The government says its controversial PHI rebate changes are fairer, economically sound and necessary to fund aged care. All without knowing 1.2 million pensioners would be affected.
Remember back on 22 April when federal health minister Mark Butler stood in front of the National Press Club and unleashed the bombshell that ended up being the most controversial NDIS reforms since the scheme was introduced?
He delivered just shy of 4000 words that day. Tucked among them were 175 words announcing a policy decision worth $3 billion over four years. It felt almost like an afterthought.
“Right now, we subsidise private health cover for Australians over 65 at a higher rate than other Australians,” he said.
“In the election environment of 2004, with government coffers reaping the benefits of the China boom, John Howard increased the Private Health Insurance rebate.
“But only for Australians over 65.
“In 2026, it’s a policy that’s harder to defend.
“It means two households on the same income receive different levels of government support, based only on their age.
“That’s not fair between generations.
“And it’s simply not the best way to spend precious taxpayers’ dollars on behalf of older Australians when we need to do so much heavy lifting in aged care.
“So, this Budget will return the rebate for older Australians back to the level paid for everyone else and divert the money back into aged care.
“I understand this won’t be a welcome decision for many, but it’s the right thing to do.
“To re-establish intergenerational equity in the rebate system. And to free up funding to provide more dignity and care to older Australians.”
Since then, things have gotten a little weird.
Turns out, the government didn’t know when it made the decision how many pensioners would be affected.
Turns out, 1.2 million pensioners are private health insurance policyholders who will be impacted.
Turns out, in its own submission to the PHI rebate inquiry, the Department admitted it “undertook further analysis in response to stakeholder concerns about the impact on age pension recipients”.
Not that the revelation has changed Mr Butler’s outlook on the whole thing any.
At the AMA national conference in Melbourne yesterday morning, the minister spent a surprising amount of time talking about the rebate policy.
Related
The rebate, he said, “was generally a reward for older Australians who’ve been in private health insurance for a long time” rather than a particularly effective incentive to take out insurance.
His argument remained that over 65s are the “most price inelastic cohort” because they use their insurance and are unlikely to leave over marginal price changes.
Then he directly took on the criticism. He said the government doesn’t accept industry modelling, invoked Private Healthcare Australia’s incorrect predictions from the previous means-testing reform, and said both government modelling and the recent University of Melbourne work pointed to only a marginal reduction in PHI membership.
And Mr Butler may ultimately be right about that. The Melbourne researchers’ estimates are broadly in the same territory as the government’s, and older Australians may indeed prove reluctant to surrender private cover.
But that’s not really the point.
Removing the PHI rebate for over 65s wasn’t merely an equity reform. It was a budget trade-off.
“I come back to the point about why we’ve made this hard decision, because the budget now is in a very different position to what John Howard and Peter Costello were dealing with 20 years ago,” he said.
He then spent the next several minutes describing the enormous approaching aged-care demand from the baby boomers – 90,000 people turning 80 next year, the need for a new aged-care facility every three days for 20 years, and rapid expansion of home care.
Then he said:
“It all takes money. It all takes substantial money.”
And eventually:
“So I don’t take this decision about the rebate lightly.”
His argument was that aged-care supply was now the most acute responsibility in his enormous portfolio, and failure to fund it would reverberate through hospitals and the wider health system.
You know what was missing from all of that?
The 1.2 million pensioners.
Four months after announcing the measure, and after his own department subsequently established that roughly 1.2 million pensioners would be affected, Mr Butler stood before the country’s peak doctors’ organisation and gave his fullest defence of the policy yet.
He explained why older people supposedly won’t leave insurance. He explained why the Howard subsidy lacked policy logic. He explained why industry modelling shouldn’t be believed. He explained the enormous fiscal pressure from aged care.
But he didn’t address the extraordinary fact that the government didn’t know how many pensioners would be hit when it made the decision.
Older Australians are price-inelastic; industry modelling has been wrong before; Melbourne modelling supports him; and aged care desperately needs the money.
The unanswered question is: Why didn’t the government establish that 1.2 million of those older Australians were pensioners before making a $3 billion decision?
And there’s a lovely irony sitting inside yesterday’s speech to the AMA. Mr Butler said the government had returned to a system where subsidy was determined “based on income, not on age”.
Well, precisely. Income matters.
Which makes not knowing that 1.2 million affected Australians were pensioners rather difficult to wave away.