The federal government’s plan to flatten age-based private health insurance (PHI) rebates has been criticised by Private Healthcare Australia (PHA) and Members Health Fund Alliance, which warn the change will lift premiums for older Australians, reduce participation in private cover among seniors, and shift additional demand and costs onto private hospitals and the public hospital system.
In a National Press Club address on April 22, Health Minister Mark Butler outlined a forthcoming Budget measure to remove the higher rebate tiers that currently apply once consumers reach 65 and again at 70. Currently, most Australians with eligible private health cover receive an income-tested rebate on hospital, general treatment, and ambulance products. The percentage varies by income tier and age. For example, from April 1 to June 30, 2026, base‑tier policyholders under 65 receive a 24.118% rebate, compared with 28.139% for those aged 65-69 and 32.158% for those 70 and over. Updated thresholds and similar relativities are scheduled to apply through to March 31, 2027.
Under the government’s proposal, these higher age bands would be removed so that older Australians receive the same rebate percentage as younger adults on the same income tier. The rebate would continue to be claimed either as a reduction in premiums via health insurers or as a tax offset through the Australian Taxation Office (ATO). Single parents and couples, including de facto couples, are assessed under family income thresholds. For families with children, the thresholds increase with each additional child. Consumers can estimate their rebate using an ATO calculator or insurer information, with any difference between estimated and actual entitlement reconciled through the annual tax return.
Members Health Fund Alliance, which represents more than 20 not‑for‑profit and member‑owned health funds, said removing the higher age tiers could see more older members downgrading or cancelling cover. “Removing the private health insurance rebate for older Australians is likely to cost the government much more than it saves. This is a drastic policy change that will hurt older, lower-income Australians who have been loyal insurance members,” Members Health CEO Matthew Koce said.
Koce said analysis for Members Health indicated premiums would increase by around 5% for people aged 65-69 and by up to 11% for those over 70 if the higher age‑based rebate levels are removed in a single step. “For a senior household paying an annual premium of around $6,000 before rebates, this would mean an increase of approximately $240 per year for people aged 65-69, and nearly $500 per year for those aged over 70,” he said.
Members Health said retirees are more likely to require hospital care and that, if they exit private cover or reduce their level of protection, the cost of their care would move to the public system. “This move will force the very people who need care the most to drop out or downgrade their level of private health cover, creating a ‘false economy’ that will ultimately cost the Australian taxpayer more than it saves,” Koce said.
Members Health pointed to independent actuarial modelling it said had been commissioned by the government as part of its policy development. “Independent actuarial analysis found that removing higher rebates for Australians over 65 would reduce rebate expenditure by around $482 million but result in approximately $547 million in additional costs being shifted onto the public hospital system. You cannot fix aged care by breaking the private health system, yet that is exactly what this policy threatens to do,” Koce said.
Koce said many older Australians have kept private cover over long periods to limit their reliance on publicly funded care. “The government is effectively treating ageing as a financial liability. It’s a kick in the teeth for senior Australians who have worked hard, paid their taxes, and maintained private health cover for decades to ensure they wouldn’t be a burden on the public system,” he said. He linked the changes to the role of private facilities in delivering non‑urgent elective procedures. “Private hospitals deliver the vast majority of elective surgeries including hip, knee, and cataract procedures; a significant exit of older members from private health insurance will undermine the financial viability of private hospital facilities nationwide,” he said.
Koce also raised concerns about how the measure had been developed. “It is deeply disappointing that the government has moved forward with such a significant change to health policy without consultation with the broader health sector, including through the CEO forum it established to examine private health reform options and hospital sustainability almost 18 months ago.” Members Health has called for the proposal to be paused and for the government to undertake further consultation with industry on alternative approaches.
PHA, which represents a cross‑section of health insurers, said the rebate decision is expected to affect many older policyholders but may interact with wider discussions about targeting support. “The government’s decision to cut the Private Health Insurance Rebate will disappoint thousands of older Australians. Reducing funding that goes directly to patients for private hospital and medical care will place further strain on an already pressured sector. It will hurt consumers, impact the viability of private hospitals, and limit health funds’ ability to deliver better patient experiences,” PHA CEO Dr Rachel David said.
PHA’s preliminary estimates suggest more than 1.4 million older Australians will be affected, with annual premiums for some older members rising by up to $640. David said the announced changes are directed at higher‑income seniors and noted that PHA had previously put forward options to retarget the rebate. “Health funds recognise this group receives significant benefits that could be better targeted elsewhere. PHA has previously recommended reducing the rebate for this cohort and redistributing it to lower-income Australians who rely on private health insurance,” David said.
David noted that many insured consumers have incomes below $100,000 and prioritise maintaining cover, while more than half a million high‑income earners do not hold private hospital insurance despite having capacity to contribute to their own healthcare costs. “Increasing the Medicare Levy Surcharge and better targeting the rebate towards lower-income households and younger Australians would improve participation, affordability, and equity across the system,” she said. At the same time, she said rebate changes need to be considered alongside other policy settings. “This must form part of a broader, carefully designed package to improve equity, access to private healthcare, and the long-term sustainability of the system,” she said.
Insurers, intermediaries, and hospital operators are now looking to the May Budget for related measures that could influence premium trends and out‑of‑pocket costs if age‑based rebates are removed. David identified priorities including managing out‑of‑pocket costs for medical specialists, reducing the relative cost of medical devices compared with overseas markets, and adjusting the Medicare Levy Surcharge to encourage greater participation among higher‑income earners. “As part of a comprehensive package to reduce costs for consumers, this measure may have merit,” she said of the rebate change. “However, if it is simply a short-term revenue measure, it will not deliver a sustainable outcome for all Australians.”
