JENNIFER DOGGETT. Wasting government funds in subsidising private health insurance.

Jun 8, 2017

In the lead up to the recent Federal Budget, the Australian Healthcare Reform Alliance (AHCRA) ran a campaign to highlight the inefficiency of using health resources to subsidise private health insurance (PHI). The campaign focussed on calling on the Government to re-direct funding for the $7 billion private health insurance (PHI) rebate to address key areas of inequity and under-performance (while some estimates of the cost of the rebate are larger, AHCRA decided to use the most conservative figure for our campaign). 

The PHI rebate costs the community around $7 billion a year in direct subsidies and there is no evidence that it delivers any benefits to the public health system. AHCRA believes that the rebate entrenches the high-cost, low equity system of private health insurance which contributes to rapidly rising health inflation, due to its inability to control rising health care costs.

The key message that we wanted to convey via this campaign were that the money currently being spent on the rebate could be used elsewhere to deliver better value for Australian consumers.

Rather than focus on any one alternative use for the $7 billion PHI subsidy we wanted to highlight a range of potential options for spending this funding throughout our health system.

The PHI rebate was introduced almost two decades ago in the context of the introduction of the GST. It has never been formally reviewed against its objectives to determine whether it is achieving its stated aim (to encourage uptake of PHI).

Every year this uncapped rebate increases in cost (largely due to rising PHI premiums) but since its introduction the quality of PHI appears to have dropped.

AHCRA believes that a formal review of the PHI rebate by an independent body, (such as the Productivity Commission) is long overdue.

This should assess the outcomes of the rebate and compare it against potential alternatives to determine the best area in which to invest our scarce health dollars.

While the Australian health system performs well overall, there are some key areas of under- performance, inefficiency and inequity which need to be addressed as a priority.

These include: Indigenous health, dental health, mental health and people living in rural and remote areas. Diverting funding from the PHI rebate to these areas of need would support increased access to services in these areas.

It’s important to remember that less than 50% of the Australian population has PHI. This means that 100% of tax payers are supporting a subsidy that benefits less than 50% of the population.

Even those consumers with PHI often find it frustrating with record numbers making formal complaints about their experiences in 2016.

AHCRA believes that the increasing numbers of consumer complaints about PHI reflect the rising dissatisfaction with this system of health funding and highlight why we should now be considering alternative options for using money going into the rebate elsewhere.

Some of AHCRA’s suggestions included funding more community mental health services, supporting the Government’s HealthCare Homes trials to give them a genuine chance of success and increasing the numbers of salaried specialists in public hospitals.

We also proposed funding more public dental services, strengthening preventive and public health initiatives and increasing resources in the Indigenous community-controlled health sector.

The media releases outlining AHCRA’s proposals are on our website at and relevant Tweets on this issue can be found using the hashtag #7billionhealthbucks.

AHCRA welcomes additional suggestions about alternative uses for this multi-billion dollar uncapped health program and will continue to advocate for this funding to be used more effectively within the health system.

Jennifer Doggett is a Fellow of the Centre for Policy Development and a consultant working in the health sector.

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