Government got what it wanted with means test

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The latest report from the Australian Institute of Health and Welfare has confirmed the impact of declining support from the government for private health insurance.

The report, Health expenditure Australia 2016–17, has revealed the shift in health spending from the government to private health insurers since means-testing of the Private Health Insurance Rebate was introduced in 2011-12.

The means test was followed by a change that indexes outlays on the Rebate to inflation rather than premium increases. As a result, the Rebate's share of premiums declines every year.

Spending on the Rebate, which sits below $6 billion per year, has remained flat in dollar terms but declined in real teams.

At the same time, benefit outlays by insurers have grown at an average annual rate of 6.5 per cent, making it one of the fastest growing areas of health spending.

Private health insurers' share of total expenditure has risen since the means test was introduced from 7.4 per cent to 8.8 per cent.

In effect, insurers are filling the growing gap left by the government, which in reality just means consumers are having to pay more.

Premiums rise broadly in step with benefit outlays - the rising share of total health expenditure attributed to private health insurers simply means consumers are paying more because of a government policy change.

The fact consumers are having to pay more for their private health insurance was the goal of the policy.

This is reflected in the fact the Rebate, which was once a direct contribution from the government for 30 per cent of a premium, is now a maximum of around 26 per cent for most Australians and substantially less for others impacted by the means test and other changes.

Both major political parties continue their debate over the affordability of private health insurance.

The Coalition government has focused on reducing private health insurer costs while Labor has committed to imposing a 2 per cent cap on premium increases for 2 years.

Yet neither appears willing to take responsibility for their own contribution to the rising affordability challenge.