A decade of two halves for PHI Rebate

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The past decade has seen a very stark split in policy and government financial support for the Private Health Insurance Rebate.

Between 2007-08 and 2013-14, spending on the Rebate rose at an average annual growth rate of almost 8 per cent, from $3.541 billion to $5.608 billion.

However, since 2013-14, following a series of policy reforms that sought to curtail the value of the Rebate, spending on the program has only grown at an average annual rate of 1.75 per cent.

The series of reforms leading to a reduction in the value of the Rebate began earlier this decade.

The single biggest change was the introduction of means-testing for the rebate in 2012, originally announced by the former Labor government as part of the 2009-10 Budget.

It was eventually introduced alongside an increase in the Medicare Levy Surcharge, for high-income earners without private health insurance, and removal of the rebate from Lifetime Health Cover loading.

The Coalition was highly critical of the means test when it was introduced, backing the industry's arguments against the change, but it added its own reform following its election in 2013. It 'paused' the indexation of income thresholds for the Medicare Levy Surcharge and the Rebate at 2014-15 levels.

The change, which was extended to 2020-21 in the 2016-17 Budget, has institutionalised bracket creep for the Rebate means test - making private health insurance more expensive for more people every single year regardless of premium increases.

In effect, people with private health insurance experience two premium increases each year - one driven by their insurer's benefit outlays and the other a policy-driven decline in the Rebate.

The series of reforms, between 2012 and 2015, have shifted spending on private health insurance from the government to consumers via health funds.

According to a recent report from the Australian Institute of Health and Welfare, private health insurers' share of total health expenditure rose following the introduction of means testing of the Rebate, from 7.4 per cent in 2011–12 to 8.8 per cent in 2016–17.

"The introduction of income testing has had the effect of reducing the subsidies paid by the Australian Government on private health insurance premiums without an equivalent reduction in benefits paid," said the report.