Since the federal government announced earlier this year it would scrap the higher private health insurance rebate for people aged 65 and over, opponents have come out in force.
Private Healthcare Australia, the insurers’ peak body, says the government’s own modelling of about 44,000 older Australians dropping their cover due to the resulting higher premiums is a "significant underestimate”.
Three state health ministers have warned the change would push more people into their strained public hospitals.
So how many people would really drop their cover as a result of this policy change?
Our new research, designed specifically to test this question, gives some clues. In a nutshell, the sky won’t fall in.
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What will happen? Who says what?
Right now, the private health insurance rebate depends on both income and age. Someone 65 or over gets a bigger government rebate on their premium than someone under 65 on the same income. This rebate increases further for those aged 70 and over.
From April 2027, the government proposes removing that age-based bonus. So the rebate would be equal for everyone on the same income, regardless of age.
The government argues this fixes a subsidy that’s inequitable and poorly targeted, so will improve intergenerational equity.
Its own modelling predicts the vast majority of affected policyholders — about 99 per cent — would keep their cover. This means about 44,000 would drop it.
This agrees with our earlier research showing most older Australians don’t need a bigger rebate to keep their insurance.
But last week, Private Healthcare Australia released polling of more than 1,500 people showing 39 per cent of insured older Australians say they’d be more likely to drop their cover.
Based on the number of privately insured Australians aged 65 and over, that would mean about one million people, considerably more than the government’s predictions.
What did we find?
Our new research looks at the impacts of the government’s proposal. We used a decade of tax data, taking into account how the rebate had shifted over time.
What makes our research unique is that we separated out the impact of Australia’s two big private health insurance levers — the rebate and the Medicare Levy Surcharge tax penalty. That means we could focus on the impact of scrapping the extra health insurance rebates for the over 65s without muddying the waters.
We estimated 14,821–42,498 older Australians would drop their cover. The range depends on how we sampled the data and accounts for uncertainty in our modelling.
Our upper figure is roughly in line with the government’s own modelling of about 44,000 older Australians dropping their cover.
We also looked at how much the policy would save the government. We put savings at roughly $730–940 million a year by 2028–29.
So despite the modest drop in coverage, the fiscal saving is large. And our research explains why.
The rebate is poorly targeted. Most people over 65 getting the rebate would keep their cover with or without it.
How about the health industry’s claims?
So why does the health insurance industry say 39 per cent would be more likely to drop their cover while the government’s modelling predicts roughly a 1 per cent decline?
Stating hypothetical intentions in polls can be a poor guide to real behaviour.
Consider what happened more than a decade ago when the government proposed means-testing the private health insurance rebate. Similar industry polling predicted 1.6 million people would drop their cover. In reality, participation actually went up slightly.
One thing the polling and modelling agree on is who is affected. Both the government’s own figures and our published research show people on the lowest incomes are most likely to drop their cover.
The government’s modelling puts about 95 per cent of the projected decline in the lowest income tier.
Private Healthcare Australia’s polling, once you look past the 39 per cent headline, shows the same pattern: lower-income households are the ones saying they’d reconsider.
So people on low incomes may need more targeted support to maintain their cover. That may mean more targeted means-testing for the rebate down the track.
How about hospitals?
New South Wales, Queensland and Tasmania’s health ministers have warned the proposed change would push more patients into an already-strained public system. Such concerns are valid.
However, our earlier research found that changes in rates of private insurance coverage have only small effects on public hospital wait times.
Compared with the public sector’s 7.7 million hospitalisations in 2024–25, the potentially 44,000 more people shifting to public hospitals is small fry.
Take-home message
Our research verifies the government’s own modelling using different datasets and methods. Polling measures intentions rather than outcomes, so the 39 per cent headline is likely to overstate what actually happens.
The evidence says this reform won’t cause a mass exodus from private health insurance, and definitely won’t overwhelm public hospitals as some states predict.
Yuting Zhang is a professor of health economics at the Melbourne Institute in the Faculty of Business and Economics at the University of Melbourne.
Kevin Staub is an associate professor in economics at the University of Melbourne.
Nathan Kettlewell is an associate professor in the School of Economics and Marketing at the University of Technology Sydney.
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