PHA proposal for employers to pay for private health insurance

Private Healthcare Australia

The Private Health Insurance sector is speaking up about concerning trends relating to young people in their pre-budget submission to the federal government.

One of their proposals is to give employers tax breaks for providing private health fringe benefits for their under-40 employees.

Many people within the 19-39 age demographic are abandoning their health insurance or not taking up cover at all which would mean an increase in the risk pool for insurance companies. If this were to continue, health insurers would have no choice but to increase their premiums which is already at an all-time high.

There are strategies currently in place to encourage young people to remain with their health cover such as the Medicare Levy Surcharge (MLS) which places an additional annual tax on over 30’s who earn above the income threshold. In addition, there is Lifetime Health Cover Loading which adds to your premium for every year that you do not take up private health insurance. As of April 1st 2019, insurers have had the option to provide people between the ages of 18-29 an age-based discount of up to 10% on their premiums.

Even with these incentives in place, there has been a 6% decline in young people with private health cover in the last five years. This decline has been the main force behind the new fringe benefits tax exemption proposal. The estimated cost of this submission is set to cost at least 1.2 billion in taxpayers’ money over a period of 5 years.

❝The steady decline in under 40’s participation in private health will eventually affect the foundations of private health. Community rating, which means fair and equal access to health care regardless of age, gender or health status, will be compromised.❞

Dr Rachel David, CEO of Private Healthcare Australia (PHA) says that while this number is significant, it’s actually saving Australia money in the long run. According to Dr. David, this tax incentive is going to cost the government far less than it would eventually be paying for the construction of new hospitals and health centres. Dr. David believes that the current hospitalisation rates show that the federal government would be spending four times that amount to cater to the public in the near future.

PHA states in their report the consequences should the government choose not to encourage this new policy:

“The steady decline in under 40’s participation in private health will eventually affect the foundations of private health. Community rating, which means fair and equal access to health care regardless of age, gender or health status, will be compromised.”

Community rating increases the health insurance risk pool. This means that young people pay the same premiums as older Australians even though they are less likely to require medical attention. This, in turn, enables health funds to pay out for prime health care for those who need it immediately. Under-40’s will then be able to reap the full benefits of private care in their older years in that same cycle of shared costs.

PHA warns that the downward spiral of young people not covered will destabilise both the private and public healthcare sectors. Private health eases an enormous strain off the public system and minimises waiting lists, which is already bulging at the seams.

In response to the proposal, Prime Minister Scott Morrison says they will, “Seek to ensure that the right incentives are in place. We will consider all the options for next year’s budget”.

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