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If you’re one of the 45% of Australians with private health insurance, chances are the government pays, or has paid, a proportion of your premiums via rebates.

Taxpayer spending on these private health insurance rebates is projected to reach A$7.6 billion in 2025.

The rebates are a key source of revenue for private hospitals. In 2022–23, private health funds contributed $9.7 billion. This is around 45% of the $21.5 billion spent on private hospital services.

But are rebates achieving their aim of reducing pressure on the public hospital system? And if not, should the government scrap them and direct this funding to ailing public hospitals?

Remind me, what are the rebates?​

The private health insurance rebate was designed to encourage Australians to purchase private health insurance. The goal was to reduce both cost and capacity pressures on the public health-care system.

The Howard government introduced the rebate in the late 1990s, alongside:

• Medicare levy surcharges, a 1–1.5% levy on taxable income for those without private health insurance
• Lifetime health cover policies, a 2% loading on premiums (per year for ten years) if you take out private health insurance after you turn 31.

Initially, the private health insurance rebate covered 30% of premiums for all Australians, and subsidies were eventually made higher for people over 65.

Since April 2014, the rebate has been indexed annually, and the government’s contribution has gradually declined as a share of total premiums.

The rebate is also means-tested, with higher-income Australians receiving a smaller subsidy.

Singles under 65 years of age earning less than $97,000 receive a 24.3% rebate. The subsidy gradually phases out to zero for those earning above $151,000.

Why do we subsidise private health insurance?​

A justification for the rebates is that higher uptake of private health insurance would reduce pressure on the public healthcare system.

There is good evidence that people with private health insurance are more likely to opt for private care when they need hospital treatment.

A 2018 study showed having private health insurance increased the likelihood of a private hospital admission by 16 percentage points, and reduced the likelihood of a public admission by 13 percentage points.

However, getting more Australians to take out private health insurance doesn’t necessarily ease pressure on the public system in a meaningful way.

A 2024 study of Victoria’s public hospital system found higher rates of private health insurance coverage leads to only marginal reductions in public hospital wait times.

So rather than relying on private insurance, a more direct way to reduce public hospital waiting times would be to increase funding for the public hospital system.

Do the benefits exceed the costs?​

A recent study commissioned by Avant Mutual showed the rebates are cost-effective, generating $1.25 in savings for every dollar spent on the rebates.

A 2023 review of the private health insurance incentives commissioned by the Commonwealth Department of Health and Aged Care also found that having rebates results in net savings for the government. In other words, the government saves on health-care costs from people holding private health insurance and the savings outweigh what it spends on subsidies.

The review concluded the policy was “a very good financial deal for the government”.

Conversely, my past research indicated savings from scrapping the rebate would outweigh the additional costs of treating more patients in the public system.

This is likely because there are still significant financial incentives for people to maintain their health cover, especially among people on high incomes who are liable for the Medicare Levy Surcharge.

Another study from 2024 examined the relationship between having private insurance and the choice of private or public care. It concluded that even under optimistic assumptions about substitution, the potential savings in public hospital expenditure could not justify the cost of the rebates.

How can we make sense of these conflicting conclusions?​

Part of the answer lies in the fact the studies rely on different assumptions, methodology and data. A key modelling consideration is how responsive consumers are to changes in the price of insurance.

The academic literature generally finds consumers aren’t very sensitive to changes in the price of insurance. As such, a reduction in the rebate would likely lead to only a small decline in private health insurance membership and a limited impact on public hospital use.

Private health insurance rebates are declining over time due to indexation and means-testing, and the government’s contribution to premiums has gradually declined over time.

The available evidence tells us private health insurance does little to relieve pressure on the public system, contrary to the rebate’s intended purpose.

Yet there is no consensus on whether reducing or removing rebates would produce net savings, or end up costing the government more than it saves. This is one area where more independent and rigorous research is needed.

Don’t cut rebates – but don’t expand them either​

In the current environment with cost-of-living pressures, increasing private health premiums are placing growing strain on household budgets. In this context, rebates provide some relief and there is a good argument for maintaining them at their current levels.

Some argue rebates should be reinstated to their original 30%. However, since private health insurance does little to relieve pressures on the public system, the evidence doesn’t support expanding the rebates.

Any new funding would be better directed to expanding public system capacity or directly funding elective surgery in private hospitals to reduce public hospital waiting times.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

[Dad n Dave]

We have private health insurance and it is a big cost, however, it is well worth it. When my wife had a cancer scare the insurer paid well over $ 60k. It was seamless and took enormous stress out of the situation. Now it's my turn and again having private health insurance gets a big thumbs up with getting things done in the timeframe you need.
We are blessed to be able to afford it.
If they took the rebate away, it wouldn't change our decision.

If the Government wants to reduce health costs, then have a look at the amount of the pie being taken by specialists. It is obscene.

We are paying for specialists to have multiple luxury cars, large leisure boats, big homes and extensive overseas travel.

They're life savers, no doubt, but nurses are paid a pittance in comparison, even GPs are receiving several hundred thousand dollars per annum.

When one part of society receive more than they need, we all pay more because they can pay more for everyday needs.

Investigate the prices being charged for medical procedures and put a cap on those.

For example removing a Bcc cost $1,450 out of pocket non refundable from insurance or Medicare, while a hip replacement is only $500 out of pocket.


That is where the cost issue is.

 

[Lanne]

23 years ago we were out of pocket about $4000 for heart surgery with health fund cover. This year $10000 out of pocket for neurosurgery. The amount these specialists charge definitely needs to have a limit put on them.

 

[Crapaud]

So this socialist government want to penalize once more those who pay their way When labor introduced Medicare it also made it almost mandatory for those earning /working would need private cover also Medicare care pvt plus others to offset the Free medical so that those who government say can afford private we then got a small rebate if we continued with the medical insurance. Now because of the corrupt, dishonest leaders who are flooding our shores/community's wit migrants many of whom do not work & do not have private cover, thus these people are the ones putting huge strain on our public medical system they now want to Burdon the working Aussies past & present with another payment to support migration I have used the old term of Apathetic in describing how good Australian people, both those who are generation's old and those who legally migrated who worked with no government handouts little or no child benefits who fought in two world wars & two other conflicts will just complain about the way they are treated but are too bloody apathetic (She'll be right Mate ) to do anything take a good hard look at the UK once boasting a world best health system now destroyed through over use by many who should not have been allowed .

 

[NoNoNoNoNoNo]

if medicare had remained for the low income earners and not opened to all we would have cheap health insurance, and a better health care system. When it was restricted health care was affordable and you got instant health care not having to wait years for an operation if you are on a low income

 

[Grumpy Celebrant]

My story (of woe) is too long to type here, however, my pending 'Category 2' colorectal 'follow-up surgery' wait time has been blown-out from maximum 90 days wait from the last meeting with my surgeon, to an expected 500 days. WTF? The surgeon told me personally that he will do my required follow-up surgery 6 months after the initial emergency surgery! So the public system hospital then totally disregards his medical advice (they admitted that the surgeon had noted this 6 month time-frame) and tell me that I just have to wait some 17 months!
So, what is going to fix this system? Clearly diverting funds to target building more surgery's, targetting surgical staff, targetting surgical equipment in public hospitals. What about regulating & funding the use of surgery's in all Private Hospitals with suitable equipment for the required public surgery, that have not been pre-booked 5 to 7 days prior, or on the weekends when the Privately funded surgeons are sailing or playing golf???
I say 'Yes' reduce the funding off-set from private health premiums, but target the redirection of those funds with - dare I say it - common sense.

 

[PattiB]

if medicare had remained for the low income earners and not opened to all we would have cheap health insurance, and a better health care system. When it was restricted health care was affordable and you got instant health care not having to wait years for an operation if you are on a low income

I remember when Medicare was first introduced, a lot of my friends dropped their private health insurance because everything was going to be free. They couldn’t understand why Ted and I kept ours. Without private health insurance Ted most likely wouldn’t be here, quick access to an amazing surgeon, who at first only operated in private hospitals.
If Medicare had been kept to providing free healthcare for pensioners and people on low incomes, with the wealthy paying for themselves, maybe we’d have a reasonable, affordable system.

 

[Towing]

If you are taken to a public hospital and admitted if you sign the appropriate paperwork, your private health fund will pay your gap of $250.00 to public health dept which goes towards treating others

 

[Sherril54]

Something has to change. I have private health insurance, which I have not used yet as the coverage did not include knee replacement. My son and his partner have private health insurance and were unable to use the local private hospital because it closed down the maternity ward. My neigbour developed a kidney infection and intially attended the local P.H and because they had private health insurance was then transfered to the local private hospital, but then had to be transfered back to the P.H. because there was no urologist at the private hospital ??
If the rebates to private health were scraped, I would not be able to pay for private health insurance, but at the same time have not used it yet? But maybe it would improve P.H. services.

 

[RobbyNotTheRobot]

So this socialist government want to penalize once more those who pay their way When labor introduced Medicare it also made it almost mandatory for those earning /working would need private cover also Medicare care pvt plus others to offset the Free medical so that those who government say can afford private we then got a small rebate if we continued with the medical insurance. Now because of the corrupt, dishonest leaders who are flooding our shores/community's wit migrants many of whom do not work & do not have private cover, thus these people are the ones putting huge strain on our public medical system they now want to Burdon the working Aussies past & present with another payment to support migration I have used the old term of Apathetic in describing how good Australian people, both those who are generation's old and those who legally migrated who worked with no government handouts little or no child benefits who fought in two world wars & two other conflicts will just complain about the way they are treated but are too bloody apathetic (She'll be right Mate ) to do anything take a good hard look at the UK once boasting a world best health system now destroyed through over use by many who should not have been allowed .

My take on 'apathetic' is my motto below.