Since 1997, every Australian who takes out private health insurance in Australia receives a 30 percent rebate from the government (slightly higher for people over 65).

The bill before parliament proposes to reduce that rebate for people earning over $75,000 (see table below).

There is nothing in the bill that will improve access to health care for Australians.

Proposed changes to the Private Health Insurance Rebate and Medicare Levy Surcharge

What are the implications?

Market research by the Australian Health Insurance Association suggests that as a result of this legislation, up to 240,000 Australians with private hospital insurance are likely to drop their cover. A further 730,000 Australians are likely to downgrade their level of hospital cover and an additional 775,000 persons will exit their General Treatment (Extras) Cover as a result of this policy change.

Common sense indicates that those people who reduce or cancel their policies will be those who are currently healthy and therefore have less perceived need for the insurance.

For every person that drops Private Health Insurance there are fewer people left to bear the burden of the overall claims pool. So Private Health Insurance becomes progressively more unaffordable for everyone.

Why would my premium rise because other people have increased claims?

Private Health Insurance in Australia is community rated. This means that no one is turned away from health insurance on the basis of their age or health status, nor are the chronically ill charged higher premiums. Community rating ensures equity of access to private healthcare.

To achieve this end, the private health insurance sector has a process of "risk equalisation", which is a system where high-claim costs associated with age or illness are spread more evenly across the sector.

If the cost of insuring the "pool of lives" increases (due to the rise of chronic disease, or an ageing population) everyone in the pool will be affected by higher premiums. For example, it is estimated that if the average age of the privately insured population increases by just one year, it results in an increase in average premiums of around 5 percent. (This figure has been derived from analysis by an independent actuary.)

Why does this matter?

Australia's health system is one of the best in the world. We believe it is this way because of the mixed system of free universal health care supported by a robust private health system. The 11 million Australians who choose private health insurance are not the wealthy or elite - they are ordinary Australian families contributing to a system that effectively eases the burden on the public sector. Approximately 55 percent of all surgeries performed in Australia are performed by the private health sector.

Why is Australian Unity worried about this?

Our organisation is a mutual, which means it is owned by you, our members. Our history dates back to 1840 and is based on the model of individuals joining together to share risks and benefits. We do not make profits for shareholders. We believe that it is our duty to keep you informed about things that will have an impact on services and their costs. We want to keep private health insurance affordable, particularly for those people for whom it is not a luxury, but a necessity - often low income earners with chronic disease.

What other costs are involved?

It is not yet clear how the new system would work. It does not mention how premiums will be paid to policyholders. Currently, because everyone receives a rebate, it is relatively easy for insurers to quote accurately and charge customers the correct amount. Under the new system it is possible that if a person's anticipated annual income changes during the year, it may result in them receiving the wrong rebate, and potentially having to repay the government at a later date.

What does the Government say about this issue?

The government believes that the rebate changes will only affect those people on high incomes. We do not agree with the government's view and believe that it is not based on a sound analysis of all the consequences. Nonetheless, we would encourage you to read about this perspective as well and form your own view.