Insurance executive Rebecca Harwood argues that the plan to cut the PHI rebate for over 65s is counterproductive.
If we’re serious about building a sustainable health system for all Australians, we need reforms that take a long-term view and recognise the interconnected nature of Australia’s health system.
Our public hospitals, private health insurance, primary care and aged care sectors do not operate in isolation. Pressure in one part of the system inevitably creates ripple effects across the rest.
That’s why I’m concerned the federal government’s proposal to reduce the private health insurance rebate for Australians aged 65 and over is not effective reform.
The proposal raises legitimate questions about affordability for retirees, potential pressure on public hospitals and the downstream consequences of delayed treatment, including functional decline and increased demand for aged care.
It also raises a broader question of fairness for older Australians. Many retirees have contributed to the private health system over decades and planned their retirement finances based on long-standing affordability settings. For some, changing those settings now may feel like the rules have shifted after years of contribution.
The government expects the measure to save around $3 billion over four years. But Private Healthcare Australia’s modelling suggests around three million older Australians could pay between $655 for singles and $1614 for couples more each year for their cover, depending on their level of insurance.
When asked about the government’s proposal, Australian Unity members told us that even relatively modest increases in the cost of cover can have a meaningful impact. Robert explained that concessions and rebates become increasingly important later in life, particularly for people living on fixed incomes. Bruce described the additional cost as equivalent to everyday household expenses, such as car registration or groceries.
If the proposal is implemented, some retirees may be forced to downgrade their cover, while others may leave private health insurance altogether. The government’s modelling estimates around 44,000 people would leave the system, while polling cited by Private Healthcare Australia suggests the behavioural response could be considerably larger.
But it’s not just what happens to those policyholders that’s of concern. The question we really need to be asking is: what happens next?
If fewer Australians maintain private cover, more people may ultimately rely on the public system. This would come at a time when public hospitals are already managing significant demand and governments are seeking ways to improve access and reduce waiting times.
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There is also a less visible risk: people may delay seeking care because of concerns about affordability.
A colleague recently shared a story about her 77-year-old mother-in-law, Helen, who injured her knee after a fall. Her GP recommended that she see an orthopaedic surgeon, but concerns about the out-of-pocket cost of a specialist consultation led her to delay seeking treatment. By the time she sought care, her condition had deteriorated significantly, resulting in a knee replacement and a lengthy recovery.
Helen’s experience isn’t unique. Across healthcare, affordability can become a barrier to seeking treatment early. When people delay care, conditions can become more serious, treatment more complex and outcomes more challenging. The costs to individuals and the healthcare system often increase as a result.
Delayed treatment can also affect a person’s ability to remain independent for longer. Reduced mobility and deteriorating health may increase reliance on family carers, home care and, ultimately, residential aged care. These costs may not appear directly in a Budget measure, but they are real costs, nonetheless.
And this is where the interaction between different parts of our health system becomes particularly important.
A 2023 review by Finity Consulting of the Medicare Levy Surcharge, Lifetime Health Cover and private health insurance rebate found that reducing the rebate for older Australians would generate relatively modest savings for the Commonwealth, while potentially increasing costs elsewhere in the health system by a similar amount.
In other words, the overall benefit to taxpayers may be far smaller than it first appears.
That finding shouldn’t be ignored by policymakers. If a measure reduces expenditure in one part of government while generating additional costs elsewhere, are we achieving a saving – or simply moving the cost?
The government’s focus on strengthening Medicare, improving aged care and ensuring the long-term sustainability of Australia’s health system is one I strongly support. But real reform requires policies that improve affordability, encourage timely access to care and support both the public and private health systems to work effectively together.
That’s the kind of reform that would serve to ensure our world-leading two-pronged health system remains the envy of the world for many years to come.
Real reform tackles the underlying challenge. Simply moving costs from one part of the health system to another isn’t reform at all. It’s a game of “whack-a-mole”, where one pressure point is relieved only for another to emerge somewhere else.
Rebecca Harwood is group executive for health insurance at Australian Unity.