The Budget falsely claims to make health insurance cheaper through lower premium rebates

May 23, 2021
The Ministry of Truth has apparently taken over the preparation of Department of Health Budget “fact” sheets. A decision which will increase the cost of private health insurance for thousands of Australians is presented as “making private health insurance simpler and more affordable”.

To understand this decision one needs to track back to the 2011 Budget when the then Labor Government introduced income testing for the private health insurance rebate.
Single people aged under 65 and earning less than $84,000 retained a premium rebate of 30 per cent.  People in two higher income bands had rebates of 20 per cent and 10 per cent respectively, while people earning over $130,000 lost the rebate completely.  These thresholds were doubled for couples and families, and were to be indexed annually. (People aged over 65 received higher rebates, but these were reduced and cut out at the same income levels.)
The Liberal Party opposed these changes at the time, with then shadow Minister Peter Dutton endorsing warnings of a million people dropping their insurance.
Fast forward three years to the 2014 Budget.  The Abbott Government, with Peter Dutton as Health Minister, decided not only to retain means testing but to freeze the income thresholds at their 2014 levels until 30 June 2018 in order to save just under $600 million. In the 2016 Budget the Turnbull Government decided to extend the freeze for a further three years to 30 June 2021, saving another $750 million. As a result the 2014 thresholds have now been in place for seven years.
The Government has weaponised bracket creep as a budget control mechanism. When means testing was introduced annualised AWOTE (average weekly ordinary time earnings) were just under $69,000, meaning a person would have needed to earn 22 per cent over AWOTE before losing access to the highest rebate.  Annualised AWOTE are now $89,000, just under the $90,000 threshold for losing access to the highest rebate.  Hundreds of thousands of policy holders are paying higher net premiums for health insurance because of these decisions.
The Morrison Government has now decided in the 2021 Budget to extend the freeze for a further two years. But the Budget documentation has been deceptive, if not secretive, about the decision.
It appears in Budget Paper 2 under the benign heading of “Private Health Insurance – building the sustainability of the sector and improving affordability for patients”.  The text states that the measure includes continuing the current policy settings for the income thresholds while a review is undertaken, and that it will “achieve efficiencies of $303.9 million over four years from 1 July 2022”. Other elements of the measure include expenditure of $30 million on changes to prostheses listing processes and a number of other reviews.
The Department of Health fact sheet on the measure is found under the broad heading of “Supporting our hospitals” – perhaps not the first place one would look for information on private health insurance.  The fact sheet is headed “Private health insurance – improving affordability and sustainability of private health insurance”.  It begins “the Australian Government is investing $8.7 million over 4 years to continue to make private health insurance simpler and more affordable for Australians” through four measures, the first of which is “extension of the current policy setting with respect to the… rebate income tiers for a further 2 years, while a study examines the effectiveness of the current regulatory settings”.
What is really telling is that in the “Budget at a glance” one-pager produced by the Department every measure except two has a heading which includes the financial impact.  This measure is one of the exceptions – perhaps because it involves reduced expenditure.
Let’s be clear about the effect of this measure.  The $90,000 income threshold at which a single person moves from a 24.6 per cent premium rebate to a 16.4 per cent rebate is only just above annualised AWOTE of $89,000.  Even with suppressed wages growth, over the next two years many workers will move across the threshold.  A single person with a reasonably comprehensive “silver” policy including extras and receiving a 24.6 per cent rebate is currently paying around $2700 a year in net premium. If they cross the threshold they will need to pay $3000 – an effective premium rise of 11 per cent.
It is Orwellian to describe a measure which has this effect as making private health insurance more affordable.  And it is disingenuous for the Budget Paper to ascribe the $303.9 million in savings to “efficiencies”.  It is simply shifting $303.9 million of the cost of private health insurance from the Government to policy holders.
When introducing means testing for the premium rebate in 2012 the Labor Government also introduced a differential scale for the Medicare Levy Surcharge applying to people without private health insurance, using the same thresholds as for the premium rebate.  These thresholds have also been frozen, meaning that single income earners without private health insurance on incomes of $90,000 or over pay a surcharge of 1 per cent of taxable income.
When the Surcharge was originally introduced in 1997 the threshold for a single person was $50,000 – about 40 per cent above average earnings. It was part of a package of measures to arrest the decline in private health insurance coverage, and was intended to ensure that higher income people retained – or took up – cover.  It is a travesty that it now applies to average income earners.
The decision not to index the threshold has received little comment from the media, industry groups or consumers since the Budget.  This may well be because it has been so effectively hidden from view.
The only group I can find which has almost addressed it is the peak insurer body, Private Healthcare Australia. In a supine media release the organisation asserted that the decision to review the policy settings “signals further commitment to improving the affordability of private health care”.  The Government certainly does not have a current commitment to improving the affordability of private health care, or it would have resumed threshold indexation.
The policy content of this decision does not really matter. A voluntary system of community-rated health insurance is doomed to fail eventually, and the decision not to index the thresholds will not affect the long-term trajectory.
What is far more important is that this example suggests we can no longer rely on Budget documentation to set out clearly the facts about policy decisions taken by the Government.
 
Charles Maskell-Knight PSM worked as a senior public servant in the Department of Health for over 25 years before retiring in early 2021. 

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