Means testing the private health insurance rebate—one more attempt in a changed parliamentary environment?

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Means testing the private health insurance rebate—one more attempt in a changed parliamentary environment?

Posted 6/05/2011 by Amanda Biggs

In the 2009–10 Budget the Rudd government announced it intended to means-test the private health insurance rebate which it said would deliver savings of $1.9 billion over 4 years. The rebate reimburses 30 per cent of the cost of the premium for people who purchase private hospital cover (higher rebates apply for people aged over 65).

The budget proposed the introduction of three income threshold tiers, so that the amount of the rebate would be reduced as income rose. Those on incomes below $75,000 a year (or $150,000 for families) would remain unaffected and continue to be eligible for the full rebate. Those in the first income tier, $75,000 to $90,000 a year for singles ($150,000 to $180,000 for families), would be eligible for a 20 per cent rebate; those in the second income tier, $90,000 to $120,000 ($180,000 to $240,000 for families) would be eligible for a 10 per cent rebate, while those on incomes above $120,000 (or $240,000 for families) would not be eligible for the rebate.

At the same time and aligned with these new income tiers, the budget also proposed to increase the Medicare Levy surcharge, which is an additional 1 per cent tax on high income earners who choose not to purchase private health insurance. The budget proposed to lift this surcharge to 1.25 per cent of taxable income for those in tier 2, and to 1.5 per cent for those in tier 3. These measures were described by the government as making private health insurance 'fairer' and ensuring it remained sustainable into the future. The government estimated that 99.7 per cent of people would retain their private cover, but some in the industry disputed this.

Legislation to enact this measure failed to pass the Senate in September 2009, with the Opposition and the two Independent Senators voting to oppose it. Despite this, means-testing the rebate remained government policy with legislation re-introduced again in November 2009, debate was adjourned, but the 2010–11 Budget continued to list it as a savings measure.

It is not surprising, therefore, that that there are reports the government will try again. This time it is driven by its need to make significant savings in order to deliver on its promise to return the budget to surplus by 2012–13, and the opportunities the new configuration of the Senate after July will afford. The Greens, who will hold the balance of power in the Senate after this time, voted in favour of the means test—although they opposed changes to the surcharge—and reportedly continue to support it. Also unsurprising is the re-emergence of claims by the Australian Health Insurance Association that means-testing the rebate will mean that patients will drop or downgrade their cover, which they claim would in turn push up premium costs and place greater demands on an already over-stretched public hospital sector. Others, such as the Australian Healthcare and Hospitals Association which represents the public healthcare sector, have welcomed the prospect of means-testing and rejected the arguments made by the industry.

But, even if a smooth passage through the Senate after July could be assumed for legislation, the situation in the House of Representatives, where cross-bench support is required, is not clear at all. Here the government will need to win the support of a majority of Independents, most of whom represent country constituencies where access to health care services is a key issue. Some commentators, like Jennifer Doggett, have argued that because there are few private hospitals in the bush, the rebate is poor value for country people, who still have to pay the Medicare levy (and surcharge if they are high income earners without cover). Among other things, she argues that the rebate is poor policy and the Independents should support means-testing it because country people are low users of private health services, so it will not impact on their access to these services. Conversely, as private health services are less accessible in the country, residents of these areas must rely on the public sector. This means that the country Independents might also be sympathetic to arguments that means-testing the rebate will place a greater burden on public hospitals and increase waiting times.

The Government may therefore need to consider measures that will address concerns around access to public hospitals and health services in rural and regional areas, if it is to ensure the passage of legislation this time round.

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