Inflation rate to dictate health insurance rebate

AT LEAST $28 will be added to a typical family's health insurance cover next financial year after the federal government moved to cap increases in its private health insurance rebate to the rate of inflation.

The rebate now increases in line with premiums, but from April 2014 it will only rise by the rate of inflation - or in line with premiums if they increase less than inflation.

This policy is likely to dilute the impact of the rebate over time if premiums follow recent trends and rise by more than inflation. In February for example, a premium rise of 5.06 per cent was approved by the federal government, more than four times the inflation rate in the year to June.

Also, those paying a "lifetime cover loading" on their health insurance because they signed up after the age of 31 will no longer receive a rebate on that component of their premiums. This effectively increases the penalty for taking out health insurance after the age of 31.

The health insurance rebate is projected to be one of the fastest growing areas of federal health expenditure and the government and consumer groups claim the changes will make the rebate more sustainable.

But the opposition's health spokesman, Peter Dutton, said he was concerned about the impact of the changes on family budgets and labelled them Labor's "latest cash grab".

Dr Michael Armitage, chief executive of the industry peak body Private Healthcare Australia, said that because health inflation runs at a figure significantly higher than the consumer price index "it is likely that consumers will be paying more for their private health care".

A spokeswoman for the nation's largest health insurer, Medibank Private, said ''a range of other reforms will be required to ensure that this does not lead to an adverse impact on the overall cost of health insurance for all Australians''.

The government estimates the changes will add an average of $28 a year to family health insurance premiums and $14 a year for singles in 2013-14. Limiting increases in the rebate to inflation will save the government $700 million over the next three years while eliminating the rebate on the lifetime cover loading components of premiums will save $390 million.

These savings will help offset the cost of dental health reforms, the government said in its midyear economic and fiscal outlook yesterday.

Under legislation passed earlier this year, singles on $83,000 and families above $166,000 a year begin to lose the rebate, typically worth $1000 a year to families. It cuts out altogether for singles on $129,000, and families on $258,000.

Robert Cooke, managing director of private hospital owner Healthscope, said the latest changes were ''not a fundamental shift in policy, but combined with the means testing of the private health insurance rebate, it's a further erosion of the value of health insurance''.

In a statement to the Australian Securities Exchange, health insurer NIB welcomed news ''changes to the rebate will be accompanied by discussions over the setting of health insurance premiums''. The decision to effectively freeze the rebate allocation, NIB said, opens the way to ''allow health insurers to set premiums independent of government interference''.

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