House of Representatives

Fairer Private Health Insurance Incentives Bill 2011

Second Reading Speech

The Fairer Private Health Insurance Incentives Bill 2011 will amend various acts to give effect to a 2009-10 Budget measure to introduce three new private health insurance incentives tiers.

The new arrangements will commence on the later of 1 January 2012 or the day on which the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Act 2011 receives royal assent or the day on which the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge-Fringe Benefits) Act 2011 receives royal assent. However, they will not commence at all unless both the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Act 2011 and the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge- Fringe Benefits) Act 2011 receive royal assent.

The Bill was twice introduced into the House of Representatives on 27 May 2009 and 19 November 2009, where it was passed on 2 June 2009 and 3 February 2010 respectively. This Bill was also previously introduced into the Senate on 15 June 2009 and 4 February 2010 and on 9 September 2009 and 9 March 2010, respectively, a motion moved in the Senate that this Bill be read a second time was defeated.

The Government is re-introducing this Bill because we want to make the private health insurance rebate fairer and more sustainable into the future.

The Government supports a mixed model of balanced private and public health services. We are committed to a sustainable private health system, and to ensure it remains sustainable the Government will rebalance support for private health insurance to provide a fairer distribution of benefits.

Let me emphasise one point that has been missing in much of the debate about these changes. The vast majority of taxpayers with private health insurance will not be affected by the means testing this legislation introduces. Singles earning $80,000 or less and couples and families earning $160,000 or less will receive the same rebate as they currently enjoy.

In fact, the Government's changes will ensure that these taxpayers receive a greater share of the private health insurance rebate than they currently get.

Under the rebate model we inherited from the Howard Government, approximately 14 per cent of single taxpayers who have incomes above $80,000 receive about 28 per cent of the total private health insurance rebate paid to singles based on an average premium-or twice their population share.

And approximately 12 per cent of couple taxpayers who have incomes above $160,000 receive about 21 per cent of the total private health insurance rebate paid to couples based on an average premium-again, almost twice their population share.

So when the Opposition was in Government it designed a system that favoured wealthier income earners. That is people like myself and the Opposition Spokesperson on Health - not the cleaners and security guards who work in this building.

How does the Leader of the Opposition reconcile his track record on this issue when he was Health Minister with the crocodile tears he was crying for the 'forgotten families' in his Budget reply?

Under our reforms, the 14 percent of single taxpayers earning more than $80,000 with private health insurance will receive about 12 per cent of the total private health insurance rebate paid to singles based on an average premium.

Similarly, the 12 per cent of couple taxpayers earning more than $160,000 will receive around 9 per cent of the total private health insurance rebate paid to couples based on an average premium. Far from being an attack on families as some have alleged, this Bill reinforces an important principle that has underpinned the Australian tax-transfer system for decades - that the greatest share of benefits are provided to those on lower incomes.

Mr Speaker, there is a second crucial principle at stake here - the need to ensure our health system is placed on a sustainable footing for the future.

Spending on the private health insurance rebate is growing rapidly and is expected to double as a proportion of health expenditure within the next 40 years.

Clearly this presents challenges in the current fiscal environment. It is estimated that these reforms will result in savings to Government expenditure of around $2.8 billion across the forward estimates. This will help ensure that the Government's support for private health insurance remains fair and sustainable.

The Opposition's previous refusal to support this legislation has already hit the 2010-11 Budget bottom-line by $890 million. If we don't act now the fiscal consequences will only worsen. Treasury estimates that not passing this legislation will have a cumulative impact on health spending of around $100 billion over 40 years.

No-one professing an interest in good fiscal management can ignore these statistics. The Opposition has also said on the record that if they oppose savings measures they will identify where these savings can be found in the Budget. On 22 June, Kevin Andrews said in this House "if we are going to oppose measures which the Government puts forward and that opposition will lead to a cost to the budget, we will identify where the savings are going to be made in the budget in order to compensate for that loss to the budget."

I challenge the Opposition to find an area in the Health portfolio where an equivalent saving of $2.8 billion can be found, that will not have a noticeable impact on health outcomes as is the case with means testing the private health insurance rebate.

So the Government will act.

From 1 January 2012, the Government proposes to introduce three new private health insurance incentive tiers. The tiers will mean high-income earners receive lower government payments for private health insurance but will face an increase in costs if they opt out of private health cover.

The Government's commitment to retaining the private health insurance rebate remains. Rebates for low and middle income earners will be unchanged, with the Government continuing to pay 30 per cent of the premium cost for a person earning $80,000 or less and couples and families earning $160,000 or less. The existing rebates for older Australians will remain in place for people earning below these thresholds-35 per cent for people aged 65 to 69 years and 40 per cent for people aged 70 years and over.

These people will continue to have no surcharge liability if they decide not to take out appropriate private health insurance.

The new tiered system will be introduced for higher income earners and will set three different rebate levels and surcharge levels based on income and age. The purpose of this is to reduce the carrot but increase the stick and ensure those who can afford to contribute more for their health insurance do so. The Government does not believe it is appropriate for low-income earners to subsidise the private health insurance costs of high-income earners.

Tier 1 will apply to singles with an income of more than $80,000 and couples and families with an income of more than $160,000. For these people the private health insurance rebate will be 20 per cent for those up to 65 years, 25 per cent for those aged 65 to 69, and 30 per cent for those aged 70 and over.

The Medicare levy surcharge for people in this tier who do not hold appropriate private health insurance will remain at one per cent.

Tier 2 applies to singles earning more than $93,000 a year and couples and families earning more than $186,000. The rebate will be 10 per cent for those up to 65 years, 15 per cent for those aged 65 to 69, and 20 per cent for those aged 70 and over. The surcharge for people in this tier who do not have appropriate private health insurance will be increased to 1.25 per cent of income.

Tier 3 affects singles earning more than $124,000 a year and couples and families earning more than $248,000 a year. No private health insurance rebate will be provided for people who fall within the third tier and the surcharge for avoiding private health insurance will be increased to 1.5 per cent of income for these people.

Annual indexation to average weekly earnings of the tiers income thresholds will ensure that these changes remain equitable and can be maintained into the future.

Mr Speaker, there have been some hysterical claims made in recent times about the effects of these changes.

None more so than the claim in a recent Australian Health Insurance Association Report that 1.6 million people would abandon private health cover if the Government introduced a means test for the rebate.

I won't waste any time pointing out the flaws in this Report, but I would draw the attention of the House to the statement about the impact of the rebate changes issued to the Australian Stock Exchange by the private health insurer nib on 4 May 2011 which said, and I quote:


"our analysis indicates any impact would be moderate, which is in line with previous Treasury estimates which ... rely upon the countervailing influence of the Medicare Levy Surcharge and proposed increases."

As the nib statement points out, the Government is retaining a system of carrots and sticks that will minimise the impact of the proposed changes. The increased Medicare levy surcharge for people on higher incomes will help ensure that about 99.7 per cent of insured people remain in private health insurance. This is because those high-income earners who receive a lower rebate will face a higher tax penalty for avoiding private health insurance.

It is estimated that approximately 27,000 people may no longer be covered by private health insurance hospital cover and this might result in 8,500 additional public hospital admissions over two years. When considered against the fact that public hospitals have around 4.7 million admissions per year, the impact of this measure will be insignificant.

The Ipsos Syndicated Survey: Health Care & Insurance - Australia 2009 was released on 2 November 2009. According to Ipsos even fewer people (approximately 16,000) would drop their private hospital insurance than estimated by the Government - provided that insurers inform their members about the impact of Lifetime Health Cover and the Medicare levy surcharge.

In summary, this measure will make private health fairer, more balanced and more sustainable in the long term. By maintaining a carefully designed system of carrots and sticks, it will have a negligible effect on both private health insurance premiums and the public hospital system.

At the same time, low and middle income earners who choose to have private health insurance will continue to enjoy the benefit of a significant Government rebate.