Commission of Audit recommends Medicare Levy surcharge to increase to 3-3.5 percent

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Commission of Audit recommends people on higher incomes should take greater individual responsibility for the cost of their health care. They are better placed to take out private health insurance and should be required to do so.

Expanded private health insurance coverage should be introduced for basic health services currently covered by Medicare. Higher-income earners should be required to insure for basic health services in place of Medicare.

Expanded private health insurance plans would, at a minimum, cover all services provided by Medicare and public hospitals and would have to pay for all health care expenses of the insured, including the cost of treatment in a public hospital.

This requirement on higher income earners to take greater responsibility for their health care could be put into effect through a penalty arrangement that would result in an increase in the Medicare Levy surcharge for people on high incomes who do not purchase expanded private health insurance coverage.

The threshold for purchasing expanded cover should be set at $88,000 for singles and $176,000 for families. A Medicare Levy surcharge of 1 to 1.5 per cent already exists and this should be increased to between 3 and 3.5 per cent as part of this reform in order to encourage the switch to private health insurance (see Table 7.2).

The majority of Australians would be unaffected by this change and would carry on with Medicare as now.

The Commission has considered the arrangements for the private health insurance rebate which, alongside lifetime health cover and the Medicare Levy surcharge, forms part of the range of incentives to stimulate the take-up of private health insurance.

There is currently an income-tested rebate to help people meet the cost of health insurance (currently set at up to 30 per cent for people under the age of 65). The size of the rebate varies with age and is currently means tested. In addition, the lifetime health cover loading allows health funds to vary the premiums paid by individuals above 30 years of age according to their age of entry into the fund.

The Government has undertaken to remove means testing of the rebate.

Given the Commission’s proposal to make it mandatory for high income earners to take out private health insurance, it is not necessary for these people to have access to the Private Health Insurance Rebate.

The Commission recognises, however, that making private health insurance mandatory for higher income groups may have consequences for the operation of the health insurance market including people’s responsiveness to price changes. This may impede the development of a more competitive health insurance market.

However, further analysis should be undertaken to examine the interaction between the surcharge, the rebate, lifetime cover and the extent of eligible insurance coverage as part of a more fundamental review of the health care system.

Source: NCOA