The number of Australians with private insurance cover hit a 35-year high in September; source: PHIAC; click to enlarge.
Australia’s private insurance market has grown tremendously in recent years. Enough that the government is ready to reduce the tax rebates that helped propel it to these heights.
More Australians have private medical insurance than in the previous 35 years, according to quarterly statistics from the Private Health Insurance Administration Council (PHIAC). As of September, 12,024,482 people were covered by hospital, general or combination insurance policies.
On the face of it this looks like great news for the industry: a growing market. But again there is another side to the story and that’s the insurance rebate–a tax incentive that encourages Australians to buy private insurance.
20 years ago Australia’s private insurance industry was struggling. In response the government created an incentive program in 1997. Since then, rebates have grown alongside the industry.
Nicola Roxon, Minister for Health and Ageing, said:
If we don’t act now, the rebate will rob the wider Australian health system of $100 billion over the next forty years. We don’t believe that lower and middle income Australians should subsidise the private health insurance of millionaires.
As a result, the government plans to trim back the insurance rebate. Added Roxon:
Under the proposed changes to the rebate, only families earning $250,000 or more would lose the rebate entirely and nearly 8 million policy holders wouldn’t see any difference at all.
Policyholders may not have much to fear, but 4 million customers are nothing to sneer at. In our view, the real test for the industry is going to be whether those 4 million wealthy Australians are content to pay more for their policies. If so, everyone wins (except perhaps the very wealthy). If not, insurers are looking at a major blow to their customer base and the government more stress on the public health system.