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Issue #1536      22 February 2012


Abolish the PHI rebate

Last week the government finally got its private health insurance (PHI) legislation through the House of Representatives – by one vote. The Greens supported means testing of the PHI rebate and an increase in the tax surcharge on higher income earners who do not have PHI. The government in return agreed to spend $165 million on dental care (over three years) for those on low incomes. Senator Doug Cameron defended the government’s means testing of the PHI rebate: “I think it’s a deal where we should hopefully get some fairness and equity in the private health fund system so that people on a couple of hundred thousand of dollars a year, on a million dollars a year, are not getting subsidies from the poorest workers in this country.”

“We have a health system that is universal, but with that comes an obligation for Australians to contribute. We have an obligation to care for our own health and we have an obligation to contribute through our taxes,” Minister for Health Tanya Plibersek told Parliament. Universal access is central to Medicare and the fee-free public hospital system. So too is centralised funding through the taxation system.

The more progressive the tax system, the greater the fairness and equity. Under a progressive tax system, those on higher incomes pay a higher rate in the dollar, contribute a higher proportion of their income to the public purse. The rate of taxation is based on ability to pay and access to publicly funded services should be on the basis of need. There is nothing fair or equitable about a two-tier system in which the government’s PHI rebate subsidises the second, private tier which Cameron’s poorest workers cannot afford to use.

The Howard government introduced the 30 percent PHI rebate to try to make PHI premiums affordable to more people. It later increased it to 35 percent for people aged 65-69 and 40 percent from age 70. Labor’s means test cuts the rebate in half for singles on $80,000 to $124,000 and families on $160,000 to $248,000. Those on higher incomes receive no rebate.

“Our public system gives high-quality and accessible care – security for every Australian that, should the worst happen, they will receive the care they need. Our private systems offer choice and flexibility and provide competition and comparison, contributing to continued improvements,” Plibersek said. The private system is not universally accessible; it offers “choice” to those who can afford it. Even by the government’s own criteria, it is hardly “fair and equitable”. It is heavily subsidised out of taxes paid by Australian taxpayers, including many who have no choice but the public hospital system. Plibersek’s claim that “We will no longer see poorer Australians subsidising the health insurance of wealthier Australians,” is not true.

The means testing is set to commence from July 1, with predicted savings of $2.4 billion over four years. If the government were serious about fairness and equity, it would abolish the PHI rebate. This would save more than $20 billion in the next four years – money that could be better spent on improving preventative health care, the public hospital system, Indigenous health services and providing universal access to dental care under Medicare.

Claims that the increase in the tax surcharge from 1 percent to 1.5 percent on higher incomes will see a mass exodus from PHI are nonsense. The reduction in or loss of rebate (depending on income) will in most instances be less than the increase in the surcharge. But this is not the main issue. The key issue is to defend universal access to the public hospital system and Medicare. This is under attack. Once the PHI is means tested, it will not be long before the government returns with the same arguments about “equity and fairness” line to introduce means testing of fee-free access to public hospital beds, bulk billing and Medicare rebates.

As Plibersek says, “… the greatest contribution should come from those who are most able to contribute.” The best way to do that is for the government to expand the public hospital system using the $20 billion saved by abolishing the PHI rebate, take over the private hospitals that collapse, and reverse the recent the corporate and personal income tax cuts to marginal tax rates to make the system more progressive. That way the rich and corporate sector would make a far larger contribution to the public health system. Means testing the rebate means the rich make a larger contribution to the private health system.

Next article – Welfare Rights welcomes landmark Law Reform report

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