Health insurers are urging the Federal Government to exempt Australians aged over 65 on low incomes — including Age Pension recipients — from proposed changes to the Private Health Insurance Rebate, warning the move could push vulnerable people to abandon their cover.
Private Healthcare Australia (PHA), the peak body for health insurers, said the Government’s plan to align rebate rates for those over and under 65 would leave many older Australians struggling to afford their premiums.
PHA Chief Executive Dr Rachel David said the changes, announced yesterday as part of the Government’s aged care cost-of-living measures, would hit pensioners and low-income earners hardest.
“About 39 per cent of Australians with private health insurance earn less than $55,000 a year. This includes more than 900,000 older Australians who will be affected by the Government’s proposed changes,” Dr David said.
“Many of these people have annual incomes under $30,000 and many of them are in rural and regional Australia. While we recognise the Government’s equity rationale, this broad-brush approach will make private health insurance unaffordable for thousands of vulnerable Australians.”
Government modelling suggests around 44,000 people could drop their cover, but Dr David warned those most likely to do so would have higher healthcare needs.
“The public hospital system is already under pressure and cannot provide timely care for many of these patients. That’s precisely why they rely on private health cover to manage their health,” she said.
PHA is calling on the Government to retain higher rebate levels for Australians earning less than $55,000 a year and to remove age-based differentials within each rebate tier.
“There is a large cohort of older Australians with chronic conditions who rely on the private system and already devote a significant share of their limited incomes to healthcare,” Dr David said.
“It is economically counterproductive to reduce the rebate and push high-needs patients out of private cover. This will increase pressure on public emergency departments, hospital beds and elective surgery waiting lists.”
While supporting reduced rebates for higher-income retirees — a measure included in PHA’s 2026 Budget submission — Dr David said savings should be redirected to those most in need.
“Reducing rebates for older Australians on six-figure incomes is sensible. Many do not require additional support,” she said.
“But our strong recommendation is to increase rebates for those earning under $55,000 a year.”
Following Federal Health Minister Mark Butler’s announcement, PHA has proposed a broader reform package to improve equity and sustainability in the system. The package includes:
- Increasing the Medicare Levy Surcharge for higher-income earners
- Removing age-based rebate differentials and introducing a new 28 per cent rebate tier for those earning under $55,000 (or $110,000 for couples and families)
- Simplifying rebate tiers from 2027 to whole numbers (24%, 16% and 8%)
- Reducing private healthcare costs by lowering the price of medical devices from 1 July 2026
“Our initial estimates suggest this package would achieve around 70 to 75 per cent of the Government’s revenue target while significantly improving equity,” Dr David said.
“It would protect low-income Australians from premium shocks and avoid shifting additional costs onto the public hospital system.”
Dr David said the proposal would also support the Government’s goal of improving intergenerational equity, noting that more than half a million high-income earners currently do not have private health insurance despite being able to contribute more.
“We recommend increasing the Medicare Levy Surcharge to 1.5 per cent for Tier 1 earners, and 3 per cent for Tier 2 and Tier 3 earners,” she said.
“This would place downward pressure on premiums, strengthen insurers’ risk pools, and support a more sustainable system as Australia’s population ages.”
PHA is also calling for urgent reform of medical device pricing, which Dr David described as one of the most inflated cost drivers in the private system.
“Many medical devices cost between 30 and 100 per cent more in Australia than in comparable markets such as New Zealand,” she said.
“As a first step, aligning prices for common devices with New Zealand benchmarks could save consumers around $300 million a year. That’s where reform effort should be focused — not on measures that make private health cover less affordable for older Australians on very low incomes who are already struggling with cost-of-living pressures.”
