Health and ageing Private health insurance

Budget Review 2009-10 Index

Budget 2009 10: Health and ageing

Private health insurance

Amanda Biggs

The Government has proposed a number of changes to private health insurance in this Budget, intended broadly to make private health insurance ‘more sustainable’.[1] These include:

  • removal or reduction of the private health insurance rebate for higher income earners purchasing private cover
  • at the same time, the Medicare levy surcharge will be increased for those who do not purchase private cover
  • Medibank Private will be changed from a ‘not for profit’ to a ‘for profit’ insurer, and
  • regulatory changes will be made that affect how private health insurers can utilise surpluses.

Private health insurance incentives/penalties

From July 2010, three new ‘tiers’ to the private health insurance rebate (PHIR) will be introduced. These will result in higher income earners—those on incomes over $75 000 for singles and over $150 000 for couples—progressively receiving a lower rebate until, for those on incomes over $120 000 for singles and $240 000 for couples, the rebate will be abolished.[2] At the same time, the Government will progressively increase the Medicare levy surcharge—a financial penalty applied only to high income earners who decline to take out private health insurance—from 1 per cent of taxable income up to 1.5 per cent for those in the highest income bracket.[3] Those on lower incomes will continue to be able to access the rebates at the current amounts and will remain exempt from the Medicare levy surcharge.[4]

The PHIR subsidises the cost of purchasing a complying private health insurance product, making health insurance more affordable.[5] The cost of the rebate to the Australian Government has grown significantly from $1.4 billion in 1999–2000 to $3.8 billion in 2008–09.[6] The changes to the rebate and surcharge are expected to result in net savings of $1.9 billion over four years.

The Rudd Government has previously committed to retain the rebate[7]; leading to claims the changes to the rebate amount to a broken promise.[8] Some have also argued that as a result of these changes people will abandon their private cover, leading to rises in private health insurance premiums as health insurers seek to rein in higher costs.[9] They have also argued that uninsured people will then seek treatment in the public system adding further pressure to public hospital waiting lists.[10] Others, who argue the rebate is poor policy, have broadly welcomed the proposed changes, albeit with some criticism that the savings could be modest, and should be re-directed to the under-resourced public health system.[11]

Medibank Private – change in status

This Budget also included an announcement that, towards the end of 2009, the Government will convert the status of Medibank Private from a ‘not for profit’ health insurer, to a ‘for profit’ health insurer—but will retain ownership in public hands.[12] Medibank Private is Australia’s largest private health insurer in Australia, providing health insurance to around 3.2 million Australians.[13]

The Government’s stated intentions are to ‘improve the competitive neutrality’ between Medibank Private and its ‘for profit’ competitors, by making Medibank Private liable to pay company tax and dividends which will help ‘drive future efficiency gains’.[14] As the payment of company tax and dividends is expected to be made to the Australian Government, some have suggested its change in status will make it a ‘cash cow’ for the government.[15] Although listed as a ‘revenue’ measure in the budget papers, the Government has not released estimates of the savings expected from the measure due to commercial sensitivities.

This measure has attracted much less commentary than the changes to the private health insurance rebate, but some pertinent issues have been raised. Some have pointed to the debate that ensued when the former Howard Government announced its intention to sell Medibank Private.[16] At the time, questions were raised over the right to ‘ownership’ of Medibank Private’s assets.[17] Although this budget measure does not propose proceeding to a sale of Medibank Private—this has been explicitly ruled out by the Government[18]—debate over the ‘ownership’ of assets and rights of policy holders may yet re-emerge. Further, it has been argued that changing the status of Medibank Private from a ‘not for profit’ to a ‘for profit’ may not be straightforward, and may be more complex than simply changing its constitution to allow for this.[19]

Regulatory changes

The Government has also announced it intends to make legislative changes that would allow health insurers to ‘spend surplus capital’ to fund the provision of sporting and recreational activities for members and community-based health promotion activities.[20] Under current arrangements, assets of ‘not for profit’ health insurers can only be used to meet liabilities (such as the payment of benefits for complying health insurance products) or other expenses, or make certain investments. Health insurers that operate on a ‘for profit’ basis do not have the same restrictions on their ‘surplus capital’; notwithstanding prudential and solvency requirements, they are free to allocate their profits where they choose.[21]

[1] Australian Government, Portfolio budget statements 2009–10: budget related paper no. 1.10: Health and Ageing Portfolio, Commonwealth of Australia, Canberra, p. 257, viewed 19 May 2009,

[2] Australian Government, Budget measures: budget paper no. 2: 2009–10, Commonwealth of Australia, Canberra, 2009, pp. 310–311, viewed 19 May 2009,

[3] The Medicare levy surcharge is in addition to the 1.5 per cent Medicare levy. Higher income earners—over $75,000 for singles and $150,000 for couples— must pay an additional 1 per cent levy on taxable income if they choose not to take out private health cover.

[4] The amount of the rebate is currently set at 40 per cent for those over 70, 35 per cent for those aged 65¬69 and 30 per cent for all others.

[5] A complying health insurance policy is one that provides hospital treatment, general treatment (previously called ancillary or extras) cover, or both. In addition, the health insurance policy must be with a registered health insurer. See Private Health Insurance Administration Council (PHIAC), Insure? Not sure?, PHIAC, Canberra, viewed 15 May 2009,

[6] Portfolio budget statements 2009–10: budget related paper no. 1.10: Health and Ageing Portfolio, p. 250.

[7] See K Rudd and N Roxon, New directions for Australian health: Taking responsibility: Labor’s plan for ending the blame game on health and hospital care, Australian Labor Party, August 2007, viewed 19 May 2009,;query=Id%3A%22library%2Fpartypol%2FGT1O6%22

[8] See for example, M Turnbull (Leader of the Opposition), A sustainable health system for all Australians, media release, Canberra, 15 May 2009, viewed 20 May 2009,; Australian Health Insurance Association, Rudd abandons private health, media release, Canberra, 13 May 2009, viewed 20 May 2009,

[9] N Ahmed, ‘Cuts to raise health charges’ Australian financial review, 13 May 2009, viewed 20 May 2009,;query=Id%3A%22media%2Fpressclp%2FJCJT6%22; also Australian Health Insurance Association.

[10] N Ahmed; also Australian Health Insurance Association. This view is contested by others. For an overview of the debate that private health insurance membership reduces pressure on public hospitals, see A Pratt, Public versus private? An overview of the debate on private health insurance and pressure on public hospitals, Research note, no. 54, 2004–05, Parliamentary Library, Canberra, 2005, viewed 21 May 2009,

[11] See, for example, P Power (Australian Healthcare & Hospitals Association), Mixed fortunes for hospitals, media release, 12 May 2009, viewed 20 May 2009,; T Woodruff (Doctors Reform Society), ‘Health insurance rebate inefficient, inequitable’, letter, The age, 16 May 2009, viewed 20 May 2009,

[12] Budget paper no. 2, p. 8.

[13] Market share is 28.7 per cent. Medibank Private, Annual report 2008, Medibank Private, 2008, p. 7. There are currently seven insurers that operate on a ‘for profit’ basis, see Private Health Insurance Administration Council, Operations of the private health insurers annual report 2007–08, PHIAC, Canberra, 2008, p.14.

[14] Budget paper no. 2, p. 8. See also, L Tanner (Minister for Finance and Deregulation), Medibank Private to become a for-profit government owned business, media release, 12 May 2009, viewed 19 May 2009,

[15] ‘Medibank motza’, Daily telegraph, p. 6, viewed 15 May 2009,;query=Id%3A%22media%2Fpressclp%2FR7JT6%22.

[16] T Abbott (Minister for Health and Ageing) and N Minchin (Minister for Finance and Administration), More innovation, greater choice in private health, media release, 26 April 2006, viewed 20 May 2009,;query=Id%3A%22media%2Fpressrel%2FOJGJ6%22

[17] Legislation allowing the sale of Medibank Private was passed in 2006, but the sale did not proceed. For an overview of the issues of the question of ownership see L Buckmaster and J Davidson, The proposed sale of Medibank Private: historical, legal and policy perspectives, Research brief, no. 2, 2006–07, Parliamentary Library, Canberra, 2006, viewed 20 May 2009,

[18] Budget paper no. 2, p. 8.

[19] J Davidson and L Buckmaster, Medibank Private Sale Bill 2006, Bills digest, no. 47, 2006–07, Parliamentary Library, Canberra, 2006, pp. 6–7.

[20] Portfolio budget statements 2009–10: Budget related paper no. 1.10, p. 253.

[21] See section 137 (10) of the Private Health Insurance Act 2007.