© Commonwealth of Australia 1998

ISSN 1440-2572

View the report as separate downloadable parts:


Need for the rebate
The rebate and higher income earners
A non means-tested rebate
Priorities for health funding

APPENDIX 1 – Submissions received by the Committee  
APPENDIX 2 – Public hearing  

For further information, contact:

Committee Secretary
Senate Standing Committees on Community Affairs
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3515
Fax: +61 2 6277 5829




Senator Sue Knowles, Chairman LP, Western Australia
Senator Andrew Bartlett, Deputy Chair AD, Queensland
Senator Kay Denman ALP, Tasmania
Senator Alan Eggleston LP, Western Australia
Senator Chris Evans ALP, Western Australia
Senator Ross Lightfoot LP, Western Australia
Substitute Member  
Senator Lees for Senator Bartlett for the Committee's inquiry AD, South Australia

Participating Members

Senator Eric Abetz LP, Tasmania
Senator Bob Brown Greens, Tasmania
Senator Mal Colston Ind, Queensland
Senator the Hon Rosemary Crowley ALP, South Australia
Senator the Hon John Faulkner ALP, New South Wales
Senator Michael Forshaw ALP, New South Wales
Senator Brenda Gibbs ALP, Queensland
Senator Brian Harradine Ind, Tasmania
Senator Meg Lees AD, South Australia
Senator Dee Margetts GWA, Western Australia
Senator the Hon Chris Schacht ALP, South Australia
Senator John Woodley AD, Queensland




1.1 The Private Health Insurance Incentives Bill 1998 and associated Bills were introduced into the House of Representatives on 12 November 1998. On 26 November 1998, the Senate, on the recommendation of the Selection of Bills Committee (Report No. 11 of 1998), referred the provisions of the Bills to the Committee for report by 7 December 1998. The reporting date was subsequently extended to 8 December 1998.

1.2 The Committee considered the Bills at a public hearing on 4 December 1998. Details of the public hearing are referred to in Appendix 2. The Committee received 39 submissions relating to the Bills and these are listed at Appendix 1.



Private Health Insurance Incentives Bill 1998

2.1 The Private Health Insurance Incentives Bill 1998 provides for a non-income tested financial incentive for people who take out or maintain private health insurance (PHI). The incentive is in the form of a direct payment, reduced premium or tax offset and is equal to 30 per cent of the cost of PHI cover. The incentive is generally available to an individual who pays for appropriate PHI cover with a fund registered under Part VI of the National Health Act 1953. The incentive scheme will apply from 1 January 1999.

2.2 The measure was announced as part of the Government's tax reform package, contained in Tax Reform: Not a New Tax, a New Tax System. The scheme will assist families and individuals with the cost of PHI. The new scheme will replace the Private Health Insurance Incentives Scheme (PHIIS) from 1 January 1999. The new scheme has, however, been designed so that persons who are currently able to benefit under PHIIS will not be worse off than if PHIIS had continued to operate.

2.3 The new incentive scheme will assist existing members of PHI funds who will gain a significant benefit from the reduced cost of PHI. It will encourage these people to retain their health fund membership. It also aims at encouraging people to join a PHI fund because of the reduced cost of membership. Under the new tax system proposed in the Government's tax reform plan, this is as generous, or even more generous, than full deductibility for health insurance premiums for more than 80 per cent of taxpayers. [1] The private health rebate will cost the Government an additional $1.09 billion in 1999-2000 (the first full year of operation); $1.18 billion in 2000-01; $1.27 billion in 2001-02 and $1.36 billion in 2002-03. [2]

2.4 The Minister in the Second Reading Speech stated that:

Private Health Insurance Incentives Amendment Bill 1998

Taxation Laws Amendment (Private Health Insurance) Bill 1998

2.5 The Private Health Insurance Incentives Amendment Bill 1998 provides for transitional arrangements arising from the abolition of the existing incentives scheme to the introduction of the Government's new private health insurance benefit. This new benefit is introduced in the Private Health Insurance Incentives Bill 1998. The Taxation Laws Amendment (Private Health Insurance) Bill 1998 amends the Income Tax Assessment Act 1997 to provide for a tax offset (tax rebate) as part of the new scheme.



Need for the rebate

Health insurance membership

3.1 A range of groups stated that the rebate will not only encourage people to join PHI, but that it will also help people to retain their fund membership. [4] The Department of Health and Aged Care (DHAC) stated that the Government's proposed 30 per cent rebate will provide assistance to people who purchase PHI by lowering the cost of their insurance by almost a third. [5] The Department also stated that the rebate will address the immediate pressures on the system as a result of the decline in PHI membership due to high premiums and ensure that PHI coverage `is returned to around 33 per cent' of the population, from the current level of 30.6 per cent. [6] The Department noted that the decline in PHI membership is currently almost 2 per cent per annum. [7] The Australian Health Insurance Association (AHIA) stated that the rebate would bring PHI premiums back to 1985-86 levels. [8]

3.2 Some organisations submitted that membership levels may increase even further as a result of the introduction of the rebate. The Australian Private Hospitals Association (APHA) stated that the `best' estimate that the impact of the proposed rebate would be an increase of membership from 30.3 per cent of the population to 45.6 per cent, an increase of 15.3 percentage points. [9] The Australian Medical Association (AMA) also suggested that the effect of the rebate would be to increase PHI coverage to 45 per cent. [10] Some groups, however, questioned whether the rebate would arrest the decline in PHI membership. [11]

Support for the private health sector

3.3 Evidence received by the Committee suggested that the rebate will help maintain the viability of the private health system. APHA stated that `a recovery in private health insurance membership is necessary to ensure viability of the private hospitals industry'. [12] The Association noted that if 45.6 per cent insurance membership is achieved it is likely to increase average occupancy of private hospitals from 70 to 85 per cent, the level at which hospitals run most efficiently. [13] APHA argued that an increase in this order would reduce demand on public hospitals by 10 percent and would eliminate existing waiting lists. [14]

3.4 DHAC stated that the private sector is experiencing particular financial pressures from the move by private patients out of public facilities and into private hospital beds. The private health insurers are also dealing with the financial burden of a membership base which is becoming increasingly skewed towards the older and sicker members as younger and healthier members drop out. [15]

Effect on the public hospital system/waiting lists

3.5 Evidence suggested that declining PHI insurance membership could threaten the existing balance between the public and private system, and undermine the viability of the public system. DHAC explained that:

3.6 AHIA also noted that the impact of the rebate will prevent short term increases in public hospital waiting lists and in the medium to longer term `prevent a public sector crisis'. [17] Several groups, including the AMA and AHIA noted that a decline in health insurance numbers will add to the current numbers on waiting lists. [18] AHIA estimated that if PHI declined by 10 per cent (that is, to 20 per cent of the population) waiting lists would increase by 500 000 persons. [19] DHAC submitted that if the present decline in private health insurance continues, the Government would need to provide for an extra 1.2 million public hospital bed days by 2002-03, equating to 3 300 new beds in that year. [20] Several State Governments stated that higher levels of PHI would reduce the pressure on the public hospital system and public hospital waiting lists. [21] Some submissions and witnesses claimed, however, that the rebate would not reduce public hospital waiting lists. [22]

3.7 The Department also noted that insured people cost the Commonwealth less for health services than the uninsured as the insured make a direct contribution to the cost of their own health services, which is not made by the uninsured. [23] AHIA also stated that in many areas private hospitals provide more services than the public system – eg. 60 per cent of lens procedures, 52 per cent of hip replacements etc. There would be additional strain on the public sector were the private sector not able to provide these services. [24]

Community rating

3.8 The introduction of the rebate will support the community rating system, which underpins the private health system. DHAC submitted that the rebate is intended to potentially attract others into the system, particularly the young and healthy, and also additional higher income earners. Under the community rating system, the viability of the health funds depends on a membership profile that includes younger and healthier members to share the risk with older and sicker members. AHIA noted that `by keeping or bringing more higher income earners – who are of low risk health status – within the insurance system it will be possible to cross subsidise poorer, less healthy persons and keep health insurance affordable for them'. [25] DHAC also noted that the cross-subsidy element of the PHI sector works to relieve pressure on premium levels. [26]

Promoting choice/self provision

3.9 Many submissions and other evidence pointed out that the rebate will facilitate choice of medical practitioner or choice of hospital and the amenity it provides via private health insurance which is not accommodated in the public hospital sector. [27] AMA cited recent survey research that indicated that two-thirds of Australians support the idea of a rebate for private health insurance. [28] DHAC also noted that private health insurance allows for the self-provision of some health care, which relieves pressure on the public system. [29]

The rebate and higher income earners

3.10 Some groups claimed that the rebate is inequitable and largely directed to higher income earners. [30] APHA stated, however, that 30 per cent of the insured population are in household income units of less than $30 000 per year. By contrast only 26 per cent of the insured population are in income units earning more than $70 000 per year. [31] AHIA also noted that the rebate is not aimed at providing a subsidy to higher income people –`it is about ensuring the rich add to the pool of health financing moneys, which translates to the rich subsidising the poor. Exclusion of higher income earners from the rebate will provide minimal savings to government, but reduce the cross subsidisation of higher risk, lower income persons'. [32]

3.11 The Association also stated that the rebate will provide low and middle income earners with greater opportunities for choice in their health care, whether they choose public or private treatment – `by reducing demand pressures on public facilities, health outcomes, equity and access must be improved'. [33]

3.12 DHAC stated that the tax rationale behind the rebate is that it is a horizontal tax equity measure, which responds to the additional costs borne by taxpayers across the entire income range for private health cover, irrespective of their level of income. [34] The Department submitted that the rebate provides in effect a tax credit so that lower income people who would otherwise not be able to access fully a tax concession gain the full benefit. [35]

A non means-tested rebate

3.13 Evidence to the Committee suggested that means testing the proposed rebate would have significant disadvantages. [36] AHIA noted that while means testing may encourage lower income people to take out PHI, the value of the scheme would be negated if higher income earners were discouraged from taking up PHI. AHIA explained that:

3.14 AHIA also stated that the current means tested scheme – the PHIIS – `has encouraged participation by poorer risks, without retaining the good risks. If that continues, prices will rise more and more, and this will have a perverse incentive which will negate the value of the incentive'. [38] The introduction of a means tested rebate would also add to the administrative complexity of the scheme. [39]

3.15 DHAC noted that the rebate is universal by intention –`not only is it intended to support poorer families to maintain their health cover, but it is also intended to make health insurance tax effective for middle and higher income earners so that they might be drawn more into the private system'. [40] The Department stated that the rebate's relative value is also greatest at low income levels where it is equivalent to a higher proportion of the income of low income earners. [41] DHAC also submitted that evidence suggests that people in the middle to higher income brackets are leaving PHI and that these are the people `who should be encouraged to retain their insurance to protect the risk pool and hence community rating'. [42]

Priorities for health funding

3.16 Several groups and some State Governments argued that funding should be directed to public hospitals or other areas of health need such as rural health services and indigenous health services rather than expenditure for the proposed rebate. [43]

3.17 DHAC noted, however, that the Commonwealth is already injecting substantial new funds into public hospital care, and the rebate will serve to reduce additional pressures on public hospitals. Over the five years of the Australian Health Care Agreements more than $31.34 billion in current prices will be paid to the States and Territories for public hospitals – which represents a 16.5 per cent real increase in funding over that period. [44] DHAC noted that more effective support for PHI offers the opportunity to restore equilibrium in the health care system. The rebate effectively restores previous levels of support to the private sector. [45]

3.18 APHA and AHIA stated that if the value of the rebate were diverted to public hospitals the problem of waiting lists would not necessarily be improved. [46] AHIA submitted that `the participation rate would at best continue and any funding to public hospitals would be more than offset by increased demand'. [47]APHA further noted that directing funding to other areas such as rural health or services for indigenous Australians `does almost nothing to address the problem for which the funding is being proposed: that is, improving hospital care'. [48]



4.1 The Committee reports to the Senate that it has considered the Private Health Insurance Incentives Bill 1998, the Private Health Insurance Incentives Amendment Bill 1998 and the Taxation Laws Amendment (Private Health Insurance) Bill 1998 and recommends that the Bills proceed.

Senator Sue Knowles


December 1998




Submissions received by the Committee

1 Consumers' Health Forum of Australia
2 Alwyn Rehabilitation Hospital
3 Brent Walker Actuarial Services Pty Limited
4 Association of Independent Retirees, Inc
5 Noosa District Community Hospital
6 Monash Surgical Private Hospital Pty Ltd
7 Rockingham Family Hospital
8 Ashford Community Hospital Inc.
9 North Eastern Hospital Inc
10 Victorian Government
- Supplementary Submission dated 3 December 1998
11 National Seniors Association
12 The Association for the Advancement of Private Health
13 Australian Healthcare Association
15 Council on the Ageing (COTA)
- Additional Information, dated 4 December 1998
16 Mr Ian McAuley
17 Australian Private Hospitals Association Limited
18 Health Issues Centre
19 Australian Consumers' Association (ACA)
20 Australian Medical Association Limited (AMA)
21 Tasmanian Government
22 The Private Hospitals Association of Victoria
23 South Australian Government
24 Australian Health Insurance Association Ltd
- Additional Information, dated 4 and 7 December 1998
25 National Centre for Epidemiology and Population Health (NCEPH)
26 Western Australian Government
- Supplementary Submission, dated 2 December 1998
27 Australian Catholic Health Care Association
28 Doctors Reform Society
29 Mr Roy Harvey
30 Health Consumers' Council WA (Inc)
31 Mr Richard Moore
32 National Rural Health Alliance
33 Department of Health and Aged Care
- Corrigendum to Submission, dated 4 December 1998
34 Australian Nursing Federation
35 Dr Paul Tridgell
36 Queensland Government
37 New South Wales Government
38 Combined Pensioners and Superannuants Association of New South Wales Inc.
39 Medibank Private



Public Hearing

A public hearing was held on the Bills on 4 December 1998 in Senate Committee Room 2S1.

Committee Members in attendance

Senator Sue Knowles (Chairman)
Senator Meg Lees
Senator Mal Colston
Senator Kay Denman
Senator Alan Eggleston
Senator Chris Evans
Senator Brian Harradine
Senator Dee Margetts


Australian Health Insurance Association Ltd

Mr Russell Schneider, Chief Executive

Australia Private Hospitals Association Limited

Mr Ian Chalmers, Executive Director
Ms Jenny Badham, Director, Policy & Research
Mr Michael Roth, Public Affairs Manager

Australian Medical Association Limited (AMA)

Dr David Brand, Federal President
Dr Bill Coote, Secretary General
Mr John O'Dea, Director, Medical Practice Department

National Centre for Epidemiology and Population Health (NCEPH)

Professor Bob Douglas, Director
Professor John Deeble, Adjunct Professor of Economics
Dr James Butler, Senior Fellow (Health Economics)
Dr Philip Clarke, Research Fellow

Mr Ian McAuley

Association of Independent Retirees, Inc

Mrs Maureen Kingston, National President

Australian Healthcare Association

Professor Don Hindle, National Director

Doctors Reform Society

Dr Theo van Lieshout, Vice President

Australian Nursing Federation

Mr Denis Jones, Assistant Federal Secretary

Consumers' Health Forum of Australia Inc

Ms Kate Moore, Executive Director

Australian Consumers' Association (ACA)

Ms Sally Nathan, Senior Policy Officer – Health

Council on the Ageing (Australia) (COTA)

Mr Denys Correll, National Executive Director

Department of Health and Aged Care

Mr Andrew Podger, Secretary
Mr David Borthwick, Deputy Secretary
Ms Lynelle Briggs, First Assistant Secretary, Portfolio Strategies Group
Ms Chris Woodgate, Assistant Secretary, Health Insurance Development Group
Mr Charles Maskell-Knight, Assistant Secretary, Acute Care Finance & Analysis



[1] Explanatory Memorandum, pp.1-5,53-56.

[2] Explanatory Memorandum p.58. For further details see also Submission No.33, p.8,26; Committee Hansard, pp.87-93.

[3] Minister's Second Reading Speech.

[4] Submission No.17, p.4; Submission No.24, p.iii; Submission No.4, pp.1-2; Submission No.27, p.4.

[5] Committee Hansard, p.42.

[6] Submission No.33, p.6; Committee Hansard, pp.91-92. See also Submission No.25, p.8.

[7] Submission No.33, p.6.

[8] Submission No.24, piii.

[9] Submission No.17, p.4.

[10] Submission No.20, p.6.

[11] Committee Hansard, pp.57-58; Submission No.1, pp.2-3; Submission No.14, p.3; Submission No.15, p.1.

[12] Submission No.17, p.2. See also Submission No.22, pp.1-4.

[13] Submission No.17, p.4.

[14] Committee Hansard, p.38.

[15] Submission No.33, p.5.

[16] Submission No.33, p.6.

[17] Submission No.24, piii. See also Submission No.20, p.5.

[18] Committee Hansard, p.52; Submission No.24, p.25.

[19] AHIA, Tabled Document, 4.12.98.

[20] Submission No.33, p.15.

[21] Submission No.26, p.6 ; Submission No.23, p.4; Submission No.10, p.4.

[22] Committee Hansard, pp.54,56,80; Submission No.1, p.3; Submission No.16, p.4; Submission No.19, p.3.

[23] Submission No.33, p.15.

[24] Submission No.24, p.21.

[25] Submission No.24, p.iii.

[26] Submission No.33, p.7.

[27] Submission No.4, p.1; Submission No.11, pp.3-4; Submission No.20, p1; Submission No.24, p.iii.

[28] Submission No.20, p.1.

[29] Submission No.33, p.8.

[30] Committee Hansard, pp.55-57,79; Submission No.1, p.2; Submission No.14, p.3; Submission No.19, p.2.

[31] Committee Hansard, p.38.

[32] Submission No.24, p.16. See also Submission No.17, pp.5-6; Submission No.20, p.4.

[33] Submission No.24, p.v.

[34] Submission No.33, p.7.

[35] Submission No.33, p.9.

[36] Submission No.4, p.3; Submission No.17, p.9.

[37] Submission No.24, p15. See also Committee Hansard, p.37.

[38] Committee Hansard, p.37.

[39] Submission No.20, p.4; Submission No.17, p.9.

[40] Submission No.33, p.10.

[41] Submission No.33, p.10.

[42] Submission No.33, p.29.

[43] Committee Hansard, pp.54,65-66,75-76; Submission No.15, pp.4-6; Submission No.19, p.4; Submission No.28, p.1; Submission No.32, pp.1-3; Submission No.34, p.2; Submission No.36, p.4; Submission No.37, p.6; Submission No.38, p.1.

[44] Submission No.33, pp.2,18-19,24.

[45] Submission No.33, pp.18-19. See also Submission No.20, p.2.

[46] Submission No.17, pp.8-9.

[47] Committee Hansard, p.37. See also Submission No.24, pp.20-23.

[48] Submission No.17, p.9.