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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]
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, http://www.health.gov.au/internet/budget/publishing.nsf/Content/2009-2010_Health_PBS
[2] Australian Government, Budget measures: budget paper no. 2: 2009–10,
Commonwealth of Australia, Canberra, 2009, pp. 310–311, viewed 19 May 2009, http://www.aph.gov.au/budget/2009-10/content/bp2/download/bp_2_expense.pdf
[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, http://www.phiac.gov.au/insurenotsure/pdf/insure.pdf
[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, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;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, http://www.liberal.org.au/news.php?Id=3123;
Australian Health Insurance Association, Rudd abandons private health,
media release, Canberra, 13 May 2009, viewed 20 May 2009, http://www.ahia.org.au/media%20releases/AHIA%20Media%20Release%20-%20Rudd%20Abandons%20Private%20Health%2012May09.pdf
[9] N Ahmed, ‘Cuts to raise health charges’ Australian financial review, 13
May 2009, viewed 20 May 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;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, http://www.aph.gov.au/library/pubs/rn/2004-05/05rn54.pdf
[11] See, for example, P Power (Australian Healthcare & Hospitals Association), Mixed
fortunes for hospitals, media release, 12 May 2009, viewed 20 May 2009, http://www.aushealthcare.com.au/news/news_details.asp?nid=13854;
T Woodruff (Doctors Reform Society), ‘Health insurance rebate inefficient,
inequitable’, letter, The age, 16 May 2009, viewed 20 May 2009, http://www.theage.com.au/opinion/letters/health-insurance-rebate-inefficient-inequitable-20090515-b668.html
[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, http://www.financeminister.gov.au/media/2009/mr_272009.html
[15] ‘Medibank motza’, Daily telegraph, p. 6, viewed 15 May 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;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, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;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, http://www.aph.gov.au/library/pubs/rb/2006-07/07rb02.pdf
[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.
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