High-income earners should be penalised at a higher rate through the Medicare levy surcharge for failing to take out private health insurance, the insurance sector says.



Single people who earn more than $90,000 and families earning more than $180,000 pay an extra 1%-1.5% levy if they do not have private health cover, with the levy tiered according to income.

In its pre-budget submission to the federal government, Private Healthcare Australia said the value of the Medicare levy surcharge should be recalculated to provide a stronger incentive for these high-income earners to take out and maintain private health cover. It recommended an increase of 50 basis points across the board, which would see the surcharge start at 1.5% and reach 2% for the highest income earners.

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“Bracket creep, in combination with premium increases for some people, has resulted in the premium being paid now being less than the additional tax with the result that, over time, individuals and families may choose to pay the surcharge rather than hold private health insurance,” the submission says.

“Australian health funds are acutely aware of the need for budget repair … as such, this budget submission does not request any additional government funding and instead focuses on the opportunity to address sustainability through sensible policy evolution.”

This recommendation was echoed by the private health giant Bupa Australia. Its pre-budget submission said that while the Medicare levy surcharge was an important government lever to encourage high-income earners into private health insurance, the value of this lever had been eroded.

“It is now at a point where for some individuals and families the additional tax imposed may be less than the premium to be paid, and subsequently the choice of many healthy people will be to pay the levy, contributing to the decline in private health insurance customers,” the submission said. “Bupa recommends that the Medicare levy surcharge be rebased so it provides a stronger incentive for those who can afford to contribute to the costs of their healthcare to do so.”

Centre for Policy Development research fellow Ian McAuley, who has undertaken extensive research into the private health insurance industry, said the only thing increasing the Medicare levy surcharge would do was entice high-income earners into taking out cheaper “junk” policies.

“Insurers love the junk policies because they’re the policies people pay to take out but never use,” he said.

But he said he did not think increasing the surcharge would be enough to entice a significant number of high-income earners to take out private health insurance. Private health membership as a proportion of the population fell for the first time in 2017.

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“People with private health insurance are increasingly realising it’s a dud product and are starting to drop it,” he said.



“The surcharge only applies to higher income earners, who are generally under the age of retirement and therefore healthier and less likely to use it. I don’t understand the insurers’ argument for increasing the surcharge, unless it’s a psychological argument trying to say, ‘If you’re really well-off you should have private health insurance.’

“But the notion that the well-off should be buying private health insurance is a reframing of Medicare so that Medicare is left as a residual service for the poor, which goes right against all sorts of community values.”

In its pre-budget submission, the Australian Healthcare and Hospitals Association, which speaks for the public healthcare system, called for a comprehensive Productivity Commission inquiry looking at the costs and benefits of private health insurance within the overall health sector.

“Should the inquiry recommend the abolition of the private health insurance rebate in its entirety, these savings should be transparently redirected to the public health system,” the submission said. “However, should the rebate be retained, its application should be limited to [private health insurance] products which meet the simplified gold, silver and bronze product specifications.”