Private health insurance rebate to deliver yet more savings for Government

Parliament house flag post

Private health insurance rebate to deliver yet more savings for Government

Posted 23/10/2012 by Amanda Biggs


The Mid Year Economic and Fiscal Outlook (MYEFO) included yet more changes to private health insurance rebate (PHIR) arrangements, on top of those recently implemented. These are expected to deliver savings of $1.09 billion over three years which will be used to offset the cost of the Dental Health Reform package announced in August this year.

Instead of being automatically inked to premium increases, the level of the PHIR will be based on an indexation arrangement. From April 2013, the rebate amount will be indexed to either movement in the consumer price index (CPI) or the percentage increase in premiums for private hospital cover, whichever is the lower figure. In addition, the private health insurance rebate will be removed from the Lifetime Health Cover (LHC) loading on premiums which applies when people delay taking out private health insurance until after their 31st birthday.

Currently, the amount of rebate for private hospital cover is calculated based on the amount of the premium charged to the consumer by the health insurer. Since changes to the PHIR came into effect in July 2012, the rebate is also means-tested. Those on lower incomes receive a higher rebate compared to those on higher incomes. Higher rebates also apply to those in older age brackets who are also on lower incomes.

However, the precise amount of the rebate varies with the cost of the premium charged. Premiums for private hospital cover vary depending on the insurer and the type of product. The value of the rebate is thus currently linked to the cost of the premium, with higher premiums attracting a higher rebate amount.

As explained in this Parliamentary Library paper, each year private health insurers apply to the Government for approval to increase the premiums they charge for private health cover. In April each year the Government announces the premium increases it has approved for the year ahead, and the average premium increase across the industry.

Under the new arrangements to apply after April 2014, if the health insurance premium increase approved by the Government is higher than the CPI, the rebate amount will be calculated based on the lower CPI figure.

Historically, increases to private health insurance premiums have tracked well above CPI levels. This year, for example, the Government approved an average premium increase of 5.06 per cent. While the lowest in four years it is still well above the budget forecast of the CPI increase which is 3.25 per cent for 2012–13 (Budget Paper no. 1, Statement 2: Table 1). The chart below compares premium increases and CPI levels since 2002.

Source: Parliamentary Library

Currently, a premium increase of 6 per cent on a policy that previously cost $1800 would yield a rebate of $572.40, if the consumer is eligible for the 30 per cent rebate. But the amount of the rebate would be $15 less if this year’s forecast CPI figure is instead applied to the calculation.
If the CPI continues to track at lower levels than rises in health insurance premiums, over time the amount of the rebate liability the Government will incur will decline, leading to rebate savings. But this will also mean an erosion in the value of the rebate for consumers.
It is not immediately clear how this measure will be implemented, although it will require legislative changes. The Treasurer did not specify for example, whether an individual health insurer’s premium increases would be compared with the CPI, or if the average premium increase approved across the industry would be the comparator. Nor is it clear which CPI figure would be used, that of the past year or the forecast CPI.
The Government may be hoping that this move will also prompt private health insurers to further limit their future premium increases. Faced with the prospect of their members receiving lower rebates, health insurers may seek to maintain value for their members by applying for lower premium increases each year. But as this previous Flagpost noted, health insurers have limited scope to control the cost of their premiums. Many of the drivers of higher health costs—such as an ageing population, more expensive medical technologies and increased prevalence of chronic diseases— are outside their direct control. A range of regulatory controls on portability and community rating also limit their capacity to control claim costs.
A further issue is that if CPI increases remain low, the financial incentive for the Government to seek lower premium increases will diminish over time. By removing the automatic link between the rebate amount and the actual premium charged, the role of the premium approval process becomes less critical to limiting the Government’s future rebate liability costs. Some in the industry have indicated they welcome this as less government interference in the premium setting process.
The second measure will reduce the rebate paid to people who incur a loading on their health insurance premiums. Under Lifetime Health Cover (LHC) arrangements, if a person delays purchasing private cover until after their 30th birthday, they incur a two per cent loading on their premium for each year they delay purchasing cover. This is meant to discourage the delayed purchase of private cover. Currently, if a person delays purchasing cover until they are 40 they incur a 20 per cent loading on top of their premium. But the amount of their rebate also rises by 20 per cent, potentially offsetting this financial disincentive. Some 1.05 million people (or 13.8 per cent of those covered) currently have a LHC loading on their premiums according to the latest data from the Private Health Insurance Administration Council.

Comments

  • 21/01/2014 2:31 PM
    Chris said:

    Hi Amanda, This is an old article but a very informative one.Having read it though, I am left feeling that if this were to be implemented in full and maintained, it would essentially amount to the dismantling of the health care system as we know it. Annual differences of between 3% and 4% compounded between the health premium increase and the broader CPI measure will make health care significantly less affordable to a great many in even a realtively short time. Can you comment on this? Regards, Chris

  • 21/01/2014 2:31 PM
    Amanda Biggs said:

    Chris Thanks for your comment. The government has now introduced legislation to enact this measure. You can read about the legislation in this Bills Digest (http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1213a/13bd123). The private health insurance rebate is one of the fastest growing areas of government expenditure, rising faster than CPI, so you can see why the government might want to constrain its cost. The rebate cost taxpayers over $5.3 billion last financial year (2011-12). Whether adjustments to the rebate would prompt an exodus from private health insurance, and thus dismantle the health system, is debatable. Previous adjustments such as means-testing the rebate, did not cause membership to collapse as many predicted, in fact membership grew. As well as the rebate, two other policy levers introduced by the Howard Government act to encourage private health insurance: Lifetime Health cover and the Medicare levy surcharge. Of these three measures, LHC has been mainly credited with driving private health insurance membership (the ‘Run for cover’ campaign), as seen in this graph from the industry regulator.(http://phiac.gov.au/industry/industry-statistics/statistical-trends/). It is true that, increasingly, consumers are expected to carry more of the burden of the cost of private health insurance, and there is probably a debate to be had about growing out of pocket costs. But health insurers are also endeavouring to offer more innovative, attractive products to ensure consumers continue to feel they gain value from having private health insurance. With demand for membership continuing to grow and key policy levers like LHC encouraging uptake, predictions that private health insurance is facing collapse would appear premature at this stage.


Thank you for your comment. If it does not require moderation, it will appear shortly.

Add your comment

[Click to expand]

We welcome your comments, or additional information which is relevant to a post. These can be added by clicking on the ‘Add your comment’ option above. Please note that the Parliamentary Library will moderate comments, and reserves the right not to publish comments that are inconsistent with the objectives of FlagPost. This includes comments that are not relevant to the article, factually incorrect or politically partisan, as well as spam, profanity and personal abuse. We will close comments after three months.




Captcha
Generate a new image
Type characters from the image:

Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

refugees asylum immigration climate change Australian foreign policy parliament social security elections welfare reform welfare policy school education Australian Defence Force health financing higher education emissions trading indigenous Australians women private health insurance people trafficking Employment illicit drugs gambling health reform federal election 2010 Middle East disability Sport Australian Bureau of Statistics statistics United Nations Asia Afghanistan income management Medicare health forced labour Taxation Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget Industrial Relations Carbon Pricing Mechanism politics dental health Australian Electoral Commission WADA criminal law transport aid child protection environment poker machines Australia in the Asian Century steroids National Disability Insurance Scheme detention aged care 43rd Parliament slavery health system ASADA Law Enforcement Australian Federal Police Fair Work Act Australian Public Service governance labour force people smuggling debt international relations constitution New Zealand food Australian Crime Commission pharmaceutical benefits scheme OECD corruption pensions public service reform children's health Aviation federal election 2013 foreign debt gross debt net debt defence capability parliamentary procedure Senate Senators and Members ALP Newstart Parenting Payment multiculturalism Youth Allowance sea farers UK Parliament election results voting mental health Federal Court terrorist groups science social media Higher Education Loan Program HECS federal state relations accountability Papua New Guinea youth paid parental leave same sex relationships coal seam gas customs planning doping crime health risks International Women's Day Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy violence against women domestic violence China ADRV terrorism transparency research and development welfare ASIO intelligence community Australian Security Intelligence Organisation carbon tax mining High Court military history electoral reform employer employee renewable energy regional unemployment fishing by-election European Union family assistance skilled migration banking United Nations Security Council Australian economy forestry food labelling vocational education and training Drugs welfare systems Indonesia children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report energy social inclusion human rights paternalism national security fuel disability employment Tasmania integrity standards NATO Australian Secret Intelligence Service sexual abuse World Trade Organization Australia public health housing affordability bulk billing political parties water productivity health policy Governor-General US economy trade unions export liquefied natural gas foreign bribery firearms question time speaker superannuation public housing expertise public policy climate Intergovernmental Panel on Climate Change leadership Department of Agriculture Fisheries and Forestry regulation Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare Census Indigenous constitutional recognition of local government referendum consumer laws PISA competition policy royal commission US politics language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage Population rural and regional alcohol entitlements ministries Hung Parliament social citizenship maritime Iran ANZUS regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation Members of Parliament Scottish referendum early childhood education Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying asylum seekers Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct retirement Parliament House standing orders prime ministers election timetable sitting days First speech defence budget submarines workers financial sector Canada Somalia United Kingdom GDP world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Rent Assistance obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament Korea rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra environmental law federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office work-life balance

Show all
Show less
Back to top