Health funds in financial peril call for tax rebate to be restored
Government tax changes are now adding more to your annual health fund costs than ever before. This is how it affects you and your family.
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Exclusive: A secret tax slug is adding nearly $250 a year to your health fund premiums and it’s contributing more to your insurance costs than the annual premium hikes.
Health funds will this week mount a major campaign to reverse the cash grab after more than 30,000 families dumped their insurance in June – pushing the industry into a death spiral.
The financial regulator last year predicted only three of the nation’s 38 health funds would survive past 2022 and new government data shows 11 of the nation’s 37 funds made a loss last financial year.
Half the funds will be in financial distress unless the government steps in, Private Healthcare Australia chief Dr Rachel David told News Corp Australia.
The Federal Government used to cover 30 per cent of the cost of health insurance under a tax rebate that applies to families earning less than $180,000 and individuals earning less than $90,000.
But under rule changes that came into effect in 2014, the rebate has been gradually eroded and is now worth just 24.81 per cent of the premium.
The rebate used to be 35 per cent for those aged 65-68 but has fallen to 29.2 per cent and it was 40 per cent for the over 70s but has fallen to 33.4 per cent.
Unless the policy changes the rebate is on track the slide to just 16 per cent of premiums by 2030, Dr Rachel David has forecast.
The reason the tax rebate is declining is that it rises by the annual rate of inflation each year while health fund premiums have been increasing by two to three times the rate of inflation.
This year’s October 1 premium rises added an average $103 to the cost of a family’s private health insurance bills while the cut to the tax rebate pushed up the cost by a further $237.
The Coalition promised in the 2013 election campaign it would reverse the policy when government finances allowed but has never acted on that promise.
The October federal budget showed the government intended to slash a further $710 million from the rebate over the next four years, Dr David said.
“What we’re arguing for at the moment is for them to basically put a floor under it so they are not reducing it by $710 million … our ideal would be to take it back to 30 per cent,” she said.
A spokesperson for Health Minister Greg Hunt said “the Coalition supports and will protect the PHI rebate”.
“We have cut the annual PHI premium rise by half on our watch. By comparison at the last election Labor intended to slash the PHI rebate. Our position remains unchanged,” he said.
The reduction in government support for health insurance has occurred at the same time as tens of thousands of families and young people are dumping their cover while elderly people who are more likely to use it join up forcing up premiums even more.
The proportion of the population with hospital cover has dropped from 47 per cent in 2014 to 43.6 per cent in June 2020.
At the same time public hospital waiting lists are on the rise and desperate uninsured people are self-funding minor procedures such as tendon repair, the removal of skin lesions, sinus surgery and removal of tonsils.
The COVID-19 surgery ban has seen public hospital waiting lists surge with 80,000 fewer elective surgery procedures in public hospitals so far in 2020.
“We’ve had reports in the news in Victoria and South Australia that wait times for category three surgery could be years and years, even 10 years in South Australia,” Dr David said.
It will cost state and federal governments half a billion dollars to clear this public hospital surgery backlog, the industry has calculated.
Consumer’s Health Forum chief Leanne Wells said the tax rebate already cost $6 billion and before more taxpayer dollars were spent propping up the industry there needed to be a proper inquiry into the value of health insurance.
“Fifty five per cent of Australians do not have health insurance, yet the rebate endures at the cost of $6 billion or more while public hospital waiting lists continue to rise,” Ms Wells said.
Australian Medical Association president Dr Omar Khorshid said the AMA supported restoring and indexing the rebate for private health insurance to help make it more affordable for Australians.
“In particular, consideration should be given to prioritising those on lower incomes and younger cohorts. There is an obvious benefit here for Government – the more young people join, the bigger the insurance pool, the cheaper insurance gets for everyone – which benefits government and most importantly, patients,” he said.
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Originally published as Health funds in financial peril call for tax rebate to be restored