Rebate changes shifted $10bn from government to consumers

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Governments made a series of changes to policy settings in the first half of this decade with the explicit goal of shifting around $10 billion of the cost of private health insurance onto consumers.

Means-testing the rebate, indexation to the consumer price index rather than premium increases, removing it from Lifetime Health Cover loadings and freezing the income thresholds for rebate eligibility at 2014-15 levels, have all combined to reduce its value and shift a greater share of the cost of private health insurance onto millions of consumers.

All the measures will combine to reduce total spending on the rebate by around $10 billion between 2012 and 2020.

The outcome has been explicitly identified by the government's own health information collection body, the Australian Insitute of Health and Welfare.

"Since the introduction of income testing of the premium rebate in July 2012, the share of gross benefits contributed by the private health insurance funds has grown from 66.0% to 72.2%," it said in its report on health expenditure in 2015-16.

It continued, "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."

In other words, despite cutbacks in the rebate, benefit outlays have not been reduced because the government simply shifted the cost to consumers.

It is even worse than it seems because the combination of means testing and a 'pause' on the indexation of qualifying income thresholds are combining to institutionalise the annual undermining of affordability. 

It means consumers face the double-whammy of annual premium increases alongside the pernicious policy-driven shift away from direct government support for their personal investment in private health insurance.

Premiums are rising in line with benefit outlays but the contribution of the rebate is being 'ratcheted' down every single year because of the actions of successive governments.

Stakeholders can debate the merits of the rebate but the fact remains that successive governments, Labor and Coalition, have acted with the deliberate goal of making private health insurance more expensive.

That was the intent of the series of changes.

Yet we are now in the farcical situation where both the government and opposition deny their responsibility for the rising concern over affordability, and the consequences, preferring to target the industry and providers.

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 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 loadings.

Then health minister Tanya Plibersek suggested the change would have almost no impact on membership. 

"Treasury modelling shows that 99.7 per cent of policy-holders will retain their private health insurance - and that is because those higher income earners who receive a lower rebate will at the same time face an increased tax penalty if they do not have private health insurance," she told parliament in February 2012.

The then government completely dismissed the industry's arguments the changes would force people to downgrade their cover, reducing the insurance pool and putting upward pressure on premiums.

A Deloitte report, commissioned by Private Healthcare Australia, predicted the change would result in an across-the-board 10 percent increase in premiums. 

The industry has been proven right.

Ms Plibersek was quite open in confirming the intent of the change was to increase the cost of private health insurance for millions of Australians. 

"Currently, approximately 14 per cent of single taxpayers who have incomes above $83,000 a year receive about 28 per cent of the total private health insurance rebate paid to singles. Under these new reforms these single taxpayers will receive about 12 per cent of the total private health insurance rebate paid to singles," she said.

"Similarly, approximately 12 per cent of taxpaying couples who have incomes above $166,000 currently receive approximately 21 per cent of the total private health insurance rebate paid to couples. Under these new reforms these taxpaying couples will receive about nine per cent of the total private health insurance rebate paid to couples."

The Coalition was highly critical of the means test when it was introduced, backing the industry's arguments against the change, but has not acted to restore the rebate in government.

In fact, it has added to the affordability issue by 'pausing' indexation of the income thresholds for the Medicare Levy Surcharge and Private Health Insurance 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 it more expensive for more people every single year.