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Health Insurance: The Reducing Rebate

Jonathan August 12th, 2014 0 comments

The Health Insurance Rebate has been cut again and off the back of April’s health fund premiums rises, those at higher end of the rebate scale may actually end up paying more for their health insurance. This is yet another blow for Australian consumers, who are already reeling from the biggest premium increases in almost ten years.

The Health Insurance Rebate is now linked to the Consumer Price Index (CPI). With private health insurance premiums rising more quickly than the CPI, consumers are now being hit in the pocket. As of April 2014, this imbalance means that the Health Insurance Rebate has decreased. Under 65s receiving the 30 per cent rebate will now see this drop to 29.04 per cent.

With many Australians having already made plans to downgrade or drop their private health insurance in response to the rising costs, there are fears that any further decrease to the Health Insurance Rebate will result in more people doing so. “It could result in people going to a lower level of cover,” warns Steve Mickenbecker, Canstar’s group executive of ratings and financial services.

Potentially, there is worse to come. In the 2014 Budget, it was confirmed that the Health Insurance rebate will not be indexed from July 1st 2015. This means that anyone whose income changes enough to move into a different tier is likely to see their rebate reduced. Savings from this will be invested into the $20 billion Medical Research Future Fund.

What It Means

For those who were receiving the 30 per cent rebate, the average 6.2 per cent premium increase meant that the net amount payable by the Australian government was also around 6.2 per cent. Reducing the Health Insurance Rebate to 29.04 per cent brings this down to around the 3 per cent mark (in line with CPI).

On top of the premium increases, receiving less back as a rebate means that the cost of private health insurance has effectively increased even more – to beyond the 6.2 per cent average. For those on the 30 per cent rebate, this adds up to an average rise of 7.05 per cent.

Why It Is Happening

In August 2013, Tony Abbott pledged to reinstate the 30 per cent Health Insurance Rebate within 10 years. “Restoring the private health insurance rebate as soon as we responsibly can” was put forward as a key commitment at the Coalition campaign launch.

Abbott has repeatedly stressed that health care in Australia is in an “unsustainable” position and that changes need to be made to address the rising costs. In the 2014 Budget, he called on Australians to make a larger contribution towards their health care through the proposed changes, including $7 charges for GP consultations and out-of-hospital imaging and diagnostic services, changes to the Medicare Safety Net, bigger charges for PBS prescriptions. Cutting the Health Insurance Rebate is another step in this direction and is designed to reduce government spending relating to private health insurance.

What does it all mean?

Consumers are set to receive even less of their health insurance premiums back as a rebate due to changes in how the Health Insurance Rebate is calculated. It is now linked to the Consumer Price Index, which is rising less quickly than premium increases. This means that private health insurance is set to cost more than the 6.2 per cent average for many consumers, with those who were on the 30 per cent rebate being hardest hit.

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