Private health insurance is under review, with proposals to overhaul everything from rebates to tax penalty rules.

One proposal is for higher-income earners who don’t have private health insurance to pay a larger Medicare Levy Surcharge–an increase from 1.25% or 1.5%, to 2%. And if they want to avoid that surcharge, they’d need to take out higher-level hospital cover than currently required.

Encouraging more people to take up private health insurance like this might seem a good way to take pressure off the public hospital system.

But our research shows these proposals may not achieve this. These may also be especially punitive for people with little to gain from buying private health insurance, such as younger people and those living in regional areas who do not have access to private hospitals.

What is the Medicare Levy Surcharge?​

The Medicare Levy Surcharge was introduced in 1997 to encourage high-income earners to buy health insurance. People earning above the relevant thresholds need to buy 'complying' health insurance, or pay the levy.

This surcharge is in addition to the Medicare levy, which applies to most taxpayers.

The surcharge varies depending on your income bracket, and the rate is different for families.

For instance, to avoid paying the surcharge currently, a single person living in Victoria earning A$108,001 can buy basic hospital cover. The lowest annual premium for someone under 65 is about $1,100, after rebates. That varies slightly between states and territories.

Not buying private health insurance and paying the Medicare Levy Surcharge instead would cost even more, at $1,350 (1.25% of $108,001).

What is being proposed?​

The report, by Finity Consulting and commissioned by the federal health department, reviews a range of health insurance incentives.

It recommends increasing the Medicare Levy Surcharge to 2% for those with an income above $108,001 for singles, and $216,001 for families.

People on higher incomes without private health insurance need to pay the Medicare Levy Surcharge via the taxation system. Shutterstock

The definition of a 'complying' private health insurance policy would also change.

Rather than having basic hospital cover as is required now, someone would need to buy silver or gold cover to avoid the surcharge.

Under the proposed changes, people who pay the 2% surcharge would also no longer receive any rebate, which currently reduces premiums by about 8% for people earning $108,001-$144,000.

So, for a single person under 65, earning $108,001 and living in Victoria, the annual cost of buying complying hospital cover would be at least $1,904 (without the rebate). Again, that varies slightly between states and territories.

But the cost of not insuring and paying the Medicare Levy Surcharge instead would go up to $2,160 (2% of $108,001).

Is this a good idea?​

However, our research, out earlier this year, suggests increasing the Medicare Levy Surcharge will not meaningfully increase take-up of private health insurance. We’ve shown that people do not respond as strongly to the surcharge as theory would predict.

For example, when the surcharge kicks in, we found the probability of insuring only increases modestly from about 70% to 73% for singles, and about 90% to 91% for families.

It is generally cheaper to buy private health insurance than to pay the surcharge. However, we found about 15% of single people with an income of $108,001 or above don’t insure despite it being cheaper than paying the Medicare Levy Surcharge.

We don’t know precisely why. Maybe people are not sure of the financial benefit due to changes in their income, or if they are, cannot be bothered, or do not have time, to explore their options.

Some people may choose to pay more tax for public services including Medicare. Shutterstock

Maybe, as anecdotal reports suggest, rather than buying private health insurance, some people would rather support the public system by paying the Medicare Levy Surcharge.

The point is, people who are not buying private health insurance appear to be highly resistant to financial incentives. So stronger penalties might have little effect.

Instead, we propose the Medicare Levy Surcharge be better targeted to true high-income earners. We can do that by increasing income thresholds for the surcharge to kick in, which are then indexed annually to reflect changes in earnings.

How about needing more expensive cover?​

Requiring people to choose silver level cover or above would address criticisms about people buying 'junk' private health insurance they never intend to use.

However, people may be buying this type of product because private health insurance has little value to them. Requiring them to spend even more on a product they don’t want is a roundabout way of taking pressure off the public system.

So we propose keeping the current level of hospital cover required to avoid the surcharge, rather than increasing it.

Who loses?​

Taken together, the cost of these proposed changes would disproportionately fall on people with little to gain from private health insurance. These include younger people, those living in regional areas who do not have access to private hospitals, or those who prefer to support the public system directly.

These groups are the least likely to use private insurance so have the least to gain from upgrading their cover.

Where to next?​

The report also recommends keeping health insurance rebates (a government contribution to your premiums), the Lifetime Health Cover loading (to encourage people to take out hospital cover while younger), as well as the Medicare Levy Surcharge.

We also support keeping these three in the short to medium term.

But we recommend gradually reducing public support for private health insurance.

We believe the ultimate goal of reforming private health insurance is to optimise the overall efficiency of the health-care system (both public and private systems) and improve population health while saving taxpayers’ money.

The goal should not be merely increasing the take-up of private health insurance, which is the focus of the current report.

So, as well as our recommendation to better target the Medicare Levy Surcharge, we need to:

• lower income thresholds for insurance rebates, especially targeting those on genuinely low incomes. This means lower premiums only for the people who can least afford private health care
• remove rebates based on age as higher rebates for older people do not encourage more to insure. Rebates should be tied to just income, which is a better indicator of financial means.

This article was first published on The Conversation, and was written by Yuting Zhang, Professor of Health Economics, The University of Melbourne, Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology Sydney.

 

[Kelpie]

Private health insurance is under review, with proposals to overhaul everything from rebates to tax penalty rules.

One proposal is for higher-income earners who don’t have private health insurance to pay a larger Medicare Levy Surcharge–an increase from 1.25% or 1.5%, to 2%. And if they want to avoid that surcharge, they’d need to take out higher-level hospital cover than currently required.

Encouraging more people to take up private health insurance like this might seem a good way to take pressure off the public hospital system.

But our research shows these proposals may not achieve this. These may also be especially punitive for people with little to gain from buying private health insurance, such as younger people and those living in regional areas who do not have access to private hospitals.

What is the Medicare Levy Surcharge?​

The Medicare Levy Surcharge was introduced in 1997 to encourage high-income earners to buy health insurance. People earning above the relevant thresholds need to buy 'complying' health insurance, or pay the levy.

This surcharge is in addition to the Medicare levy, which applies to most taxpayers.

The surcharge varies depending on your income bracket, and the rate is different for families.

For instance, to avoid paying the surcharge currently, a single person living in Victoria earning A$108,001 can buy basic hospital cover. The lowest annual premium for someone under 65 is about $1,100, after rebates. That varies slightly between states and territories.

Not buying private health insurance and paying the Medicare Levy Surcharge instead would cost even more, at $1,350 (1.25% of $108,001).

What is being proposed?​

The report, by Finity Consulting and commissioned by the federal health department, reviews a range of health insurance incentives.

It recommends increasing the Medicare Levy Surcharge to 2% for those with an income above $108,001 for singles, and $216,001 for families.

People on higher incomes without private health insurance need to pay the Medicare Levy Surcharge via the taxation system. Shutterstock

The definition of a 'complying' private health insurance policy would also change.

Rather than having basic hospital cover as is required now, someone would need to buy silver or gold cover to avoid the surcharge.

Under the proposed changes, people who pay the 2% surcharge would also no longer receive any rebate, which currently reduces premiums by about 8% for people earning $108,001-$144,000.

So, for a single person under 65, earning $108,001 and living in Victoria, the annual cost of buying complying hospital cover would be at least $1,904 (without the rebate). Again, that varies slightly between states and territories.

But the cost of not insuring and paying the Medicare Levy Surcharge instead would go up to $2,160 (2% of $108,001).

Is this a good idea?​

However, our research, out earlier this year, suggests increasing the Medicare Levy Surcharge will not meaningfully increase take-up of private health insurance. We’ve shown that people do not respond as strongly to the surcharge as theory would predict.

For example, when the surcharge kicks in, we found the probability of insuring only increases modestly from about 70% to 73% for singles, and about 90% to 91% for families.

It is generally cheaper to buy private health insurance than to pay the surcharge. However, we found about 15% of single people with an income of $108,001 or above don’t insure despite it being cheaper than paying the Medicare Levy Surcharge.

We don’t know precisely why. Maybe people are not sure of the financial benefit due to changes in their income, or if they are, cannot be bothered, or do not have time, to explore their options.

Some people may choose to pay more tax for public services including Medicare. Shutterstock

Maybe, as anecdotal reports suggest, rather than buying private health insurance, some people would rather support the public system by paying the Medicare Levy Surcharge.

The point is, people who are not buying private health insurance appear to be highly resistant to financial incentives. So stronger penalties might have little effect.

Instead, we propose the Medicare Levy Surcharge be better targeted to true high-income earners. We can do that by increasing income thresholds for the surcharge to kick in, which are then indexed annually to reflect changes in earnings.

How about needing more expensive cover?​

Requiring people to choose silver level cover or above would address criticisms about people buying 'junk' private health insurance they never intend to use.

However, people may be buying this type of product because private health insurance has little value to them. Requiring them to spend even more on a product they don’t want is a roundabout way of taking pressure off the public system.

So we propose keeping the current level of hospital cover required to avoid the surcharge, rather than increasing it.

Who loses?​

Taken together, the cost of these proposed changes would disproportionately fall on people with little to gain from private health insurance. These include younger people, those living in regional areas who do not have access to private hospitals, or those who prefer to support the public system directly.

These groups are the least likely to use private insurance so have the least to gain from upgrading their cover.

Where to next?​

The report also recommends keeping health insurance rebates (a government contribution to your premiums), the Lifetime Health Cover loading (to encourage people to take out hospital cover while younger), as well as the Medicare Levy Surcharge.

We also support keeping these three in the short to medium term.

But we recommend gradually reducing public support for private health insurance.

We believe the ultimate goal of reforming private health insurance is to optimise the overall efficiency of the health-care system (both public and private systems) and improve population health while saving taxpayers’ money.

The goal should not be merely increasing the take-up of private health insurance, which is the focus of the current report.

So, as well as our recommendation to better target the Medicare Levy Surcharge, we need to:

• lower income thresholds for insurance rebates, especially targeting those on genuinely low incomes. This means lower premiums only for the people who can least afford private health care
• remove rebates based on age as higher rebates for older people do not encourage more to insure. Rebates should be tied to just income, which is a better indicator of financial means.

This article was first published on The Conversation, and was written by Yuting Zhang, Professor of Health Economics, The University of Melbourne, Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology Sydney.

The problem is not because of people avoiding to join Private Health Insurance, but becasue when you have cover you are skinned alive by greedy specialists when you get to hospital as they charge you what they want.
I have been with Private Cover for as long as I can remember but I am not happy about it when I get a bill from a specialist and the anesthetist that nearly clear out my Bank account.
And when you live in theCountry or a Regional area and you need to go to hospital (Not A PrivateOne) the Hospital gets you to sign an authority so they can collect the full money from the Private Insurance and you don't get any different treatment than a public patient. Cold sandwiches which have been prepacked a day or two before and frozen and not even a warm breakfast or a piece of toast. There have been times that I had my family bringing me something to eat while in Hospital and that is not good at all.
THE WHOLE SYSTEM SHOULD BE REVIEWED NOT JUST WHICH PEOPLE PAY AND WHICH ONES ARE NOT.

 

[Penny4]

It seems more people are opting out of private health cover due to rising costs. This only impacts the waiting time for public patients. Unfortunately, I've known 2 people who have passed away when on the waiting list for surgery at the public hospital. It was very sad.

 

[MariaG]

I thought I was doing the right thing by having full medical cover as soon as it became available.
When Hubby and the 2 stepsons came along, I paid full family cover and did so for many years.
It was more expensive to cover me that is was to insure our house.
I only used the private cover once. On full cover, I had to fork out $1400 of my own money for a hospital stay over 2 days and one night. There were no medical procedures, just the need for intravenous drip to address an infection. $1400 for what?
When I left work to care for hubby full time, the medical cover was just too much to bear, so, I had to drop it after having paid dead money for over 30 years. Being on a waiting list for what they call elective surgery can be a load to bear.
However, since hubby has suffered so many issues over the past 25 years, we have not had to pay a cent. Fractured spine and cancer are not classed elective, so, there is the difference.
I don't know how people who are not on a health card or pension can afford treatment in this day and age.
Having said all that, I still believe our health system is more positive than some other countries have to bear.

 

[Penny4]

I thought I was doing the right thing by having full medical cover as soon as it became available.
When Hubby and the 2 stepsons came along, I paid full family cover and did so for many years.
It was more expensive to cover me that is was to insure our house.
I only used the private cover once. On full cover, I had to fork out $1400 of my own money for a hospital stay over 2 days and one night. There were no medical procedures, just the need for intravenous drip to address an infection. $1400 for what?
When I left work to care for hubby full time, the medical cover was just too much to bear, so, I had to drop it after having paid dead money for over 30 years. Being on a waiting list for what they call elective surgery can be a load to bear.
However, since hubby has suffered so many issues over the past 25 years, we have not had to pay a cent. Fractured spine and cancer are not classed elective, so, there is the difference.
I don't know how people who are not on a health card or pension can afford treatment in this day and age.
Having said all that, I still believe our health system is more positive than some other countries have to bear.

Yes, I agree. No issue with cancer with no waiting. The 2 people I knew were waiting for heart aorta surgeries. Not deemed urgent apparently. I think it depends whereabouts we live around Australia with waiting lists. Where I live, it's so busy.

 

[MariaG]

Yes, I agree. No issue with cancer with no waiting. The 2 people I knew were waiting for heart aorta surgeries. Not deemed urgent apparently.

Unbelievable. How can they lessen the importance of such a crucial need.
I just don't get it.

 

[Catherines]

The problem is not because of people avoiding to join Private Health Insurance, but becasue when you have cover you are skinned alive by greedy specialists when you get to hospital as they charge you what they want.
I have been with Private Cover for as long as I can remember but I am not happy about it when I get a bill from a specialist and the anesthetist that nearly clear out my Bank account.
And when you live in theCountry or a Regional area and you need to go to hospital (Not A PrivateOne) the Hospital gets you to sign an authority so they can collect the full money from the Private Insurance and you don't get any different treatment than a public patient. Cold sandwiches which have been prepacked a day or two before and frozen and not even a warm breakfast or a piece of toast. There have been times that I had my family bringing me something to eat while in Hospital and that is not good at all.
THE WHOLE SYSTEM SHOULD BE REVIEWED NOT JUST WHICH PEOPLE PAY AND WHICH ONES ARE NOT.

I don’t know which state or hospital you were in - mine was in Brisbane.
I believe there MAY be something not quite accurate in the above comment. I don’t think “the Hospital gets you to sign an authority so they can collect the full money from the Private Insurance and you don't get any different treatment than a public patient.”.

I was very recently rushed to my public hospital on a Sunday at 6pm (& was in there 10 days), a trip I could not avoid because my complaint first had to be diagnosed. Just turning up to a private hospital at that hour without knowing what specialist I needed to be seen by was not possible - a particular ‘specialist’ does not work all hours or necessarily be ‘on call’. And private hospitals do not have specialists in the hospital waiting for patients in his/her speciality to come in.

Yes, we were asked if we had private health cover & if we would like to assign the benefit to the public hospital. We’ve been paying our private cover premiums so assigned that over to the public hospital.

If public hospitals are free, where do you think the funding to run these comes from? Running the hospital, paying specialist doctors’ fees, paying nurses, kitchen staff, wardsmen/women, cleaners, administration, specialist x-ray, CT, MRI etc., and the thousands of other workers we do not see, must come from somewhere - the government cannot bear the full brunt of these costs.

I was treated with knowledge, courtesy, compassion by every nurse that attended me. My operations (2) were done by the specialists in those fields and now I have been given follow-up appoints for this month (3 follow-ups). I’ve been out of hospital for just 12 days. Am happy to assign my private cover to the public hospital because (in effect) I have already paid for my treatment through my premiums!

 

[Shane/#]

Private health insurance is under review, with proposals to overhaul everything from rebates to tax penalty rules.

One proposal is for higher-income earners who don’t have private health insurance to pay a larger Medicare Levy Surcharge–an increase from 1.25% or 1.5%, to 2%. And if they want to avoid that surcharge, they’d need to take out higher-level hospital cover than currently required.

Encouraging more people to take up private health insurance like this might seem a good way to take pressure off the public hospital system.

But our research shows these proposals may not achieve this. These may also be especially punitive for people with little to gain from buying private health insurance, such as younger people and those living in regional areas who do not have access to private hospitals.

What is the Medicare Levy Surcharge?​

The Medicare Levy Surcharge was introduced in 1997 to encourage high-income earners to buy health insurance. People earning above the relevant thresholds need to buy 'complying' health insurance, or pay the levy.

This surcharge is in addition to the Medicare levy, which applies to most taxpayers.

The surcharge varies depending on your income bracket, and the rate is different for families.

For instance, to avoid paying the surcharge currently, a single person living in Victoria earning A$108,001 can buy basic hospital cover. The lowest annual premium for someone under 65 is about $1,100, after rebates. That varies slightly between states and territories.

Not buying private health insurance and paying the Medicare Levy Surcharge instead would cost even more, at $1,350 (1.25% of $108,001).

What is being proposed?​

The report, by Finity Consulting and commissioned by the federal health department, reviews a range of health insurance incentives.

It recommends increasing the Medicare Levy Surcharge to 2% for those with an income above $108,001 for singles, and $216,001 for families.

People on higher incomes without private health insurance need to pay the Medicare Levy Surcharge via the taxation system. Shutterstock

The definition of a 'complying' private health insurance policy would also change.

Rather than having basic hospital cover as is required now, someone would need to buy silver or gold cover to avoid the surcharge.

Under the proposed changes, people who pay the 2% surcharge would also no longer receive any rebate, which currently reduces premiums by about 8% for people earning $108,001-$144,000.

So, for a single person under 65, earning $108,001 and living in Victoria, the annual cost of buying complying hospital cover would be at least $1,904 (without the rebate). Again, that varies slightly between states and territories.

But the cost of not insuring and paying the Medicare Levy Surcharge instead would go up to $2,160 (2% of $108,001).

Is this a good idea?​

However, our research, out earlier this year, suggests increasing the Medicare Levy Surcharge will not meaningfully increase take-up of private health insurance. We’ve shown that people do not respond as strongly to the surcharge as theory would predict.

For example, when the surcharge kicks in, we found the probability of insuring only increases modestly from about 70% to 73% for singles, and about 90% to 91% for families.

It is generally cheaper to buy private health insurance than to pay the surcharge. However, we found about 15% of single people with an income of $108,001 or above don’t insure despite it being cheaper than paying the Medicare Levy Surcharge.

We don’t know precisely why. Maybe people are not sure of the financial benefit due to changes in their income, or if they are, cannot be bothered, or do not have time, to explore their options.

Some people may choose to pay more tax for public services including Medicare. Shutterstock

Maybe, as anecdotal reports suggest, rather than buying private health insurance, some people would rather support the public system by paying the Medicare Levy Surcharge.

The point is, people who are not buying private health insurance appear to be highly resistant to financial incentives. So stronger penalties might have little effect.

Instead, we propose the Medicare Levy Surcharge be better targeted to true high-income earners. We can do that by increasing income thresholds for the surcharge to kick in, which are then indexed annually to reflect changes in earnings.

How about needing more expensive cover?​

Requiring people to choose silver level cover or above would address criticisms about people buying 'junk' private health insurance they never intend to use.

However, people may be buying this type of product because private health insurance has little value to them. Requiring them to spend even more on a product they don’t want is a roundabout way of taking pressure off the public system.

So we propose keeping the current level of hospital cover required to avoid the surcharge, rather than increasing it.

Who loses?​

Taken together, the cost of these proposed changes would disproportionately fall on people with little to gain from private health insurance. These include younger people, those living in regional areas who do not have access to private hospitals, or those who prefer to support the public system directly.

These groups are the least likely to use private insurance so have the least to gain from upgrading their cover.

Where to next?​

The report also recommends keeping health insurance rebates (a government contribution to your premiums), the Lifetime Health Cover loading (to encourage people to take out hospital cover while younger), as well as the Medicare Levy Surcharge.

We also support keeping these three in the short to medium term.

But we recommend gradually reducing public support for private health insurance.

We believe the ultimate goal of reforming private health insurance is to optimise the overall efficiency of the health-care system (both public and private systems) and improve population health while saving taxpayers’ money.

The goal should not be merely increasing the take-up of private health insurance, which is the focus of the current report.

So, as well as our recommendation to better target the Medicare Levy Surcharge, we need to:

• lower income thresholds for insurance rebates, especially targeting those on genuinely low incomes. This means lower premiums only for the people who can least afford private health care
• remove rebates based on age as higher rebates for older people do not encourage more to insure. Rebates should be tied to just income, which is a better indicator of financial means.

This article was first published on The Conversation, and was written by Yuting Zhang, Professor of Health Economics, The University of Melbourne, Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology Sydney.

This is an American system that the liberal government has been pushing for year's to destabilise Medicare system so they don't have to fund yet they love to push money to the private sector it's a two tear system the haves and the have-nots the question will be asked do you have insurance if not go down the road to the public hospital Medicare was introduced for the people rich or poor to get good health care and the LNP gutted it for their mates to charge excessive prices for procedures

 

[Tetavo]

Private health insurance is under review, with proposals to overhaul everything from rebates to tax penalty rules.

One proposal is for higher-income earners who don’t have private health insurance to pay a larger Medicare Levy Surcharge–an increase from 1.25% or 1.5%, to 2%. And if they want to avoid that surcharge, they’d need to take out higher-level hospital cover than currently required.

Encouraging more people to take up private health insurance like this might seem a good way to take pressure off the public hospital system.

But our research shows these proposals may not achieve this. These may also be especially punitive for people with little to gain from buying private health insurance, such as younger people and those living in regional areas who do not have access to private hospitals.

What is the Medicare Levy Surcharge?​

The Medicare Levy Surcharge was introduced in 1997 to encourage high-income earners to buy health insurance. People earning above the relevant thresholds need to buy 'complying' health insurance, or pay the levy.

This surcharge is in addition to the Medicare levy, which applies to most taxpayers.

The surcharge varies depending on your income bracket, and the rate is different for families.

For instance, to avoid paying the surcharge currently, a single person living in Victoria earning A$108,001 can buy basic hospital cover. The lowest annual premium for someone under 65 is about $1,100, after rebates. That varies slightly between states and territories.

Not buying private health insurance and paying the Medicare Levy Surcharge instead would cost even more, at $1,350 (1.25% of $108,001).

What is being proposed?​

The report, by Finity Consulting and commissioned by the federal health department, reviews a range of health insurance incentives.

It recommends increasing the Medicare Levy Surcharge to 2% for those with an income above $108,001 for singles, and $216,001 for families.

People on higher incomes without private health insurance need to pay the Medicare Levy Surcharge via the taxation system. Shutterstock

The definition of a 'complying' private health insurance policy would also change.

Rather than having basic hospital cover as is required now, someone would need to buy silver or gold cover to avoid the surcharge.

Under the proposed changes, people who pay the 2% surcharge would also no longer receive any rebate, which currently reduces premiums by about 8% for people earning $108,001-$144,000.

So, for a single person under 65, earning $108,001 and living in Victoria, the annual cost of buying complying hospital cover would be at least $1,904 (without the rebate). Again, that varies slightly between states and territories.

But the cost of not insuring and paying the Medicare Levy Surcharge instead would go up to $2,160 (2% of $108,001).

Is this a good idea?​

However, our research, out earlier this year, suggests increasing the Medicare Levy Surcharge will not meaningfully increase take-up of private health insurance. We’ve shown that people do not respond as strongly to the surcharge as theory would predict.

For example, when the surcharge kicks in, we found the probability of insuring only increases modestly from about 70% to 73% for singles, and about 90% to 91% for families.

It is generally cheaper to buy private health insurance than to pay the surcharge. However, we found about 15% of single people with an income of $108,001 or above don’t insure despite it being cheaper than paying the Medicare Levy Surcharge.

We don’t know precisely why. Maybe people are not sure of the financial benefit due to changes in their income, or if they are, cannot be bothered, or do not have time, to explore their options.

Some people may choose to pay more tax for public services including Medicare. Shutterstock

Maybe, as anecdotal reports suggest, rather than buying private health insurance, some people would rather support the public system by paying the Medicare Levy Surcharge.

The point is, people who are not buying private health insurance appear to be highly resistant to financial incentives. So stronger penalties might have little effect.

Instead, we propose the Medicare Levy Surcharge be better targeted to true high-income earners. We can do that by increasing income thresholds for the surcharge to kick in, which are then indexed annually to reflect changes in earnings.

How about needing more expensive cover?​

Requiring people to choose silver level cover or above would address criticisms about people buying 'junk' private health insurance they never intend to use.

However, people may be buying this type of product because private health insurance has little value to them. Requiring them to spend even more on a product they don’t want is a roundabout way of taking pressure off the public system.

So we propose keeping the current level of hospital cover required to avoid the surcharge, rather than increasing it.

Who loses?​

Taken together, the cost of these proposed changes would disproportionately fall on people with little to gain from private health insurance. These include younger people, those living in regional areas who do not have access to private hospitals, or those who prefer to support the public system directly.

These groups are the least likely to use private insurance so have the least to gain from upgrading their cover.

Where to next?​

The report also recommends keeping health insurance rebates (a government contribution to your premiums), the Lifetime Health Cover loading (to encourage people to take out hospital cover while younger), as well as the Medicare Levy Surcharge.

We also support keeping these three in the short to medium term.

But we recommend gradually reducing public support for private health insurance.

We believe the ultimate goal of reforming private health insurance is to optimise the overall efficiency of the health-care system (both public and private systems) and improve population health while saving taxpayers’ money.

The goal should not be merely increasing the take-up of private health insurance, which is the focus of the current report.

So, as well as our recommendation to better target the Medicare Levy Surcharge, we need to:

• lower income thresholds for insurance rebates, especially targeting those on genuinely low incomes. This means lower premiums only for the people who can least afford private health care
• remove rebates based on age as higher rebates for older people do not encourage more to insure. Rebates should be tied to just income, which is a better indicator of financial means.

This article was first published on The Conversation, and was written by Yuting Zhang, Professor of Health Economics, The University of Melbourne, Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology Sydney.

I am a pensioner who has private health insurance I pay more for my private health than I do groceries (a basic human right, food). But I find my self using the public system because I can't pay the gap if I use my private health.
Am I wasting Mt money on private health? I worry that as I age further I will need my private health

 

[kevinwoodtufftyke52@gmail]

Private health insurance is under review, with proposals to overhaul everything from rebates to tax penalty rules.

One proposal is for higher-income earners who don’t have private health insurance to pay a larger Medicare Levy Surcharge–an increase from 1.25% or 1.5%, to 2%. And if they want to avoid that surcharge, they’d need to take out higher-level hospital cover than currently required.

Encouraging more people to take up private health insurance like this might seem a good way to take pressure off the public hospital system.

But our research shows these proposals may not achieve this. These may also be especially punitive for people with little to gain from buying private health insurance, such as younger people and those living in regional areas who do not have access to private hospitals.

What is the Medicare Levy Surcharge?​

The Medicare Levy Surcharge was introduced in 1997 to encourage high-income earners to buy health insurance. People earning above the relevant thresholds need to buy 'complying' health insurance, or pay the levy.

This surcharge is in addition to the Medicare levy, which applies to most taxpayers.

The surcharge varies depending on your income bracket, and the rate is different for families.

For instance, to avoid paying the surcharge currently, a single person living in Victoria earning A$108,001 can buy basic hospital cover. The lowest annual premium for someone under 65 is about $1,100, after rebates. That varies slightly between states and territories.

Not buying private health insurance and paying the Medicare Levy Surcharge instead would cost even more, at $1,350 (1.25% of $108,001).

What is being proposed?​

The report, by Finity Consulting and commissioned by the federal health department, reviews a range of health insurance incentives.

It recommends increasing the Medicare Levy Surcharge to 2% for those with an income above $108,001 for singles, and $216,001 for families.

People on higher incomes without private health insurance need to pay the Medicare Levy Surcharge via the taxation system. Shutterstock

The definition of a 'complying' private health insurance policy would also change.

Rather than having basic hospital cover as is required now, someone would need to buy silver or gold cover to avoid the surcharge.

Under the proposed changes, people who pay the 2% surcharge would also no longer receive any rebate, which currently reduces premiums by about 8% for people earning $108,001-$144,000.

So, for a single person under 65, earning $108,001 and living in Victoria, the annual cost of buying complying hospital cover would be at least $1,904 (without the rebate). Again, that varies slightly between states and territories.

But the cost of not insuring and paying the Medicare Levy Surcharge instead would go up to $2,160 (2% of $108,001).

Is this a good idea?​

However, our research, out earlier this year, suggests increasing the Medicare Levy Surcharge will not meaningfully increase take-up of private health insurance. We’ve shown that people do not respond as strongly to the surcharge as theory would predict.

For example, when the surcharge kicks in, we found the probability of insuring only increases modestly from about 70% to 73% for singles, and about 90% to 91% for families.

It is generally cheaper to buy private health insurance than to pay the surcharge. However, we found about 15% of single people with an income of $108,001 or above don’t insure despite it being cheaper than paying the Medicare Levy Surcharge.

We don’t know precisely why. Maybe people are not sure of the financial benefit due to changes in their income, or if they are, cannot be bothered, or do not have time, to explore their options.

Some people may choose to pay more tax for public services including Medicare. Shutterstock

Maybe, as anecdotal reports suggest, rather than buying private health insurance, some people would rather support the public system by paying the Medicare Levy Surcharge.

The point is, people who are not buying private health insurance appear to be highly resistant to financial incentives. So stronger penalties might have little effect.

Instead, we propose the Medicare Levy Surcharge be better targeted to true high-income earners. We can do that by increasing income thresholds for the surcharge to kick in, which are then indexed annually to reflect changes in earnings.

How about needing more expensive cover?​

Requiring people to choose silver level cover or above would address criticisms about people buying 'junk' private health insurance they never intend to use.

However, people may be buying this type of product because private health insurance has little value to them. Requiring them to spend even more on a product they don’t want is a roundabout way of taking pressure off the public system.

So we propose keeping the current level of hospital cover required to avoid the surcharge, rather than increasing it.

Who loses?​

Taken together, the cost of these proposed changes would disproportionately fall on people with little to gain from private health insurance. These include younger people, those living in regional areas who do not have access to private hospitals, or those who prefer to support the public system directly.

These groups are the least likely to use private insurance so have the least to gain from upgrading their cover.

Where to next?​

The report also recommends keeping health insurance rebates (a government contribution to your premiums), the Lifetime Health Cover loading (to encourage people to take out hospital cover while younger), as well as the Medicare Levy Surcharge.

We also support keeping these three in the short to medium term.

But we recommend gradually reducing public support for private health insurance.

We believe the ultimate goal of reforming private health insurance is to optimise the overall efficiency of the health-care system (both public and private systems) and improve population health while saving taxpayers’ money.

The goal should not be merely increasing the take-up of private health insurance, which is the focus of the current report.

So, as well as our recommendation to better target the Medicare Levy Surcharge, we need to:

• lower income thresholds for insurance rebates, especially targeting those on genuinely low incomes. This means lower premiums only for the people who can least afford private health care
• remove rebates based on age as higher rebates for older people do not encourage more to insure. Rebates should be tied to just income, which is a better indicator of financial means.

This article was first published on The Conversation, and was written by Yuting Zhang, Professor of Health Economics, The University of Melbourne, Nathan Kettlewell, Chancellor's Postdoctoral Research Fellow, Economics Discipline Group, University of Technology Sydney.

No wonder people are ditching private medical insurance because of ridiculous price rises and NOT getting value for money.