The Times Australia
The Times World News

.

People with private health insurance save the government $550 a year, on average

  • Written by Francesco Paolucci, Professor of Health Economics, University of Bologna, University of Newcastle
People with private health insurance save the government $550 a year, on average

The federal government has, for a long time, encouraged Australians[1] to get private health insurance, in an attempt to reduce the financial burden on the public health system.

To make private health insurance more attractive, the government has a strategy of carrots and sticks. Low-income and older people receive subsidies through “premium rebates[2]”. High-income earners without the right policy face the Medicare Levy Surcharge, ranging from 1 to 1.5%[3] of their taxable income.

The effectiveness of these subsidies is regularly debated, with questions about whether the A$6.7 billion[4] of taxpayer money that subsidises private health insurance premiums could be better spent on Medicare or directly financing hospitals.

We set out to answer this question: do the savings from increased participation in private health insurance outweigh the costs the government incurs by subsidising private health insurance rebates?

Our analysis[5], which was commissioned and funded by the Department of Health and Aged Care, found large benefits to the government, especially when older people sign up for private insurance. On average, the government saves about $554 for each person it helps with these subsidies a year.

But rebates can be better targeted for Australians who are more likely to need and use health services.

How did we work this out?

To assess if the money spent on subsidising private health insurance pays off, we examined both the costs (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge) and the savings.

To calculate the savings we looked at how much money the government would spend if these people didn’t have private health insurance and used the public health system instead of the private system. We call this the “offset”.

This is a key metric for the success of the carrot and sticks, as it will be able to tell us the health-care costs saved by the government when someone has private insurance.

Using private health insurance spending data from 2019, we made assumptions that one day in a private hospital costs equal to one day in a public hospital, based on findings from the Productivity Commission[6].

We also factored in the government’s 75% Medicare Benefits Schedule fee contribution[7], and higher prices[8] for prostheses (for hip replacements and other implants) in the private system.

Read more: We can cut private health insurance costs by fixing how we pay for hip replacements and other implants[9]

On average, we found that private health insurance offsets public health-care costs by about $1,400 per person, with greater savings for older people than younger people, reaching $4,000 for those aged 75 and above.

To answer if the savings from private insurance take-up outweighs the costs incurred, we needed to take into account what the government spends to subsidise insurance.

We used the standard premium rebate percentages[10] where a person aged 70 or above earning up to $90,000 attracts a 32.812% rebate, while a person aged under 65 making $105,001–$140,000 would receive a 8.202% rebate.

Surgeon operates
The savings were greater for older people, who were more likely to use health services. Anna Schvets/Pexels[11]

With an average annual private health insurance premium of $2,300, this would mean the government incurs costs ranging from $755 to $189.

As people who enrol in private insurance don’t have to pay the Medicare Levy Surcharge, which helps fund the public health system, we found that the forgone tax amounts range between $970 and $2,400 for single individuals subject to the penalty.

Combining the costs (from the premium rebate subsidies and the forgone tax from the Medicare Levy Surcharge), and subtracting the savings (the offsets), is how we find that the subsidies are a good financial deal for the government. The subsidies are less than the cost offset by about $554 per person who has private health insurance.

Is there room for improvement?

This raises a question: what if we could change these subsidies based on who costs more to provide health care for and who saves the government more money? As our findings reveal that some groups save the government more money than their subsidies cost, what should we do with the subsidies? If we increase their subsidies, it costs taxpayers more – unless more of them switch to private health insurance.

For instance, an individual aged 75+ earning $105,001 to $140,000 receives $1,877 in subsidies and offsets $5,268 in public health spending, saving the government $3,391. Given the roughly 6,000 people in this age group currently in private health insurance, only two additional enrolments would make it budget-neutral.

Read more: Private health insurance is set for a shake-up. But asking people to pay more for policies they don't want isn't the answer[12]

How can the savings be used?

A better way to subsidise private health insurance is to give extra subsidies to people who are sicker and need more medical care. These are known as “risk-adjusted subsidies”.

A risk-adjusted subsidy would be based on a person’s characteristics such as their age, gender, income, where they live and their health history (such as prior hospitalisations, or use of services). These are people who need private health insurance the most, and also would save the government the most money by having private insurance.

This subsidy could be computed by a formula that uses individual-level spending to figure out how much health care the person is likely to need and how much it’s expected to cost.

Existing work[13] in Australia has shown how this can be developed, while countries[14] such as the Netherlands, Germany, the United States and Switzerland show such a system is feasible.

The Australian health system, and private health insurance regulation in particular, is set for a shake-up, with the Department of Health and Aged Care[15] seeking input on its options. Our research can help inform a path forward.

Read more: Who really benefits from private health insurance rebates? Not people who need cover the most[16]

References

  1. ^ encouraged Australians (www.aph.gov.au)
  2. ^ premium rebates (www.privatehealth.gov.au)
  3. ^ 1 to 1.5% (privatehealth.gov.au)
  4. ^ A$6.7 billion (www.health.gov.au)
  5. ^ analysis (consultations.health.gov.au)
  6. ^ Productivity Commission (www.pc.gov.au)
  7. ^ 75% Medicare Benefits Schedule fee contribution (www.msac.gov.au)
  8. ^ higher prices (theconversation.com)
  9. ^ We can cut private health insurance costs by fixing how we pay for hip replacements and other implants (theconversation.com)
  10. ^ premium rebate percentages (privatehealth.gov.au)
  11. ^ Anna Schvets/Pexels (www.pexels.com)
  12. ^ Private health insurance is set for a shake-up. But asking people to pay more for policies they don't want isn't the answer (theconversation.com)
  13. ^ work (www.nber.org)
  14. ^ countries (www.sciencedirect.com)
  15. ^ Department of Health and Aged Care (consultations.health.gov.au)
  16. ^ Who really benefits from private health insurance rebates? Not people who need cover the most (theconversation.com)

Read more https://theconversation.com/people-with-private-health-insurance-save-the-government-550-a-year-on-average-212787

Times Magazine

Headless CMS in Digital Twins and 3D Product Experiences

Image by freepik As the metaverse becomes more advanced and accessible, it's clear that multiple sectors will use digital twins and 3D product experiences to visualize, connect, and streamline efforts better. A digital twin is a virtual replica of ...

The Decline of Hyper-Casual: How Mid-Core Mobile Games Took Over in 2025

In recent years, the mobile gaming landscape has undergone a significant transformation, with mid-core mobile games emerging as the dominant force in app stores by 2025. This shift is underpinned by changing user habits and evolving monetization tr...

Understanding ITIL 4 and PRINCE2 Project Management Synergy

Key Highlights ITIL 4 focuses on IT service management, emphasising continual improvement and value creation through modern digital transformation approaches. PRINCE2 project management supports systematic planning and execution of projects wit...

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Times Features

Tricia Paoluccio designer to the stars

The Case for Nuturing Creativity in the Classroom, and in our Lives I am an actress and an artist who has had the privilege of sharing my work across many countries, touring my ...

Duke of Dural to Get Rooftop Bar as New Owners Invest in Venue Upgrade

The Duke of Dural, in Sydney’s north-west, is set for a major uplift under new ownership, following its acquisition by hospitality group Good Beer Company this week. Led by resp...

Prefab’s Second Life: Why Australia’s Backyard Boom Needs a Circular Makeover

The humble granny flat is being reimagined not just as a fix for housing shortages, but as a cornerstone of circular, factory-built architecture. But are our systems ready to s...

Melbourne’s Burglary Boom: Break-Ins Surge Nearly 25%

Victorian homeowners are being warned to act now, as rising break-ins and falling arrest rates paint a worrying picture for suburban safety. Melbourne residents are facing an ...

Exploring the Curriculum at a Modern Junior School in Melbourne

Key Highlights The curriculum at junior schools emphasises whole-person development, catering to children’s physical, emotional, and intellectual needs. It ensures early year...

Distressed by all the bad news? Here’s how to stay informed but still look after yourself

If you’re feeling like the news is particularly bad at the moment, you’re not alone. But many of us can’t look away – and don’t want to. Engaging with news can help us make ...