australians under 65, the base-tier rebate will fall to 24.288% – a staggering drop from its original 30% when first introduced.
Here’s how the new 2025 rebate percentages compare across different age groups and income tiers:
| Age | Base Tier | Tier 1 | Tier 2 | Tier 3 |
|---|---|---|---|---|
| < 65 | 24.288% | 16.192% | 8.095% | 0.000% |
| 65-69 | 28.337% | 20.240% | 12.143% | 0.000% |
| 70+ | 32.385% | 24.288% | 16.192% | 0.000% |
| Income Limits | up to $97,000 for singles / $194,000 for families | $97,001 - $113,000 for singles / $194,001 - $226,000 for families | $113,001 - $151,000 for singles / $226,001 - $302,000 for families | $151,001+ for singles / $302,001+ for families |
What does this mean for policyholders?
- If you’re under 65 and in the base tier, your rebate is lower than in previous years.
- If you fall into higher income brackets, the reduction is even more sizeable.
- Older Australians will still get higher rebates, but they will also experience a reduction compared to previous years.
The reality is that this change will result in higher out-of-pocket costs for our private health insurance premiums – even before factoring in the 3.73% average premium increase.
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”
Why is the government reducing the rebate?
The rebate is adjusted every April using the Rebate Adjustment Factor (RAF). It’s a formula based on the difference between inflation (CPI) and the industry’s average premium increase. For 2025, the RAF is 0.987, which means that rebates have been reduced across all income tiers and age groups.
The federal government is arguing that the rebate cut is necessary to keep health spending sustainable. But not-for-profit health insurers and consumer advocacy groups warn that it will only make private health insurance less affordable for Australians.
As Members Health CEO Matthew Koce puts it, it’s a decision that’s particularly unfair given we’re in the midst of serious economic hardships: “Cutting the rebate is hurting affordability for lower and middle-income earners. Given public hospital waits can stretch into years, the last thing anyone would want is for people to be forced into dropping their health cover.”
In other words, reducing support for private health insurance could backfire by putting even more pressure on Australia’s stretched-thin public hospitals.
The potential consequences of lower rebates
With premiums increasing and rebates dropping, some Australians might feel forced to downgrade to a lower hospital cover tier or drop private health insurance altogether.
We know that more than 400,000 Australians have already moved from Gold-tier policies to cheaper cover since 2020 – and it’s a trend that could very easily accelerate with this rebate reduction.
Plus, if more Australians leave the private system, public hospitals will bear the brunt. Some elective surgeries already have waiting lists of over a year, and the Australian Medical Association warns that further strain on the public system could increase delays for essential treatments.
There’s also an issue for younger Australians – dropping private cover now could mean higher costs later thanks to Lifetime Health Cover (LHC) loading. It’s a penalty that adds 2% to your premiums for every year you don’t have private hospital cover after age 31, making it less enticing – and much more expensive – to rejoin later in life.
How to keep your healthcare costs down in 2025
- Compare health funds before 1 April: Not all funds are raising prices by the same amount. Not-for-profit health insurers tend to offer better value, so comparing policies before the April increase could help you lock in lower premiums.
- Review your extras cover: Extras cover is useful, but many Australians pay for extras they don’t even use. If you’re paying for massage, acupuncture or high-level optical benefits but don’t claim them, think about switching to a policy that better matches your needs.
- Up your excess: A higher excess (the amount you pay if admitted to hospital) can lower your premiums. If you rarely need hospital care, increasing your excess could mean big savings over time.
- Find perks and incentives elsewhere: Some funds will give you discounts or waive waiting periods, or even have extra perks and reward programs. Look for funds that are all about adding value beyond just the price of your premiums.
- Pay your premiums annually: If you can afford to, pre-paying a year’s worth of premiums before April could lock in your current rate before the price hike takes effect.
To sum up...
This latest rebate reduction is yet another cost-of-living pain point for Australians. With both higher premiums and less government support, it’s more important than ever to take control of your health insurance choices.
If you already have private health insurance, now is the time to review your policy and see whether you’re getting the best deal around. If you’re thinking about dropping your cover, think carefully about the long-term impact on costs and waiting lists. And if you need help finding a better policy, contact Fair Health Care Alliance for a free, no-obligation health insurance review and see how you can compare and save despite rising costs.
