The controversy surrounding the federal government’s plan to scrap extra private health insurance rebates for the over-65s continues. Not everyone agrees on the impact of the higher premiums, whether that’s the number of people set to cancel their cover or the impact on the public health system.
Author
- Yuting Zhang
Professor of Health Economics, The University of Melbourne
Now NSW Health Minister Ryan Park says his department’s modelling shows scrapping the extra rebates would mean 23,000 more surgeries a year in NSW public hospitals, and that up to 80,000 people might cancel or downgrade their cover in that state alone.
It’s difficult to gauge the accuracy of these predictions without seeing the modelling.
But previous research, including from my team, suggests the impact of the proposed changes on older Australians might not be as drastic as the health insurance industry , and some state health ministers, say.
What’s being proposed? Who disagrees?
Australia spends $7.6 billion a year on private health insurance rebates – regardless of people’s age. The aim is to encourage people to take up health insurance, and so relieve pressure on the public health system.
Since 2005 , Australians aged 65 and over have received a bigger government rebate on their private health insurance premiums than younger people. The level of rebate has changed slightly over the years .
But there’s growing evidence from peer-reviewed studies that health insurance rebates are not a cost-effective way to spend taxpayer money.
From April 2027, the federal government wants to scrap that age-based top-up , so everyone gets the same rebate regardless of age.
The government’s own modelling estimates about 44,000 older Australians would drop their cover as a result – roughly 1% of those affected.
The private health insurance industry disagrees. It cites its own polling that 39% of insured people over-65s say they’d be more likely to drop their cover.
State health ministers, including NSW’s Ryan Park, Victoria’s Ingrid Stitt and others, have told the ABC the change will push more people into an already stretched public system. Queensland and Tasmania have called for the plan to be scrapped entirely.
How many people would drop their cover?
My colleagues and I have studied this from several angles. We’ve used real-world Medicare claims, hospital records, and data from tax returns, rather than surveys of stated intentions, which don’t always match actual behaviour.
In 2005, the rebate for over-65s jumped in exactly the way the currently proposed reform would reverse.
Based on this natural experiment, we found older Australians are much less price-sensitive than younger people. In other words, most older people’s decision to hold private cover isn’t driven by the rebate at all. The price of health insurance is mainly a deciding factor only for older people on lower incomes, not the group as a whole.
A separate study using a different design and dataset reached a similar conclusion. There was no significant effect of the 2005 rebate increase on take-up of private health insurance in this age group at all. The vast majority took it up regardless.
A more recent working paper used a decade of linked tax and Medicare records to put a figure on the number of older Australians who would drop their cover under the government’s proposed changes.
We calculated 14,821-42,498 would do so.
How about the impact on public hospitals?
In separate research, my colleagues and I looked at the influence of private health insurance cover on waiting times for elective surgery in Victoria’s public hospitals.
We found a one-percentage-point rise in private cover in Victoria – equating to about an extra 65,000 people taking up health insurance – reduces public elective waiting times in the state by just 0.34 days on average . That’s about eight hours. For the over-55s, it’s a reduction of 0.38 days or roughly nine hours.
We can use our findings to extrapolate the impact of dropping private health insurance on the public system across Australia.
If we take our estimate of 14,821-42,498 people dropping their cover as a result of the governmen’s plans, this implies longer public waiting times of roughly three to eight hours nationally.
That’s a real increase in wait times for elective surgery in the public system. But this is still a small fraction of typical elective waiting times, which run into weeks or more.
This is an extrapolation, not a direct estimate. Our original findings come from regional differences in coverage in Victoria, not a national, age-specific policy change. But it does give a sense of scale of the government’s proposed changes.
Why the small impact on wait times?
People drop their private health insurance, or don’t use it, for all sorts of reasons, not all having the impact on the public system you might expect.
Someone who drops their cover mainly because of cost, and later needs hospital treatment, may well end up using the public system. But if someone drops their cover because they’re healthy and don’t expect to need hospital care, that won’t add pressure to the public system as they’d be unlikely to use it.
Even the government’s own estimate of 44,000 people dropping cover nationally is small against the 7.7 million hospitalisations Australia’s public hospitals handle every year. Not all those 44,000 people will need to be admitted to a public hospital. And not all of those admitted will need surgery.
Many people with private cover already use public hospitals anyway, partly to avoid the out-of-pocket costs private treatment can involve.
Some services – such as complex neurosurgery and certain cancer treatments – are also mostly, or only, available in the public system. So many insured people needing these services would go to a public hospital regardless of their cover.
So, yes, some people over 65 who drop their cover as a result of the proposed changes may end up having surgery in public hospitals. But the impact is likely much less than the government’s critics say.
Should you drop your cover?
For most people over 65, the expected benefits from keeping private cover continue to outweigh what they pay in premiums, even without the extra age-based rebate.
So for the large majority of people over 65, keeping their cover is still the better option.
If cost is a concern, talk to your insurer first. You may be able to negotiate some aspect of your cover or premium.
